Financial institutions, traders, and investors have all expressed interest in cryptocurrencies and its cutting-edge blockchain-based technology. However, the convenience of using money in the same way that individuals like using cash or currency notes is eliminated by the virtual medium.
Recently, new platforms and services have been introduced to help people manage their daily finances using bitcoin and other digital currencies. The following information about cryptocurrency banking is important to know.
By market capitalization, Bitcoin is the biggest and most widely used cryptocurrency in the world. It is kept in virtual wallets with randomly generated keys. The digital analogues of cash are bitcoin and other digital currencies. There is no physical wallet where the virtual currency is kept. Digital currency is made decentralized, or free from centralized control, through a ledger system called blockchain.
The phrase “cryptocurrency banking” is occasionally misunderstood because digital coins are not governed by a single entity. Technically, exchanges and businesses that offer services for managing digital currencies are not banks.
Users can basically save their money in a digital wallet or use it just like regular currency thanks to cryptocurrency banking. Exchange platforms are available for users to use to manage their bitcoin amounts.
Banks and the Crypto Market
Easy Onboarding and Expert Support
By providing tools that make bitcoin adoption simpler for their customers, banks may be able to attract new, less seasoned individual investors. For instance, novice bitcoin investors could find it difficult to create their own wallet in which to store their Bitcoin.
They may discover that holding their bitcoin at a respected banking institution is more convenient and secure than keeping it “off exchange” or with an unregulated third party.
Banks might provide interest-bearing cryptocurrency accounts, and customers may invest in cryptocurrencies directly or through other financial instruments. Banks may be able to ease some of the difficulties on investors who aren’t experts in the nuances of crypto by acting as a reliable third party that is well-respected in the finance industry and can keep clients’ assets safe.
In a July press release, the Office of the Comptroller of the Currency (OCC) stated that banks and savings associations could offer consumers crypto custody services, including holding specific cryptographic keys for accessing private wallets.
The OCC thinks that banks could maintain either bitcoin or the password to access cryptocurrencies on a customer’s personal digital wallet securely and effectively.
A smart contract arrangement necessitates less trust between the parties because the success of the transaction is dependent on computer code rather than a person’s actions. By serving as a reliable third party for smart contracts including mortgages, business loans, letters of credit, and other transactions, banks could contribute to the development of trust.
Users who are concerned about their security might get help from banks. Many users worry about hackers accessing their personal exchanges and wallets. Reputable organizations may be able to help protect digital currency from theft or hacking, assuring customers.
Putting cryptocurrencies under bank regulation may lessen criminal behavior and provide the perception to outsiders that cryptocurrency transactions are risky.
Why Do Banks See Cryptocurrencies As A Risk?
As a non-intermediary, non-tethered alternative to traditional financial infrastructure that isn’t dependent on the capabilities of a centralized government, bank, or agency, crypto assets were created. The blockchain code and distributed blockchain structure are trusted in these transactions as opposed to relying on centralized intermediaries.
Many banks don’t think they will be able to flourish in this market because a cryptocurrency managed by a central bank undermines the appeal of the asset in the first place. Some people believe that central banks will become outdated or unable to control the money supply because of the perception that their power is being undermined by the decentralized nature of the currency.
The price of cryptocurrencies, especially bitcoin, has fluctuated wildly during their brief history. This is caused by a multitude of variables, including the size, liquidity, and presence of the market.
Because the price hasn’t been consistent in the past, banks see this as a danger because they believe the currency won’t be a reliable investment going forward.
Advantages of Crypto-Banking
- The primary benefit of cryptocurrency banking is that users may use their digital coin balances to make regular withdrawals and purchases, just like cash, without having to store them as investments. Prepaid debit cards called crypto debit cards, commonly referred to as bitcoin debit cards, are provided by platforms for trading cryptocurrencies.
- These can be used to make purchases from merchants who do not accept the virtual currency in-person or online by loading them with cryptocurrency. Most cryptocurrency exchanges need customers to set up an account and/or a digital wallet in order to apply for a crypto card. Additionally, some platforms ask users to go through a Know Your Customer (KYC) verification process to confirm their identity.
Many financial institutions are reluctant to embrace digital assets because there isn’t much guidance or regulation in this area. Due to worries about its stability and security, banks are also reluctant to get involved in the cryptocurrency market. However, rather than being afraid of the risks associated with the technology, banks should be anticipating its potential advantages.
Cryptocurrency should be viewed by financial institutions as a partner rather than a rival. In an otherwise uncontrolled environment, banks may play a significant role in the cryptocurrency industry by providing much-needed stability and confidence.
The widespread use of cryptocurrencies and blockchain technology can assist to simplify processes and advance banking into the next phase of innovation and efficiency.