Bitcoin transformed the world when it became the first cryptocurrency to allow safe and inexpensive peer-to-peer transactions without intermediaries. Despite its various advantages, blockchain has become renowned as the technology that gave us Bitcoin throughout the years. 

Traditional banks are hesitant to adopt cryptocurrencies, despite the fact that the world of cryptocurrency is gradually developing and gaining popularity, feeling that the inherent risks outweigh the possible benefits.

What exactly is Cryptocurrency?

Cryptocurrencies, such as Bitcoin, Dash, Litecoin, and others, are digital currencies that are encrypted. These currencies are decentralized, as opposed to most traditional currencies, managed by a centralized government and hence cannot be regulated by a third party.

Each cryptocurrency owner has a “digital wallet,” The ledger’s responsibility is to make sure that those wallets display an accurate spendable amount. It also double-checks transactions to make sure the owner is only spending money from their own wallet.

A cryptocurrency is created when a “miner” solves a complex computational challenge to confirm a transaction and adds it to the ledger. Although some currencies have a limit (such as Bitcoin, which has a limit of 21 million Bitcoins), you can conceive of them as having been produced all at once when the currency was founded, and miners are rewarded with a fresh piece of that 21 million anytime they confirm a transaction. They give the currency value by backing its value and consenting to use it as money. Many of these cryptocurrencies have seen their value rise in recent months.

According to NPR, if you had invested $1000 in Bitcoin in 2010, your investment would now be worth $20 million in May 2021. There are even Bitcoin ATMs where you can enter your ordinary currency and phone number and get a receipt for the purchase of Bitcoin. Your purchase should be visible in the balance of your digital wallet on your phone.

Let’s look at how cryptography differs from financial systems:

Crypto banks vs. traditional banks

Source

Terms like Blockchain, AI, and cryptocurrencies are trending in every forum where the financial market is addressed. This is when substantial changes are occurring, and the crypto-industry is driving those changes, as the number of transactions is expanding daily rather than year to year. 

Financial experts predict that by 2024, the compound annual growth rate will be over 12%. This was when people began to question the role of traditional systems and their future. While we have been using traditional currencies for decades, the widespread use of cryptocurrency will assist it in assuming a greater role in our lives as a technology. Traditional banks face a number of challenges compared to crypto banks, one of which is that transaction speeds are far slower than when completing crypto transactions.

Benefits of Using Cryptocurrency

Cryptocurrencies offer a variety of advantages — but also downsides — over centralized legacy systems, thanks to the decentralized, peer-to-peer structure of blockchain technology. Blockchain is a decentralized digital ledger that can be used to record monetary transactions and other types of data, such as details about cryptocurrencies. It is run by a huge network of self-sufficient miners, with no single person or organization in command. 

Some benefits include:

• 24-hour uptime and rapid plus direct settlement processing.
• The lack of a central authority guarantees that no one can charge exorbitant fees, keep your cash hostage, or restrict access to important services on the spur of the moment. 

This democratizing effect of crypto is perhaps the single most critical reason threatening to upend the status quo in traditional banking and financial systems, which rely on exclusivity and lack of transparency to generate a profit. Importantly, this decentralization mentality pervades the whole cryptocurrency and blockchain sector, not simply the technology.

Cryptocurrencies are like software, which means they don’t require a lot of money to develop. They also don’t require a government-issued license to operate. Furthermore, smart-contract systems such as Ethereum (ETH) considerably minimize the technical complexity of establishing a new coin. As a result, practically anyone can launch a new product — and they do! This resulted in the creation of hundreds of thousands of alternative coins – which are already floating in the market.

Limitations of traditional banks

The use of Bitcoin transforms the transaction and investment process from what we’ve been used to in recent decades. The global financial crisis of 2008 demonstrated to the entire globe that the banking sector is also susceptible to economic issues. When it became evident that those financial institutions would be unable to protect their funds, demand for other methods of securing funds skyrocketed. 

Satoshi Nakamoto (presumed pseudonymous person or a group) created the first-ever virtual asset, Bitcoin, at this time. The key benefit was that it eliminated the use of a traditional banking payment system, often known as third-party involvement, from the process. Today, we can see that the price of one Bitcoin has changed dramatically since it reached its all-time high in late 2021.

Crypto as an alternative to traditional banking

With the rise of cryptocurrency, international money transfers can become more affordable and hassle-free. 

Cryptocurrency-powered money transfers are both quick and inexpensive, whereas traditional bank remittances carry a flat fee and take several days to complete. Smarter yield creation and crypto loans are other important developing trends in crypto. As numerous platforms allow their customers to borrow and lend crypto assets, the deposition of digital assets to earn an income is becoming the most in-demand service. 

The crypto sector is attracting a wide range of investors and depositors. As a result, it is time for the banking sector to get involved in the crypto industry or compete with it by developing cutting-edge technologies. Banks will need to be up to date on the latest regulatory standards. They must adapt and alter in order to keep up with the ever-changing environment. 

Final thoughts

Banks can play an important role in the cryptocurrency business, providing much-needed confidence and security in an otherwise uncontrolled environment. Thus, adopting cryptocurrencies and blockchain technology can help streamline procedures and propel banking into the next era of efficiency and creativity.