Cryptocurrencies have been in the market for quite some time now with far-reaching effects across the globe. The impact or disruption mainly lies in the power of instant transfer of value without the need of intermediaries or any other trusted third party. Cryptocurrencies including Bitcoin, Ethereum, and many more have been able to solve the major limitations of traditional financial systems.
Cryptocurrencies usually operate in a decentralized manner; this means that they cannot be controlled or managed by any single entity including governments or central banks, no matter how powerful they are. In addition, it lacks registrations related to value payment and exchanges such as governments, regulatory entities, or even geographical borders. The cryptocurrency technology has brought up new terms of safeguarding money, privacy, and as well the peace of mind.
Emerging Roles of Cryptocurrencies
Recently, researchers from the Imperial College of Landon together with eToro trading platform assessed some of the fundamental roles of traditional financial systems. Also, they measured how cryptocurrencies can fulfill those roles in a better way. They were able to come up with three main ways which include store of value, unit of account, and a medium of exchange.
In assessing some of the major cryptocurrencies in the market today, such as Bitcoin, there is an opening. It’s apparent that cryptocurrencies have the potential to perform the roles of traditional financial institutions in a better and effective way. But, the questions lie here: can cryptocurrencies really replace the traditional financial system?
These are the expected Touchstones:
Cutting out third parties in financial systems
Just consider a case of sending money internationally or other principal financial payments such as buying a car. You can agree with me that the process is usually lengthy as you are required to undergo multiple hoops, some even involving lawyers. This is one of the major limitations that we are experiencing with traditional financial systems.
However, there is a way to solve the limitation above. Cryptocurrency can be used in major financial exchanges involving crypto assets management such as stocks and equities by eliminating the need for 3rd parties.
In addition, currently, customers want to have access to their banking and financial services conveniently and less expensively. Studies claim that approximately 40% of American bank customers prefer using digital payments instead of visiting banks. But the security of these online banks services is not safe, which makes people lose faith in banks. The cryptocurrency wallet and systems are secure enough from any cyber-attacks.
Cryptocurrency is available for everyone
Traditional financial systems have a pre-set criterion that rules out who qualifies for specific banking services. Currently, there are millions of people all over the world who don’t have access to banking systems, but they have mobile phones with internet access. For instance, a recent study claims that only 62% of the world population has access to bank accounts. With cryptocurrencies in place, anyone shut from financial systems can partake in the crypto industry. All you need is an internet connection.
In addition, since cryptocurrency is decentralized, and because any entity including governments does not control cryptocurrency, no one can take, devalue, steal, or block your funds. Only you have control over your funds. Traditional banks are regulated by governments and its possible to lose your funds especially if you have monetary issues.
Prevention of fraud
This is possible due to the decentralized design of the cryptocurrency systems. Since there is no central point of control, the security is fraud-proof since no one can alter any records in the system. Also, it’s impossible for one to use counterfeit paper currency since the systems are decentralized and digital. Although there have been cases of theft through cyber hacks in some cryptocurrency exchange platforms, it’s very rare.
For instance, Bitcoin Leverage Signals systems have never been hacked; this means that the security details of its systems are superb. Also, it’s impossible to reverse or alter any transaction on the cryptocurrency network. Credit cards allow users to reverse such transactions which can contribute to theft. Banks also require personal information when sending or receiving money which can encourage the issue of identity theft.
However, payments made with cryptocurrencies only need an address which doesn’t include personal information, thereby eliminating any chances of identity theft. It also gives the feature on anonymity, this way you can transact without relieving your identity.
Faster and cheaper transactions
This is another major disadvantage of traditional financial systems. For instance, it may take even about seven business days to process an international transaction fully. Let’s not forget the money lost in the process on banks commission and currency exchange. Cryptocurrencies can be used to facilitate faster and cheaper medium of exchanges which can help save millions of dollars.
Ripple has emerged as the safer, quicker, and cheaper way of sending and receiving money both locally and internationally. In fact, the network allows its users to transact about five times cheaper and 10k times faster than traditional financial systems. In the case of Bitcoin Cash, it charges 20 cents per transaction, and it’s much faster. In addition, major cryptocurrencies are adopting crypto trading bots to reduce the risk factor associated with crypto volatility.
Those are a few points on how cryptocurrencies can offer better financial services than traditional financial systems. Many people believe that given the economic potential behind the cryptocurrency system, it can replace the traditional financial systems. However, cryptocurrencies as well have their limitations which may make it harder for them to overpower traditional banking systems. Below are some reasons why cryptocurrencies cannot replace banking systems.
Cryptocurrencies are incredibly volatile, and this is financial thread investors, and individuals can risk facing. For instance, in 2015, Bitcoin was traded at approximately $333; in 2017, the value of Bitcoin peaked up to $20,000 . Currently, Bitcoin is valued at about $6,428. That’s a notable change in value within such as a short period.
This is one reason many people prefer banks to cryptocurrencies. Most people are arguing that despite the inefficiency of traditional banks, they are more comfortable keeping their money in banks rather than investing in a highly volatile option. In addition, the history of banks is longer than the newly created digital currencies whose financial status is not yet clear.
Adoption of new technology
The Blockchain technology introduction to the market was widely accepted by major sectors including the banking and financial systems. If banks begin to apply the Blockchain technology in their systems, they will be offering nearly parallel services with cryptocurrency. With Blockchain-enabled systems, traditional bank systems will be able to provide faster, cheaper, and secure financial services to their customers.
Bank lending is another sensitive factor in the banking and finance industry. And, you can agree with us that humans rather than machines do this best. Clearly, this is not something cryptocurrencies cannot effectively do like traditional banking systems. Some cryptocurrencies such as Ethereum have created specific lending systems, but it’s nowhere close to what traditional banks can do.
In summary, no matter how fast technology changes, banks maintain some relevance. All they must do is to adapt fast by improving and updating service delivery. In a world of borderless transactions, banks can also evolve and take up some roles in enabling cryptocurrency adoption.
Denise Quirk is a Health Advisor and fascinated by Crypto, Blockchain Revolution. She is a believer of transforming complex information into simple, actionable content. She is keenly interested in finding the value of the crypto world. She writes for Coin Review, Bitcoin Warrior, Irish Tech News, etc. You can find her on Linkedin, Twitter and Facebook.