While there is some kind of rollercoaster in the cryptocurrency market with sudden price ups and downs, the irrefutable fact is that digital currencies are maturing. The decentralized technologies that fuel coins like Bitcoin and Ethereum are getting more secure and sophisticated day after day, and commercial banks seem to fall far behind in this race.
Indeed, traditional banking institutions have many notorious issues. From low stimulus to savings and prohibitively high commissions to security problems and slow processes, financial institutions no longer meet the needs of modern customers. Consumers are eagerly withdrawing deposits from banks and place the money into digital assets, challenging the competitiveness of classic financial systems.
The Attitude of The Global Economy to Virtual Currencies
Though digital currencies encounter lots of skepticism and disbelief, battle lines between cryptos like Bitcoin and conventional money like the dollar are getting harder.
According to PwC, more than 80% of large banks are now researching the opportunities of creating digital versions of their currencies, conducting experiments, or launching some pilot programs. China, the locomotive of the global markets, is pouring over $300 million digital renminbi (virtual Yuan) into its economy, and this figure will be only increasing in the nearest years.
Giant banking institutions like The European Central Bank and the Federal Reserve are thoroughly investigating the phenomenon of cryptocurrency. The Bank of England assumes that it will be responsible for the issuance of “Britcoin.” Sweden is developing an “e-krona” and by 2023, it may become the first country with no-fiat payments.
Gargantuan corporations like Tesla are pumping billions of dollars into crypto and, despite whimsical tweets of Elon Musk about the non-acceptance of Bitcoin as a valid payment for their mega-cool cars, the company still has not sold any unit of Bitcoin. The company seems to know something important about virtual currencies, for instance, that they are going to stay for a while or even forever.
Looking at these facts, it is fair to say that the crypto economy has already become a part of the game. Today, many people find digital currencies a very convenient means of payment. The major reason is that cryptos are remarkably faster and easier to utilize than traditional money. With a nifty crypto wallet app in your smartphone like Crypterium, you can pay with tokens as you do with fiat.
Can Crypto Economy Dethrone Banks?
Despite volatility and unpredictability, cryptocurrencies have set the economic world on fire. Their popularity and acceptance are growing, making central banks quite nervous. Cryptocurrencies have lots of tangible benefits over legacy banks, which may constitute a real threat to the credibility of central banks.
- Digital currencies are decentralized, meaning they are fault-tolerant. Decentralized systems are more stable against unforeseen errors because the entire decentralized ledger is spread across thousands of computers, making it impossible to compromise.
- They are more secure against attacks. Given the decentralized nature of coins, the entire network can hardly be disrupted, damaged, or hacked because they do not have any central points that can be targeted.
- Cryptos are trustless. Before the appearance of Bitcoin, any national currency needed a central authority that you had to fully trust in order to use that currency. You can use the national fiat only in the ways that the central regulatory determines. Once the regulator has no authority, the value of the fiat may fall too, leaving you with nothing. In the case of cryptocurrencies like Bitcoin, each part of the network checks what the other parts claim and no one needs to be trusted. If you are making a transaction with tokens, all nodes must receive the transaction data and verify that the signatures are correct. If the signatures are inappropriate, the transaction is rejected. This is one of the best advantages of virtual money.
- Virtual coins are transparent. Absolute transparency of transactions stored in the public ledger is achieved through decentralization powered by the public blockchain. The token movements are clear and nothing is hidden within the blockchain. It is also very important for building confidence among the users.
With such badass advantages, digital assets stand a good chance to squeeze out banks from the market. Virtual currency can easily substitute fiat in all areas of its use such as a means of hoarding, a settlement medium, or a unit of account. And platforms powered by distributed ledgers could replace banks with faster operations, better security measures, smaller fees, and more powerful smart contracts. There are already lots of Defi platforms allowing you to take loans, fundraise capital for your project, and transact both with peers and merchants using crypto. And this is just the beginning.
Many tech-savvy people believe that the crypto economy already has what is needed to replace legacy banking and finance systems. But is it possible? Banks and governments have the most power in the world. Surely, they will not sit back while cryptocurrencies and blockchain are gaining momentum. For now, almost all global governments are actively investigating the opportunity of introducing some form of sovereign-backed digital currency – only to prevent Bitcoin and other cryptos from attracting too much of people’s attention (and money).
As cryptocurrencies are revolutionizing the world (and transforming our attitude to fiat currencies), centralized authorities are pushed to start recognizing virtual coins. Otherwise, they may go extinct due to their uselessness.
To remain afloat, banks (and money that they issue) will have to provide the same or even better benefits of cryptocurrencies to effectively withstand the competition stemming from Defi. Commercial banks may find themselves on the outskirts of life as the public would no longer be willing to pay high fees and rely on middlemen to conduct transactions. Cryptocurrencies may leave banks exposed to the disintermediation risk, which is, perhaps, the main reason why central authorities are clamping down on digital assets and militating against their universal adoption.
To endure the increasing competition, private banks will need to provide their clients with more value. The point is, as ordinary people are becoming more educated about cryptography and decentralization, they see more benefits in the use of virtual currencies.
As commercial banks are afraid of being replaced, they are lobbying their interests through the government, making the latter pass legislation that will ban crypto. Still, complete prohibition is hardly possible as the public is actively supporting the innovation, and big companies like Microsoft and PayPal have jumped on the bandwagon and started accepting Bitcoin as payment, thus, ushering in a possibly permanent adoption of digital assets.
People have begun to realize that crypto does not end merely at Bitcoin or Ethereum and that blockchain and Defi are finding much more uses. The needs of people will always dictate the rules, and what people will always want is the ultimate convenience, better flexibility, and more effective solutions to their problems. As not only individuals, but big investors are getting more interested in crypto, this may tip the scale in the financial arena, ending with the replacement or quality transformation of obsolescent banking and finance.