Cryptocurrencies were introduced as a viable alternative to fiat currencies and the traditional financial system. The financial crisis of 2008 birthed the urge for producing an asset or a financial system that is decentralized, immutable, resistant to political interference, secure, anonymous, and easy to use. This urge was fulfilled by the mysterious person named Satoshi Nakamoto, as he introduced Bitcoin, the first cryptocurrency, in a whitepaper, almost a decade ago. After the introduction of Bitcoin the foundation for blockchain based decentralized digital currencies was laid and the rest was history.
Nobody can deny that the crypto-industry is emerging. The popularity of the crypto-industry is reflected by staggering numbers. With almost 11,000 unique assets, 385 exchanges, a market cap of over $1.3 Trillion and a daily trading volume of over $67 billion, crypto banks are slowly becoming a new and viable reality in contrast to the struggling traditional banking system.
According to a public survey, almost 80% of Americans have heard of cryptocurrencies and around 30% of them are already investing in it. Coinbase, America’s largest cryptocurrency exchange has verified over 56 million users on their platform compared to the 35 million users on the country’s largest traditional investment management company, Fidelity.
The Cryptocurrency market and the plethora of assets that hold it have allowed the market to once reach the $2 trillion mark, with Bitcoin sitting at a market cap of $1 trillion. Although the market has significantly dropped down, Bitcoin, Ethereum, and other cryptocurrencies are projecting eye-catching statistics, allowing Crypto banks to make headlines and pose a risk to the traditional banking system.
The emergence of Decentralized Finance, catalyzed and made possible by cryptocurrencies, have allowed anyone with an internet connection to access financial services without going through the limiting and discriminating barriers of traditional financial systems. Decentralized Finance has introduced a plethora of services to the masses that pose a serious threat to traditional financial services.
Having said that, Cryptocurrency banks are gaining a strong hold over traditional banks and there’s a strong possibility they will overtake traditional institutions. But will they replace traditional institutions? Let’s find out.
Crypto Banks vs Traditional Banks
Blockchain, cryptocurrencies, Decentralized Finance, and Cryptocurrency exchange are some of the most trending terms on the internet today. Blockchain-based cryptocurrencies are dictating every financial news source there is and they do it with good reason.
The world is going through a significant financial transformation. We’re finally seeing financial inclusivity and financial freedom. According to a Global Findex report, 2.2 billion people are unbanked. They don’t have access to financial services. 2.2 billion people is one fourth of the global population. To put it to perspective, that’s the total number of people in India and China combined.
The existing traditional financial institutions aren’t inclusive. However, cryptocurrencies, blockchain technology, and decentralized finance are evolving our perceptions and access to finance.
Here is how Crypto banks are overtaking Traditional Banks
There has been a growing need for privacy ever since there has been an abundance of user data and financial transactions following the increasing adoption of the internet. Case in point: Facebook and other big data companies have started leveraging its users’ information to promote targeted advertising, and even going far enough to sell data to companies like Cambridge Analytica, an analytics company that uses user data to structure political campaigns.
Privacy and safety are some of the most essential and must-have options when it comes to financial transactions. There’s a wide perception that the money in your bank account doesn’t belong to you, instead they’re held by the bank you choose and trust. Taking the financial crisis of 2007 and 2009 into consideration, we’ve seen too many banks collapse.
Take Spain for example. Due to the housing bubble and the increasing debts, many banks had to shut down. The Spanish government basically combined underperforming banks and shut them down for good just to get their numbers up. The country was overwhelmed with unemployment.
What happens when banks collapse? You guessed it. Your holdings disappear. Besides, even retail investors and institutional investors claim that investing in fiat currencies is a bad choice, because they’re subject to inflation. Almost all of the richest people including Elon Musk are rich on paper. The tech mogul worth $191 billion didn’t have $20,000 in his bank account to pay off a fine.
Consequently, Blockchain technology brings about a whole new revolution. A decentralized revolution quite specifically. It’s transparent, private, fast, and secure. Recently, Bitcoin announced that with the help of its lightning network, Bitcoin will be able to handle over 25 million transactions per second compared to Visa’s 1700 transitions per second and Mastercard’s 5000 transactions per second.
One of the main reasons people are heading over to blockchain and cryptocurrencies is that they gain true ownership of their assets. Cryptocurrencies and blockchain technology offers a decentralized ecosystem, this means that there aren’t any intermediaries between you, your assets, your transactions.
We’ve mentioned Decentralized Finance before; however, if you don’t know what decentralized finance is, don’t worry. Decentralized Finance includes financial products based on blockchain technology. It’s another area where blockchain technology really shines through and satisfies the demand for privacy, inclusivity, and freedom.
Take the example of the U.S. market. The US market is quite controlled and regulated, and the most cryptocurrency exchanges are not easily accessible due to the strict criteria of the SEC.
However, Decentralized applications, or DApps, do not require KYC, and are completely private, therefore, the SEC has no way to persecute or halt the company’s operations. Decentralized exchanges like UniSwap, PancakeSap, and SushiSwap can all function within the United States without any problems, however many well-known cryptocurrency exchanges have been prohibited from operating within the United States because of the SEC’s rigorous regulations.
The DeFi sector holds over $50 billion in total value locked (TVL). It’s success can be attributed to the financial inclusivity it provides. Today anyone with a smartphone and an internet connection can borrow, lend, earn interest, and do a lot more with their assets thanks to DeFi.
DeFi sector opened a broad range of financial services, such as banking, loans, mortgages, asset trading, and even contractual partnerships without intermediary requirement. Without the middlemen, we’re left with a much more optimized, efficient ecosystem that rewards participants without losing a fraction of their profits.
For example, if you were to deposit money in a bank for an annual interest rate of 10%, the bank would then lend it out at a higher interest rate and pocket the profit. However, with Decentralized Finance, nothing of the sort will happen.
Could Crypto banks replace traditional banks?
Crypto banks powered by decentralized finance could replace traditional banks and traditional finance. Cryptocurrencies are rapidly becoming viable substitutes to fiat currencies in all of it’s usage roles such as a store of value, a medium of exchange, and a unit of account. It’s secure, decentralized, transparent, and safe.
Yes it’s volatile; however we’re seeing more businesses and organizations embracing the assets. Paypal, Tesla, International Food brands, and International Hotels are slowly caving in to the idea of accepting cryptocurrency payments. Most of them have already started accepting Bitcoins.
Decentralized blockchain-based systems could replace banking with faster transactions, better security, lower fees, smart contracts, digitization, and more. We can already take out loans, earn interest, raise capital for projects, and make payments with DeFi and this is only the start.
Most of the crypto community believes that a decentralised digital economy that works without any central authority is a possibility, but the question is whether it will actually take place.
Banking and governments hold a lot of power in our economies and it may be far-fetched to believe that cryptocurrencies and blockchain will entirely replace them. Taxes need to be paid, and governments need to be run.
What’s more likely going to happen is governments are going to release a digital version of their currency. Cryptocurrencies and blockchain technology have been performing exceptionally well which is why we could see centralized institutions adopt blockchain solutions to avoid the possibility of going extinct.
This is where Central Bank Digital Currencies could be the ideal solution for the world. Central bank digital currencies could provide much of the same benefits of blockchain technology to rival DeFi systems.
As the public becomes more educated and well-versed with cryptocurrencies and decentralisation, the likelihood increases that we will see Crypto banks instead of regular banks.
It’s impossible to stop the crypto revolution after seeing the pace it is progressing at. Cryptocurrencies, blockchains, and decentralized finance laid the foundation for a new ecosystem which is fast, decentralized, transparent, private, inclusive, among others.
As more and more people become educated about the space, we can expect crypto banks to optimize traditional banks, and it’s only a matter of time where we see crypto banks completely replace traditional banks. We are certainly bullish for the future of crypto banks, what do you think?