Deep dive into current and historic currency issues
Have you noticed that an increasing number of online businesses are stating that Bitcoin will be accepted as payment? What about certain countries like El Salvador making Bitcoin legal tender?
I know you may be surprised that Bitcoin ATMs are springing from the nooks and crannies of some countries. Have you also observed the ongoing, increasing transition from a cash to a cashless society?
This is the power of cryptocurrency, a new generation of internet-based currencies that have increased substantially in popularity and use in recent years.
With the recent issues surrounding banking with SVB is crypto currency the solution?
What is Cryptocurrency?
A cryptocurrency is a digital or virtual currency built on blockchain technology, protected by encryption, making counterfeiting virtually impossible. Cryptocurrencies are distinguished because any central authority does not issue them, making them potentially impervious to a national government or, for that matter, any centralized intervention or manipulation.
If paper money is a physical currency powered by the Central banks, consider Cryptocurrencies as simply virtual “currencies” powered by blockchain technology.
You may wonder where cryptocurrencies originate from and what gives them tangible value?
A cryptocurrency is created when a “miner” solves a complex computational challenge to confirm a transaction and add it to the blockchain ledger. However, many cryptocurrencies have a limit or maximum supply (such as Bitcoin, which has a limit of 21 million Bitcoins).
Like any other currency, cryptocurrencies values are based and dependent upon the size of the community’s and people’s involvement and adoption likewise (such as demand, scarcity, or the coin’s utility “use cases”). Ultimately, the formal agreement to use a particular cryptocurrency as money by the people to exchange goods and services gives it a true value.
What is Blockchain?
A blockchain is a decentralized ledger that records all peer-to-peer transactions. Blockchain users can easily confirm their transactions without requiring any centralized authorities to approve using this technology. Fund transfers, trade settlements, voting, and various other transactions are all possible applications facilitated via the power of Blockchain technology.
Cryptocurrencies are only made possible by harnessing the immense power of Blockchain technology.
Cryptocurrency has brought about a sea-change in the way people conduct business and associated transactions. Suddenly, currency can be traded outside traditional banks in the blink of an eye using just a cell phone, tablet or laptop computer.
As a result, people no longer have to go to or utilize a traditional bank if they need money. Peer-to-peer networks, particularly those based on cryptocurrency, are becoming more popular every day. Those who might otherwise be turned down by banks now have another viable and efficient option for funds. Not just another option, but a far better alternative for a wide variety of reasons.
Traditional banks are hesitant to embrace Crypto, even though the world of cryptocurrency is gradually developing and gaining popularity. Why? Because banks believe that the perceived risks outweigh the potential benefits and are thus considered a danger to their industry.
Are these cryptocurrencies posing a threat to existing banks? The fundamental answer is a resounding “YES”.
At a recent Barclays conference, according to Bloomberg, JPMorgan CEO Jamie Dimon said that Bitcoin is worse than the most famous asset bubble in history. The cryptocurrency is “worse than tulip bulbs” and even added that “it’s a fraud” that would eventually “blow up”. This rally “won’t end well,” Dimon said.
Not only that, the former PayPal CEO Bill Haris called Bitcoin a “scam”. There have been many attacks from the banks and, likewise, severe warnings about cryptocurrencies and Blockchain as a whole.
On the other hand, according to many cryptocurrency enthusiasts, banks are also evil and not to be trusted.
But why are the banks afraid of cryptos and, critically, how do cryptos affect banks, you may wonder?
When it comes to payment services (one of the traditional banks’ core functions), cryptocurrency already far outperforms banks. For example, cryptocurrency exchanges charge much lower transaction fees. Simply put, there are little to no commissions to pay when sending or receiving Crypto. That said, a community must spend a small amount of cryptocurrency to keep the blockchain network running effectively.
Despite the banks’ pessimism, Blockchain decentralized ledger technology (DLT), and cryptocurrencies will replace or change aspects of the banking sector continues to be debated.
But notably, banks may someday go into extinction if they do not adopt Blockchain and cryptocurrencies in general.
Why and how could this incredible situation occur?
The introduction of DeFi (decentralized finance) to the Crypto Industry is the prime disrupter that is single-handedly creating severe panic within the banking system.
DeFi stands for “decentralized finance,” a catchall word for several cryptocurrencies and blockchain-based financial applications to disrupt financial intermediaries.
DeFi is inspired by Blockchain, which underpins the digital currency Bitcoin and other cryptocurrencies, ensuring that a single, central source does not control it. This is significant because centralized systems can slow down and complicate transactions while giving users less direct control over their funds.
Currently, the TVL (Total Vault Locked) according to defipulse.com is $120bn, Bitcoin alone has a market cap of more than a trillion dollars, Ethereum, the second most popular cryptocurrency, exceeds $500 billion, and so on.
On Binance, the world’s largest cryptocurrency exchange, $78 billion is traded daily. Are you aware? $78 billion daily on a single crypto exchange?
Shocking!
This means that a truly massive amount of money was moved away from the traditional banking system and invested instead into cryptocurrencies. And the volume of money invested in these ‘tokens’ continues growing each day rapidly.
Crypto is not just an idea or abstract concept; but instead, it is a powerful, global movement. As a result, banks could very well diminish over time if care is not taken and eventually become obsolete.
Have you not seen the PayPal team integrating Crypto into PayPal? That shows you the banks need to adopt Crypto and Blockchain to save them from extinction.
So, what precisely do traditional banks need to do so that they remain relevant and prominent in the advent of Crypto?
As we’ve mentioned and stated clearly, Crypto has a competitive edge over banks. However, the following are some promises delivered by Crypto and Blockchain in which, if the banking sector adopts them, may very well save traditional banks from collapsing.
Transparency
Because consumers perform activities on a public ledger, Blockchain makes the financial industry and transactions much more transparent than banks do. This transparency further reveals inefficiencies, such as fraud, allowing financial organizations to prevent issues, solve problems more quickly and ultimately decrease risk.
Security
The Internet remains a breeding ground for scammers as customers become more engaged in transacting online business. This concern, however, has largely been alleviated, thanks to blockchain technology.
Traditional banking payments, transactions, and money transfers are slower and less traceable, exposing the risk of theft and money loss far more than those performed on the Blockchain.
When data travels via various financial centralized intermediaries, it may be intercepted by a nefarious third-party, increasing the risk of fraud. With the help of Blockchain’s cryptographic methods, there is more robust security, and loopholes are more easily detected and blocked.
Low Transactional Costs
Blockchain allows people, mainly the everyday user, to benefit from decreased transactional costs much lower than traditional banks. More and more people are migrating away from banks to avoid their higher fees.
Using Blockchain technology, one can transfer $1000 from the USA to anywhere globally with just a $1 transaction fee within a few seconds. Amazing and cost-effective? Oh yes!
Eliminate Identity Theft
Cryptocurrency exchanges outperform banks on this issue also. How? A person merely sends the money they want to a merchant or a seller with a guaranteed, secured individual identity, nothing more.
There is zero sharing of personal information, no account name, no address, and no zip code. Thus, there is no risk of identity theft.
Eliminate Fraud
Cryptocurrency is also by its very nature fraud-proof, as it cannot be tampered with by a central government or any other third party. There is no way to counterfeit Crypto because it is both digital and decentralized, unlike conventional currency. Similarly, unlike chargebacks of credit card purchases, the sender cannot reverse the transaction.
Ubiquitous Access
Many people worldwide may not even have access to modern banking institutions, but they do have access to the Internet and mobile phones, allowing them to open a cryptocurrency wallet. Anyone who cannot use regular exchange methods can participate in the crypto economy in this manner, which is especially significant for people in developing countries as our world continues to become more globalized.
Eliminate “Middleman”
Consider when you’re buying a house, a car, or real estate. It’s usually a lengthy procedure, including lawyers, notaries, and other professionals.
Also, consider opening a bank account, the unnecessary documentation such as passports, proof of address, tax identification number, many signatory pamphlets to be signed and so on, are always tasking and a lengthy procedure.
On the other hand, contracts made using cryptocurrencies can be created without the use of third parties and reams of unnecessary documentation, significantly reducing the time it takes to settle a transaction and the associated expenses.
24×7 & 365
90% of banks will not complete wire transfers from Friday through the weekend. On the other hand, with Blockchain, and just a few clicks on your mobile phone, anyone can send money on Saturday, even on Sundays, any time, 24/7 and 365.
To remain relevant and competitive, big banks must become digitized and provide real-time services any day of the week, any time of day, similar to those offered by cryptocurrencies.
CONCLUSION
Security, chargebacks, customer service, digital services, and fees imposed are all areas where traditional banks need to improve. They undoubtedly risk being left behind and forgotten if they do not consider implementing digital alternatives beyond their conventional mobile banking system. The advantages of Blockchain and cryptocurrencies for the average consumer are just too substantial and compelling for banks to ignore.
While there may be legitimate concerns regarding digital currencies’ volatility and the potential to violate financial regulations, their growing popularity indicates a shift in consumer preferences. Traditional banks must embrace technology and provide the rapid, mobile services that so many people want.
Do you know the good news?
Some major financial institutions now appear to be accepting the notion that the technology underpinning cryptocurrencies (Blockchain) should be at least considered and properly evaluated to determine if they are truly “the next great thing”.
Assuming they proceed with caution and due diligence, there is no need for banks to fear the adoption of Blockchain and Crypto, as it will be a major plus for them.
Banks already have the name recognition and customer base, and as such, there is no need to spend heavily on marketing if they shift to Crypto and Blockchain. All they need to do is embrace the technology effectively, along with its inherent advantages, and customer trust will be preserved and retained, if not increased.
Finally, banks need to pay heed to change consumer demands. Getting on board with the digital Blockchain wave will help lessen the threat of cryptocurrency.
Hello banks, and welcome to the new world of payments!
