Will Cryptocurrency Replace Banks?


The introduction of Cryptocurrency has raised several questions, many of which are centered on its longevity, lucrativeness, adaptation, and even its ability to replace banks. Of course, if studied closely, you will understand that crypto solves some of the problems we face today with traditional banks and transactions. But does that means crypto will replace banks any time soon?

It is said that crypto is the currency of the future. If that is true, then the chances of cryptos replacing banks are high. However, with the volatility experienced by bitcoin, including the fact that the government doesn’t back it, one might be sceptical about cryptos replacing banks.

When it comes to cryptocurrencies, there are usually a lot of questions to be asked and a lot to learn. If you are a newbie in the crypto world or have extensive knowledge of crypto, this article will help you understand my stance on the possibility of crypto replacing banks.

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Will Cryptocurrency Replace Banks?

Although the cryptocurrency world is expanding and gaining traction rapidly, traditional banks are reluctant to adopt the use of a currency that has been deemed the future currency. These banks believe that the risks of adopting crypto outweigh their potential benefits.

Irrespective of bank stance regarding crypto, regulatory agencies like the Comptroller of the Currency (OCC) are working to change banks’ view of digital currencies, believing that these digital assets could positively propel financial institutions to a new age innovation and efficiency.

The OCC and Banks:

The OCC recently issued many enlightening letters that clearly spelled out how traditional financial institutions can jump into transactions (or create services) relating to digital currencies. This effort coincides with the OCC’s belief that extra regulatory guidance will assist banks in becoming more comfortable with these digital assets.

For example, in early January, the OCC stated that national banks, including federal savings associations, can now adopt public blockchain and stablecoins to carry out payment activities. This opens the opportunity for banks to have the ability to process payments at a faster pace and without the assistance of a third-party agent. Essentially, this insightful letter puts blockchain networks in the same group as SWIFT, ACH, and FedWire, opening the way for this network to be a significant part of the larger bank architecture.

Of course, it is obvious that banks are wary of crypto, thinking that transactions involving cryptos put them at high risks, and thus, need exhaustive and costly due diligence. However, digital currencies can benefit financial institutions, including their customers. They just need to make the jump.

Before we proceed, let’s look at a brief definition of crypto.

What is Crypto?

Crypto is a system of value. So when investors purchase crypto, they are betting that the value will rise over time, just as stock market investors buy securities when they believe the company will grow and share price will follow suit.

Stock valuation comes down to discounted estimations of a company’s future cash flows. There exist no comparable valuation metric for cryptos as there is no underlying company (as it is with stocks like AMZN, which Amazon owns).

The value of crypto is associated only with investor cravings. Crypto valuation does on one of the two factors: the chances of other investors purchasing the asset or the utility of the crypto’s blockchain.

Will Crypto Tip Banks?

Banks have been around for several decades. However, with the introduction of crypto, including blockchain tech, one might begin to doubt the relevance of banks when Bitcoin, for instance, becomes widely adopted.

In a nutshell, the possibility of crypto replacing banks is low due to the doubt banks have about cryptocurrencies in general. However, if cryptos become widely adopted, banks may not become useless. Rather, they may have a unique role to play.

Why Are Banks Wary of Cryptocurrency?

Based on a study carried out by the Association of Certified Anti-Money Laundering Specialists (ACAMS), including the U.K.’s Royal United Service Institute, nearly 63% of respondents in the banking industry view crypto as a risk and not an opportunity waiting to be leveraged.

Here are some reasons why banks are wary of crypto:

  1. Decentralized Nature

One of the major differences between crypto and traditional money is that cryptocurrencies are decentralized. That is, they don’t need a middle man, and they aren’t linked to the capacity of a centralized government, bank, or even agency. Instead of depending on centralized intermediaries in these transactions, the trust is placed in the blockchain code and the distributed nature of the blockchain.

  1. AML/KYC Worries

Cryptos allow for peer-to-peer transactions without being regulated by a central bank or government. This gives the user the ability to easily send funds fast without paying transaction fees. In addition, instead of identifying the transaction by an individual bank account via a bank or credit union, transactions are linked to the transaction ID on the blockchain.

This type of privacy worries many banks wary of the lack of anti-money laundering (AML) and know your customer (KYC) regulations surrounding digital currency transactions. Often, banks suspect that crypto transactions cannot be monitored for AML and KYC considerations, which could result in illegal activity and scams on the network.

  1. Volatility

Crypto prices have generally been volatile over their short span. There are several reasons for this, such as market size, liquidity, including the number of market members. Banks see this huge risk as, historically, the price hasn’t been steady, so they feel that the currency might not stand the test of time.

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Can Crypto Replace Money?

Traditional money has been around for centuries. We use them to make purchases, and other transactions. However, with the advent of crypto, a better alternative to paper money, one might be keen to know the possibility of these digital currencies replacing money.

Many experts believe that crypto will replace money by 2050. Crypto like Bitcoin boast features that can revolutionize the financial industry, including the way transactions are made.

If you like the idea of crypto and believe that its value may rise in the coming years, it makes sense to fill your digital wallet with some cryptocurrencies for future purposes.

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