The practice of crypto banking (CB) is the use of digital currency by firms in the financial technology and financial services industries. Using cryptocurrencies for such purposes as storing balances, making payments, and even earning interest is possible.

While crypto enthusiasts have debated and discussed cryptocurrencies for years, only recently have cryptocurrencies developed into useful tools accessible to the majority of people. Through crypto banking, social and economic development can be improved worldwide, including in countries with weak economies.

In regards to weak economies, the World Bank notes that there are unacceptably high levels of poverty around the globe, and the benefits of economic growth are not evenly spread across all countries and regions. These incidents of economic turmoil are accompanied by civil wars and government collapses in developing nations.

In addition, poverty is largely a result of economic factors, including lack of access to finance and constant inflation. Furthermore, studies suggest a low level of trust and corrupt government institutions are harmful to economic development.

Compared to fiat currencies issued by central banks, such as the Euro or the US dollar, crypto banking in developing nations has several advantages and disadvantages, and it is crucial to understand the technology that underlies these advantages and disadvantages. Blockchain technology is a critical component of cryptocurrency banking ecosystems, which rely heavily on it for their operations. This decentralized database spans several machines in the network. The entries are also summarized and divided into blocks.

Benefits and Drawbacks of Crypto Banking

Learn how crypto banking differs from central bank-issued fiat currency, as well as its benefits and drawbacks. A comparison with existing systems is also presented to demonstrate the practical significance of crypto banking.

For starters, because CB incorporates essential components of trust, such as accountability and openness, it enables for trust-free interactions, which is a vital part of establishing trust. Consensus techniques, hash functions, public and private key cryptography are employed in blockchain technology to govern transactions. This implies that the counterparty is not required to be trusted. Users must have faith in both the underlying blockchain and the network itself. This is why securing blockchains against fraud and assaults is essential.

An agent handles almost every digital transaction in a fiat currency. This is true even for currencies issued by central banks. Involving intermediaries not only wastes time, but it also increases risk for the consumer since transactions are more expensive.

In addition to that, CBs are not managed by governments. As such, they are not limited to a specific geography and can be traded globally. In other words, Bitcoin (and its counterpart altcoins) can be used as an alternative to wire transfers, particularly for remittances and other small international transfers. Due to the global nature of the crypto banking system, it is often cheaper to transfer money across borders than with bank-issued currencies. By eliminating intermediaries, money transfers are also faster.

However, these border independent payments have also some disadvantages, which can’t be ignored. The ability to transmit illegal proceeds or funding for terrorist activities without government interference is one of its characteristics. With Bitcoin, the user is anonymous, unlike traditional money transfers.

Further, the decentralization and a lack of flexibility in the Bitcoin supply schedule have resulted in high volatility. In addition to the high price volatility, most cryptocurrencies do the same, making it difficult to store money and make contracts with them.

Crypto banking is also a fund inclusion tool since it does not require high technical standards apart from having a device capable of making a transaction over the internet (for example, smartphones).

Because the supply of CB is defined in its protocol, no government or central bank can regulate it. As a result, no state can control the flow of money, limiting governmental authority.

Assisting economies throughout the world via crypto banking

Crypto-Banking is both useful and disruptive, causing a slow but steady disruption of the traditional financial system.

Increasing the transparency and reducing corruption

According to research, corrupt behaviors are connected to poverty. Transparency International, the world’s biggest anti-corruption NGO, conducted research on the link between poverty indices and bribe-paying rates. According to estimates, corruption would make it more costly to complete the U.N. By about $48 billion, the water and sanitation goal will be achieved.

The people in Singapore have prospered after the People’s Action Party successfully took on corruption and poverty. As a result of eliminating corruption, Singapore promoted an attractive and sustainable environment for FDI and economic development, resulting in a reduction of poverty and high unemployment.

Crypto banking provides an innovative and useful tool for fighting corruption in developing countries. Funding can now be tracked by government projects, including how it is spent and by whom. In addition, authorized users of these funds are provided with a specific timeframe in which to access the funds and they are only permitted to use them for the intended purpose. Blockchain technology, according to the Brookings Institution, can replace the need for a 15-month investigation on corruption at the touch of a button. As a matter of fact, crypto banking has the potential to curb bribes in the public sector by $1.5 trillion to $2 trillion annually, which would be a monumental improvement in development efforts.

The tracking capabilities of CB, along with the way in which it handles data, promote transparency. Because the ecosystem is a distributed system, the data is kept on several computers, reducing the chance of data loss. CB increases data security by encrypting it, but transaction transparency makes all transactions searchable and publicly available. It is impossible for a user to remain anonymous or ambiguous, and all transactions are traced, preventing corruption while enhancing transparency.

Transacting at a lower cost and saving time

Anyone in the 21st century can benefit from the power of crypto banks by taking advantage of time and money. The CB reduces remittance fees, improving the financial situation of foreign workers in developing countries. Basically, these fees are for sending money from abroad to a family or individual back home. The Filipino company Rebit, which holds Bitcoin-related ventures, exemplifies this notion, as the company’s services allow users to transfer money quickly and cheaply to the Philippines. Thousands of U.S. workers can convert dollars into bitcoins, and their families can withdraw the funds in pesos.

As an example, take Haiti, where its workers abroad sent their families money equal to 26 percent of its GDP (approximately $1.5 billion). If the sender is in the United States, Canada, or the Dominican Republic, remittance fees range from 8 to 10 percent, which amounts to $150 million per year. The extra 100 million in fees will affect those making less than $500 per year since their money is being sent home.

One company, in particular, has been a major player in the market for cross-border money transfers. By using Abra, transaction costs can be reduced by as much as 90 percent. Its system entails transferring money from Bitcoin into a local currency, sending it across a digital blockchain, and transferring it back into Bitcoin again. Customers do not have to witness the Bitcoin transaction in order for it to take place. People without bank accounts can also use Abra.

Forbes describes traditional banks and cryptocurrency (crypto banks) as being in a competition of sorts since cryptocurrency offers what banks cannot: a reduction in transaction fees. With crypto banks, there are no bank accounts or mobile transactions fees, since crypto banks don’t need private infrastructure to operate.

Increasing financial inclusion with crypto banks

As cryptocurrency banks are software-based and easily accessible online, there is no need for a physical infrastructure. As crypto banks provide greater financial inclusion, greater poverty reduction is facilitated through the infrastructure of crypto banks, which is advantageous for developing countries.

According to the World Bank, restrictions on access to traditional banking services include a lack of media freedom. In addition to limiting the locations where accounts may be opened, this lack of media freedom leads to a higher minimum balance for opening an account, more documentation required to open an account, and longer processing times for loan applications. Other barriers to access include a lack of physical infrastructure and expensive banking charges, particularly for mobile banking, which is frequently the only option for individuals living outside of bank regions. Despite these challenges, crypto banks claim to eliminate them.

Having access to crypto banks is possible through a software wallet without requiring a bank account. Crypto banks provide a means of meeting the financial needs of those who are unable to access banking infrastructure or credit. By using this solution, you prevent the need to carry and protect cash due to a lack of banking access.

Crypto banks’ transactional histories can prove to be valuable for microfinance projects. Since the transactional history is freely available, no additional documentation or auditing is required. As an additional benefit, blockchain technology can be used to improve transparency and create algorithms to determine loan amounts, interest rates, and other aspects of microfinance.

Final Thoughts

We live in a world that is constantly changing, and it changes rapidly. The traditional financial institutions are no longer able to perform as effectively as they used to, which means that new financial demands need to be met. The technology of cryptocurrency banking is equipped to deal with such challenges.

Upon becoming a part of our lives, these crypto banks will be able to positively impact economic growth and inclusion. Crypto banks offer investors and business owners incredible possibilities that make investing, moving money worldwide, and saving money simpler than ever before.