Introduction
Cryptocurrencies are steadily expanding and gaining popularity and the impact of cryptocurrencies on the traditional banking system is more crucial. Cryptocurrencies have gone global in attempts to replace the traditional banking system. People look at cryptocurrencies from various perspectives. Some look at transactions, some for rewards and some for investment. Let’s see how cryptocurrencies are impacting the traditional banking system.
7 Ways Cryptocurrencies are impacting traditional banking system
- Decentralized Nature
Cryptocurrencies don’t need an intermediary for making transactions. Instead of relying on centralized intermediaries, trust is placed in the blockchain code and the distributed nature of the blockchain.
- AML/KYC Concerns
Cryptocurrencies don’t need central authority and allow easy transfer of funds. Instead of identifying the transaction by an individual bank account transactions are linked to the blockchain. Cryptocurrencies pose significant challenges for anti-money laundering (AML) and know-your-customer (KYC) procedures, as they can facilitate anonymous and illicit transactions.
- Security Concerns
Another impact of cryptocurrencies on traditional banking system is the security concerns it has raised. Cryptocurrency transactions are secured using cryptography, which is complex mathematical algorithm. It creates more efficient market.
- Increased Competition
The rise of cryptocurrency has also increased competition in the financial industry. Traditional banks are no longer the only option for consumers looking at financial services. Crypto exchanges have entered into the market offering innovative products and services. The increased competition has forced traditional banks to adapt and innovate.
- Give people control over their money
Many people are cautious of banks and financial institutions keeping all of their cash at home is not at all a good option. Crypto is not subject to the rules and regulations imposed by the banks. Anytime, people can get control over their money.
- Change the money transfer process
Bank-to-bank transfers take longer time especially if the transfer is international. The transfer of cryptocurrency doesn’t require all of the same processes that a bank requires. Whether a national or international transfer, Crypto transfers are instant, do not require any fees, and can be securely stored in the blockchain. Through this cross-border payments can be easily made.
- Smart Contract
Smart contracts are self-executing contracts. These contracts operate without the need for third-party and ensure complete transparency and trust. Cryptocurrency uses smart contracts thus reducing the need for third parties and impacting the traditional banking system.
| Cryptocurrencies | Traditional Banking System |
| No intermediary | Transactions are facilitated by banks |
| Supply is determined by an algorithm | Supply is determined by Central banks of respected currencies |
| Cross-border payments can be done in a few minutes | Cross-border payments may take up to a week |
| KYC/AML is not necessary if the transfer is made from person to person | Have to pass KYC/AML if you want to utilize banking service |
| Give people control over their money | Control lies on central authority |
Related: How Cryptocurrencies are Impacting the World Economy?
Conclusion
Cryptocurrencies have been making a huge impact on the traditional banking system. It allows consumers access to a global payment system anywhere, anytime in which participation is restricted only by access to technology rather than having any bank account or credit history.
Frequently Asked Questions (FAQs)
1. How Cryptocurrencies is different from traditional banking system?
Cryptocurrency is a form of digital currency. It uses encryption to verify transactions. Encryption aims to provide security and safety. Cryptocurrencies have features that distinguish them from traditional banking system and attract the attention of investors.
2. Can Crypto replace banks?
Crypto can easily replace fiat in all its uses as a store of value,medium of exchange and unit of account. The new reality tends to look like centralized authorities will be adopting blockchain technology to avoid the risk of becoming extinct.
3. What are the negative effects of crypto?
Prices of cryptocurrencies are very volatile, their value can change in a short amount of time. Due to the lack of proper regulation, there are risks and uncertainties in crypto world.
4. Why do people use cryptocurrency?
People use cryptocurrency for fast payment, no need to rely on a third party, more secure than regular transactions.
5. Why do banks reject cryptocurrencies?
Bank rejects cryptocurrencies to safeguard their customers from potential fraudulent activities and unauthorized transactions.