Several financial industries are making the transition from conventional securities trading to modern high-tech securities trading. Several industries are beginning to use blockchain for real-world processes. A Blockchain is an open-source, real-time program that can facilitate the movement of digital assets among market players. Any selected blockchain APIs may be used to show significant cost and timeframe reductions.
Banks can increase efficiency, strengthen security, generate immutable records, and speed transaction time using Blockchain technology.
A significant benefit of blockchain is that transactions are permanent and cannot be reversed. Any previous purchases cannot be deleted. Blockchain utilizes the Smart Contracts concept; thus, it can assist in minimizing the crimes against financial institutions. It incorporates a set of rules that the parties to the contract have agreed to use to govern their interactions. It enables any digital information to be saved, and it also lets the party choose which rules apply to that data.
Various financial institutions pay tens of millions of dollars every year to keep and maintain all of their customer data safely and securely. Blockchain makes it possible to keep all the information stored in one place. The integrity and non-repudiation of saved data are protected. It reduces redundant data by allowing businesses to use the information verification data of a particular client in another company.
Blockchain speeds up transaction processing. Because the distributed system doesn’t need authorization from anybody, it doesn’t require a middleman or an intermediary. This provides a more cost-effective method to convert currencies with reduced fees.
The best method to prevent fraud, money laundering, and the exchange of false promises is to avoid dealing with individuals. Blockchain technology has the potential to expand rapidly throughout the financial sector in the near future.
Since blockchain technology has had a significant impact on the banking industry we will be exploring a relatively new industry which is the crypto banking industry that stands on the foundations of the Blockchain Technology.
What is crypto banking?
The term “crypto banking” refers to a relatively new idea that may have several different connotations depending on whom you ask. Individuals most often interact with cryptocurrencies via investing, which is generally the most popular form of engagement. Purchase and selling of digital currencies on a trading exchange platform are examples of what this might entail. On the other hand, traditional banking is concerned with the administration of cash and credit inside a centralized financial institution, such as with checking and savings accounts, as well as with loans and other forms of credit. Besides that, conventional banks obey the laws and regulations set forth by a centralized body constantly being revised and updated.
Crypto banking refers to the process of managing digital money through a financial technology company or financial services provider. It is possible to manage digital money by simply keeping track of a balance, making payments, and even collecting interest through the use of one or more cryptocurrencies in conjunction with these financial services. Account administration of crypto assets requires more than just essential money management, as shown in this article. Because cryptocurrency is a usable instrument, there are many options for using crypto money for a variety of financial reasons.
In the financial world, a cryptocurrency bank is a financial institution that operates on the promise of decentralization, permissionless, and trust-less architecture, and that processes digital money-related transactions such as deposits and withdrawals as well as lending and borrowing, as well as saving and investing, across a wide range of marketplaces.
For the uninitiated, Crypto Banks are online platforms that allow cryptocurrency users to store and exchange their digital assets while still making ordinary purchases such as bills and groceries.
What makes crypto banking unique is the existence of a cryptocurrency wallet, which stores crypto assets and allows users to conduct complete crypto banking transactions such as depositing funds, saving funds, transferring funds, and more. The existence of a cryptocurrency wallet is the most notable aspect of crypto banking. Cryptocurrency banks do not need extensive onboarding paperwork, nor do they require the verification of thumbprints or anything else of the like. The procedure is straightforward, and one may begin utilizing the account within minutes after completing it.
The Major Differences between Crypto Banks and Traditional Banks:
If you’re thinking about transferring your money from your bank account to a cryptocurrency account, it’s essential to grasp the distinctions between the two. We will be discussing some of the significant differences between Crypto Banks and Traditional Banks to help make that transition easier for you.
1. Interest Rates:
Interest rates are an area within Crypto Banking where DeFi apps genuinely stand out from the competition. Although the most exemplary savings accounts may provide annual percentage yields of about 0.5 percent, you might earn more than 8 percent by opening a DeFi account. It is dependent on several variables, including the currency you use, the length of time you are prepared to tie up your money, and the DeFi application you use. It is a good idea to learn how the business can give you those rates. They may use your money to make loans to others, in which case you must be satisfied with their lending strategy before you give your money.
As a borrower, you may be able to acquire lower interest rates than those you would otherwise be able to obtain through conventional personal loans. However, you may be required to use cryptocurrency as collateral to obtain your loan.
2. Forex Conversion and International Payments:
In international transactions, different currency rates are used for transactions involving two distinct nations. Furthermore, because of changes in the dollar’s value, the exchange rate throughout the transaction may be volatile.
However, with crypto banks, this is never a problem to deal with. Because cryptocurrencies are often issued at a rapid pace, the market’s volatility is no longer a concern. They can execute transactions in seconds while providing increased security and transparency.
In addition, data in conventional payment transactions is restricted to a single point of origin. Blockchain-based transactions, on the other hand, are often decentralized in nature. As a result, the information is kept in many systems and distributed across the network. This will also help to safeguard the information and keep it safe from harmful assaults.
According to a United Nations development study, cross-border transaction costs will decrease to 3 percent by 2030, and payment corridors with rates more than 5 percent will be eliminated by that period. Deloitte also stated that blockchain technology in international payments is anticipated to decrease transfer costs by 40 percent to 80 percent over the next five years.
3. FDIC insurance
The Federal Deposit Insurance Corporation provides deposit insurance to the vast majority of institutions. Therefore, if your bank collapses, you will be protected up to $250,000 per person, per bank, depending on the circumstances. On the other hand, since crypto banks are decentralized, insurance is handled separately. Some trading platforms offer insurance on collateralized loans, but it makes them sort of centralized, and the users have to deposit funds into custodial wallets.
Since most crypto users are tech-savvy, this is one of the reasons many cryptocurrency enthusiasts utilize cold wallets or hardware wallets to avoid losing their funds. These are tiny devices that you may place in your computer’s hard drive, which offers you complete control over your digital assets. On the other side, you will not earn interest on the money you keep in a cold wallet.
4. Access to Funds:
Access to funds is one of the primary needs of account bearers for both crypto banks and traditional banks. There are many ways where account holders can get access to their funds in traditional banks, for example via cheques, ATMs, and through cash withdrawals.
In a similar vein, the growth in popularity of cryptocurrencies has at the same time generated a need among cryptocurrency holders to be able to access their money for spending rapidly. Until recently, the two choices available to cryptocurrency owners were investing and holding for the long term (HODL) or engaging in speculative trading activities. If cryptocurrency users wanted to change their coins into fiat money to use for day-to-day expenses, they had first to convert their coins into fiat currency and then wait for their monies to arrive in their bank account.
To satisfy this demand, cryptocurrency debit cards started to appear on the market. Unlike traditional debit cards, which are backed by a bank account, cryptocurrency rewards debit cards are backed by your cryptocurrency wallet, allowing you to spend your rewards at participating merchant locations. Consider it more of a prepaid debit card than a regular debit card compared to other options.
First, it is necessary to convert any cryptocurrency into the fiat currency of the user’s choosing before any funds can be put onto the debit card. Once the currency has been loaded and is ready to be used, purchases will be processed in that currency. On the other hand, rewards are provided in the form of a particular digital currency, which varies based on the debit card.
5. Investing and Trading:
Traditional banking provides many opportunities for account holders to access capital markets and forex markets. However, the industry is very regulated, and the user experience needs to be updated.
On the other hand, the cryptocurrency industry offers a much better user experience and too many options to choose from when it comes to trading. Moreover, the Decentralized Finance industry has further created opportunities enabling cryptocurrency holders to benefit from credit and lending-based applications within DeFi.
Crypto banking can alleviate some of the most urgent problems facing the global financial systems. They have the potential to attract more individuals to the banking industry while also lowering infrastructure costs. Because of the digital characteristics of cryptocurrencies, economies may develop on a vast scale, and greater supervision can be integrated into the flow of money due to this.
According to some predictions, the cryptocurrency economy will grow to a value of more than ten trillion dollars in a matter of years. In terms of strengthening the connection between the decentralized economy and our future everyday lives, cryptocurrency banks will mark a watershed moment by extending the payment infrastructure, introducing new cryptocurrency payment scenarios, and lowering interest rates.
Increasing demand for cryptocurrencies in decentralized financial applications (DeFi) and E-commerce activities in the digital world would increase the need for crypto banks. It is almost certain that crypto banks will rule the world in the future, and conventional banks will face extinction if they do not innovate quickly enough or embrace the decentralized characteristics of cryptocurrency banks.