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The emergence and growth of blockchain technology and the resultant cryptocurrencies has sent shockwaves throughout the financial markets. Cryptocurrencies have changed the way people conduct financial transactions globally. Be it typical mobile money transfers of the payment of goods and services; blockchain technology has been integrated into pertinent aspects of financial transactions.
It is expected that crypto banking will become an integral part of the financial industry due to its impressive uptake. It is a massive improvement to traditional banking setups, which have a centralized system. Since cryptocurrencies are decentralized systems, they not only offer services that you will find in conventional banks, but also guarantee more efficiency, reduced bureaucracy, transparency, and security. Here’s how cryptocurrencies are revolutionizing the banking industry.
Traditional banking was seen as a convenient way of making financial transactions. Nonetheless, advances in technology have left banks vulnerable to data breaches and other governance & compliance issues.
Cryptocurrencies are playing an integral role in addressing these imperfections. For instance, crypto banks are more immune to data hacks compared to traditional banks. Similarly, cryptocurrency transactions are anonymous and secure. If someone makes a payment to you using paper cash, there’s a possibility that the money could be counterfeit. This isn’t the case with crypto-cash since you cannot counterfeit a cryptocurrency.
Cryptocurrencies are primarily based on a decentralized system in the sense that blockchains allow you to make transactions securely and independently without involving intermediaries. This isn’t the case in the traditional banking system where the money is stored in the bank, and users can only make transactions that are sanctioned by the banks.
In the crypto world, no entity holds onto your money. Instead, your money is held on the cloud via the blockchain technology. This explains why there have been fears that the traditional banking system could collapse altogether if more people shifted to crypto banks.
Cryptocurrencies are more evolutionary compared to fiat currencies which typically operate in the traditional banking system. The use of blockchain technology has made crypto-cash more fluid besides enabling users to make quick and convenient transactions from wherever they are.
Cryptocurrency transactions are generally cheaper than traditional money transfers. If you are to pay a vendor $2,500 using your credit card, for instance, there will be additional charges along the way. This results from the fact that there are other entities involved in the fulfillment of that transaction.
As a result, you will end up with less money than you are owed for merely offering your clients the convenience of making credit card payments. One of the most outstanding features about crypto cash is that you are not required to pay high charges for transactions to be processed. Often crypto-cash transactions are either free or incredibly low.
Banks do not issue cryptocurrencies. Instead, users acquire them through mining, which involves complex algorithmic processes. Often, there is an unbounded supply built onto the code of cryptocurrencies. In contrast, traditional currencies have a limited supply chain. The availability of fiat currencies can change anytime depending on the fiscal policies of governments that issue them.
You can’t put a figure on cryptocurrencies. For instance, you cannot claim to have more than 50 million Bitcoin. Therefore, the finite nature of cryptocurrencies will increase demand, thus driving up value. It is expected that over time, it will become increasingly difficult to mine crypto-cash until the upper limit is attained. The finite supply of cryptocurrencies makes them inherently deflationary.
As technology improves, users expect financial transactions to be faster, free, and easier. One of the changes that cryptocurrencies will undoubtedly bring to the banking industry is convenience. You won’t need to carry that chunky wallet with wads of cash and credit cards in it. The clanky nature of the fiat currency system means you have to do a lot to keep track of your transactions and bank balances.
Cryptocurrencies offer users a credible store of value without subjecting them to the inconvenience of walking around with cash or credit cards, which are prone to theft, loss, and similar incidents. Blockchain technology is the embodiment of the rapid digitalization that characterizes today’s banking industry.
Blockchain technology provides the option of storing your currency in electronic wallets, which are safeguarded using secure passwords. While it’s still possible for a user to lose his/her crypto cash, it would require a lot of silly mistakes for that to happen.
The traditional banking system is skewed and is designed to act to favor those who have money and sound financial knowledge. This is why we still have people who prefer storing hard cash at home rather than banking it. Due to inflation and similar fiscal phenomena, fiat currencies always seem to lose their value every year.
With cryptocurrencies, your money stays secure since banks or government agencies cannot devalue it. Once cryptocurrencies attain widespread acceptance in the financial markets, they will help people with minimal financial knowledge to make sound investments without worrying about devaluation. Similarly, such individuals will be in control of their finances without involving intermediaries.
It is pretty clear that cryptocurrencies are changing the banking industry because they have new and exciting benefits to users compared to the fiat currency system. In as much as blockchain technology is still in its experimental stage, it is exciting to think about how it will revolutionize the banking system in the near future. It doesn’t come as a surprise that financial institutions are increasingly incorporating blockchain technology into their operations.
Businesses across different industries are also decentralizing their processes to save costs and attain profitability. This is the essence of blockchain technology. Therefore, inevitably, traditional banks will also follow suit and decentralize their operations in the face of cutthroat competition from cryptocurrencies.
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