Traditional Banking Damaged Due to Cryptocurrency?
Cryptocurrency has disrupted the financial industry in many ways since it emerged and competed directly with the banking sector. Bitcoin, Ethereum, and all other cryptocurrencies have introduced new forms of money and payment systems, as well as the place of banks and other financial institutions.
This emerging technology impacts traditional banking through several key avenues:
Decentralization, cost-effectiveness, access to finance, policy constraints, and technological advancement.
Decentralization and Control
Another vital break cryptocurrency has made in conventional banking is that it can function independently. Banks are established as centralized organizations that manage different financial procedures.
On the other hand, cryptocurrencies utilize decentralized structures based on blockchain technology.
This decentralization means that transactions do not need to be centralized, which might minimize the control that banks can have over financial transactions and the fees that are charged for such services as money transfers, currency exchange, and the like.
Cost Effectiveness
Satoshi stated that Cryptocurrencies can be cheaper and take a significantly shorter time to transact than the traditional banking system. Many banks have old technology systems; they use middle parties to complete transactions, which can take time and be costly.
Speed of Transactions
Since they do not involve intermediaries, cryptocurrencies provide faster and less costly ways of executing transactions. This efficiency is more valuable for international payments, which generally take considerable time and are expensive when done through the standard banking system.
Financial Inclusion
Cryptocurrencies also have the potential to increase the rate of financial inclusion worldwide. For a number of reasons, including geographical remoteness, inadequate documentation, or high costs, people worldwide cannot obtain banking services.
The unbanked or underbanked citizens around the globe can obtain financial services through virtual monetary systems known as cryptocurrencies as long as they have an internet connection and an e-wallet.
This could potentially erode the oligopolistic position that traditional banks hold in some geographic and client segments.
Regulatory Challenges
Cryptocurrencies are a rather new financial instrument, and they create major regulatory issues. Traditional banks are established in a tightly controlled legal environment, which is aimed at maintaining the stability of such institutions and their consumers.
Authorities of various countries and international organizations are still trying to determine how to regulate cryptocurrencies, incorporate them into the financial system, avoid the risks associated with the occurrence of new bubbles, protect the population from fraud, and maintain financial stability.
Technological Innovation
Cryptocurrencies have influenced the usual technological developments within banking. Bitcoin, the first cryptocurrency, has presented many challenges to banks, but at the same time, it has opened opportunities for banks to adopt blockchain technology to enhance their services.
Several banks are creating their own Central Bank Digital Currencies or using blockchain for better transaction flow and recording. This shift is to strengthen the banks’ competitiveness and improve the security and openness of operations.
What do you think about this, please let me know in the comments.
Thanks for your time.
