Does Crypto Threaten Traditional Banking?

The swiftness of cryptocurrency and blockchain financial solutions makes them ideal transactional leverage in this age. A lesser percentage of the global population uses crypto, most of which are males between 18 and 40. The issues of concern are clear. Crypto is safer, cheaper, and faster—however volatile, but traditional banks handle a less volatile currency and offer approachable human support, but more frictional in its dealings. However, both have setbacks in certain instances of application; hence, the question is, can both financial means complement each other, be co-integrated, or would the emergence of the sun tell the moon, "It’s game over"?

How Crypto Works vs. Traditional Banking

The essence of traditional or local banks is that they deal with stable currencies, mostly local, but also foreign. They manage and control the transactions of individuals at their outlets. Banks do not determine the value of the currencies or their exchange. In the financial market, whether a currency gains or losses against another does not affect the ‘quantity’ or amount of cash a person possesses. So, banks play a reasonable role as keepers, givers, and exchangers of quantifiably fiat currency.

On the other hand, cryptocurrency leverages smart technologies, especially the blockchain. The technology is solid and stable, but the currencies themselves are not stable. Hence, the fluctuating value of cryptocurrencies makes them a delicate asset to hold for people who want to fix or store them for a project.

So, when it comes to economic tender, both are useful, but regular (inter)national currencies are regulated, which is why banks manage them. To help alleviate the bottleneck limitations of banks, many banks have adopted digital banking for smoother operations, of course.

Limitations of Traditional Banking and Its Technology

Other than regulations and perhaps human support, traditional banks may seem to have no other advantage over cryptocurrency. There are too many records of failed transactions and failing digital infrastructures or Internet banking app technologies with traditional banking operations. Hence, there is a need for traditional banks to evolve because, in the coming years, we may have more stable and faster payment options. Some are here already. Examples of banks that have leveraged the technology of the future include J.P. Morgan and the Swedish Central Bank.

Limitations of Crypto

What happens to be a blessing for a cryptocurrency, which is the safety of an individual’s funds in their wallet, may also be their loss if the wallet address and the private key or phrase are lost.

Fiat currency will still be needed in local markets, or for charity, such as helping homeless folks get something to eat and to support their welfare. Phones and technological gadgets are too expensive for some people to afford. Therefore, unless digital assets, and liabilities, and the internet are globally available, cash-sponsored, regulated, and distributed, local or central banks will still be needed for local, in-person purchases.

The collapse of Silvergate Bank makes it impossible for banks to tread on or adopt cryptocurrency as their mainstay. And it is an unfortunate message that crypto also isn’t ready for the world. Extreme sensitivity is crypto’s weakness.

How Blockchain Covers the Lapses of Local Banks

The immense advantage of blockchain technology has made it applicable in the finance industry for transparent transactions and governance, decreased processing time, lower cost and capital involvement, fraud reduction, and cutting human errors. Essentially, it streamlines processes and eliminates operational frictions. “With its single ledger system, blockchain banking can work to eliminate the layers of multiplicity and data transfer that happen within one single transaction. The more layers, the more room for error; the more time delays, the more risk, and vulnerability” Verifi reported.

So, digitized and authenticated documentation that blockchain offers simplifies customer data verification. What that means is that financial corporations can access customers' data easily and can make quick decisions about the integrity of a customer and whether they want to loan them some financial assets or not. Blockchain technology also enables faster settlement times for transactions managed by traditional banks.

Governance and compliance are meant to protect the system and the interests of the masses; it wouldn't be about the information or the digital assets themselves, but rather about how those assets are managed.

The Future of Crypto and Fiat Currency

Cryptocurrencies have a stake in the future. Technology, decentralization, and security are the revolutions we need in financial institutions. However, the limitation is the volatility of the currencies. More adoption is only possible if people are convinced of its regulation. For a decentralized cryptocurrency allegedly free from bias, that is not yet true. We have seen major decisions influence the price of different coins in the crypto market. For instance, Elon Musk's tweets raised the market values of some prominent coins in 2022. That market is still prone to bias, and issues like that have to be better managed. So, crypto needs regulation for better adoption, and traditional banks have to leverage blockchain for convenience and effectiveness. Until these weaknesses are addressed, would we be ready for a future of united currencies (not one currency)? Until then, the world of cryptocurrency and traditional banking will continue to coexist—neither threatens the other if both are willing to adapt.