Over the last decade, cryptocurrency has gained a great deal of attention, moving it beyond the plaudits of a small group of Bitcoin enthusiasts and into the mainstream debate of financial professionals and investors.

With the potential to eliminate fraud, provide speedy and safe transactions and trades and eventually assist in risk management inside the interconnected global financial system, cryptocurrency has emerged as one of the most promising banking sector developments in recent history.

Crypto does this through the use of sophisticated encryption that is supposed to be resistant to hacking, hence increasing confidence in the financial transaction environment.

Cryptocurrency has a wide range of applications, including but not limited to keeping account of transactions and exchanges. As our global financial system becomes increasingly interconnected in this age of digital change, investors would be well to educate themselves on how blockchain is altering the system and how to get and control exposure to this new technology.

What role cryptocurrency may play in increasing the efficiency of banking

Consumers will benefit from cryptocurrency because it has the potential to make the banking sector more transparent, less prone to fraud, and more affordable.

Transparency is being improved. Because users are executing operations on a public ledger, cryptocurrency has the potential to increase transparency in the financial system. These kind of disclosures may reveal inefficiencies such as fraud, which may lead to problem-solving that might lower the risk for financial institutions.

Increasing the level of security. As customers grow more engaged on the internet, the digital realm has become a fertile place for fraudsters to flourish. This worry might be alleviated by the use of cryptocurrencies. When compared to traditional banking, payments and money transfers done over the blockchain are both quicker and more traceable.

The chance of information being intercepted increases when it passes through a number of different financial intermediaries, increasing the likelihood of fraud. By utilising cryptographic algorithms, we may close this gap in supervision. Cryptographic algorithms provide increased security in the flow of information between parties.

According to Ben Samaroo, co-founder and chief executive officer of WonderFi, a decentralised financial platform, “clear audit trails can be difficult to get at times in traditional finance, which has resulted in major economic losses in the past owing to irresponsible behaviour or malevolent actors.”

“Using a mix of blockchain technology and machine learning, we can dramatically minimise this risk by monitoring and managing hazards with a high degree of accuracy.”

Blockchain is essential for financial technology firms and other organisations that deal with big volumes of data in order to maintain data integrity.

According to Marie Tatibouet, chief marketing officer of Gate Technology, a cryptocurrency exchange located in China, “Because the blockchain network is decentralised, it does not have a single point of failure.”

According to Tatibouet, this property boosts the network’s resilience, hence protecting it from being compromised.

Cost-cutting measures are being implemented. In a time when investors are moving away from financial advisers in order to avoid paying higher fees, cryptocurrency offers users the option to benefit from cheaper expenses connected with traditional banking services.

Financial technology businesses have grown to be a significant component of the banking services market, allowing investors to create accounts with digital advisers and make their own financial decisions with greater independence. As financial technology (fintech) plays a greater role in global finance, the interaction between fintech and cryptocurrency will eventually get stronger.

Consumers may benefit from this innovation because investors receive a greater return on their investment and because they receive a balance between the automation of banking services and a reduced overall cost.

According to Samaroo, “the financial institutions who implement this new technology first would be able to simplify internal procedures and supply their consumers with lower-cost financial services, thus defeating their competitors on cost to grab a bigger piece of the market.”

Ultimately, this makes it more efficient for the average investor who is wanting to save costs while still taking advantage of this new financial services environment.

What is the role of cryptocurrencies in the banking industry?

Look at the potential for incorporating cryptocurrencies as well as the techniques for putting these financial instruments to use in order to collaborate successfully with recent technological advancements.

Banks as a kind of infrastructure

When banks act as infrastructure for cryptocurrency firms, they may provide consumers direct banking services like as loans, payment processing, and the opening of new accounts. This might be a significant source of revenue for banks and other financial institutions in the future.

Open Banking is yet another crucial component of the banking system.

API-based payment, currency exchange, and account creation services might potentially be regarded a different value stream or means of profit production by banks when used in conjunction with other services such as online banking. Since Visa just released its own API mechanism for acquiring bitcoin and integrating it with financial institutions, additional financial institutions may follow in their footsteps.

Participation in a regulatory sandbox is an option

According to the report, the European Commission recently enacted a Digital Finance package, which intended to create an unified EU pilot regime for experimenting with the deployment of distributed ledger technology (DLT) market infrastructures.

Banks and fintechs must participate in the regulatory sandbox and either give their services or focus on improving their knowledge of the technologies and services that may be supplied.

Licenses

We’ve seen that numerous neo-banks don’t really have licences, but they’re able to supply services through intermediaries who do have the necessary rights. This is made possible by the co-brand goods they provide. In other words, current connections between banks and fintech businesses might be used to facilitate the development of cryptocurrency operations.

Stablecoins and Central Bank Digital Currency are two types of digital currency (CBDC)

Due to the fact that this sort of digital currency includes payments by its very nature, financial institutions and fintech companies must consider incorporating these cryptocurrencies into their services in order to generate a profit. PayPal’s CEO, Dan Schulman, told Coindesk that the company’s digital wallets could be used to distribute CBDC to users of various socioeconomic backgrounds and income levels.

Mastercard and Island Pay announced in February that they will be issuing the world’s first CBDC-linked card, in partnership with the CBDC. This follows Mastercard’s collaborations with Wirex and Bitpay, which means that Mastercard will soon begin processing cryptocurrency payments in stablecoins, allowing users to choose the most convenient payment option for them.

Custodian Services are provided by a third party

It is necessary to meet a wide range of standards when it comes to how money should be held and how repositories should be constructed. One of the most successful ventures in Europe is the storage of digital assets in the Alps, which is based on a historical military bunker that has a long history and is very popular among cryptocurrency investors.

As a result, why wouldn’t banks employ their financial and physical resources to ensure that digital currencies are protected in the same way that traditional currencies are protected?

Anti-Money Laundering Activities

One of the most common misconceptions about cryptocurrencies is that they are an anonymous financial tool that is only used for money laundering purposes. The fact that there are several crypto platforms that have been licenced by regulators makes it easier to monitor transactions and guarantee that clients aren’t fully anonymous. For the purpose of preventing money laundering and terrorist funding, certain rules are established in the regulatory law. Elliptic and Chainalytics are two service providers that monitor and trace cryptocurrencies and the origin of payments, allowing anything suspect to be detected and prevented instantly. These services have sophisticated risk assessment methods in place, which enable compliance teams to determine if a transaction is valid and whether the source can be relied upon.

Secondly, the Travel Rule, which has been implemented in practically every nation in the globe, is an important component of anti-money laundering efforts. When it comes to categorising and monitoring transactions, all payment providers (SWIFT, SEPA, and Faster Payments) who operate with digital currencies must use specific data for identification when it comes to classification and monitoring, and this is true for all payment providers who operate with digital currencies (including Bitcoin). To comply with the licence, all organisations dealing with digital currencies will be required to implement standard operating procedures. This means that financial institutions and fintechs will have another option to consider as they expand their services to include digital currencies in their offerings.

Joint Ventures and Projects

Another approach for banks and financial organisations to employ digital currencies is to combine their technology and form joint ventures with other companies. The most effective strategy is to collaborate with relevant businesses in order to influence public perceptions about bitcoin use. Given the rapidly changing nature of digital currencies, there are no ready-made solutions since they may become outdated by the time they are put into operation.

Conclusion

Disruption does not occur overnight, and much of the cryptographic technology has not yet been finalised or put through extensive testing.

Die-hard believers think that cryptocurrency will eventually replace all banks. Others believe that blockchain technology will enhance the efficiency of conventional financial infrastructure by supplementing it with new technologies.

However, it is still to be seen whether or not banks would accept the technology. One thing is certain, though: cryptocurrency will, in fact, revolutionise the business.