Traditional banks have existed since the 15th century, but crypto banks came into being for less than a decade. Since the inception of Bitcoin – the most valuable cryptocurrency tradable via trading tools like this platform, the popularity of cryptocurrencies is increasing day by day, and resultantly, crypto banks are getting worldwide recognition and adoption.
Cryptocurrency banking is the latest phenomenon that explains how individuals can interact with digital currencies. There lies a coherence point between crypto investment and conventional banking procedures where bank services are provided to interchange and transact with both fiat and digital currencies.
What Is Crypto Banking?
Crypto banking is a blend of traditional banking and blockchain technology. These banks resemble traditional banks and perform the same functions of accepting deposits and advancing loans. The point of difference is that crypto banks use cryptocurrency or digital currency like Bitcoin or Ethereum instead of US dollars or Euros to perform all the banking activities. It is important to note that these banks are also different from cryptocurrency wallets and the wealth management networks of cryptocurrencies. Contrary to the other two apps, crypto banks usually contain bank accounts with federal government approval and the services of credit & debit cards.
How Do Crypto Banks Operate?
Crypto banks work in the same way as traditional banks. These banks typically require customers to complete a KYC check; so that they can proceed to deposit their funds. Once a customer passes a Know Your Customer check, he is allowed to use the platform. After that, customers can earn cryptocurrency, but first, he has to approach any crypto exchange to convert their fiat currency into cryptocurrency. Some crypto banking platforms come with built-in exchanges; that allow users to buy cryptocurrencies with fiat money. You need to create a digital or crypto wallet for transferring your crypto funds into your crypto bank account. Some crypto banks restrict your access to crypto wallets and do not let you use them. For instance, some crypto banks do not allow customers to withdraw digital currency to an external wallet. On the other side of the coin, some crypto banks provide additional services beyond the crypto wallets.
Advantages Of Crypto Banking
- The first and foremost benefit of crypto banking is its worldwide recognition and acceptance. In many countries, customers are not satisfied with traditional banks. Problems such as poor infrastructure, insurance deposits, unbearable remittances charges, hyperinflation, and bank closures have hampered economic growth. Crypto is beginning to address these problems and provide the latest mechanism to promote financial inclusion. Crypto platforms facilitate their users with equal access to financial services irrespective of their locations and their income levels. There exists no discrimination.
- Another advantage of crypto banking is that, generally, there is no difference between banking hours and off-hours. If a customer wants to borrow on Friday night, he does not need to wait till Monday morning for the opening of the bank. If a customer wishes to transfer funds from a crypto wallet to a lending platform to earn interest, the process is virtually immediate. Also, interest begins to arise instantaneously. Crypto Never Sleeps. Although it can be a hassle at times, if you are continually looking at the price charts, it is certainly an advantage when it comes to accessing financial services.
Risks Associated With Crypto Banking
- The crypto prices oscillate more frequently and to more extent than other asset categories such as stocks and rare metals. It may be a surprising outcome if crypto prices rise. However, when prices fall, new market participants lose confidence and sell short in panic. Many investors often face Fear Of Missing Out (FOMO) and purchase only when the market is in a boom.
- Another considerable aspect is security. Even with custodial crypto platforms that handle funds, users should be wary of security risks. The duty to keep an account safe rests, at least in part, with the customer or user. Phishing attacks or simply transferring funds to the wrong public addresses are general issues.
Future Of Crypto Banking
The banking sector and crypto world have intertwined in a shorter period and intend to continue the journey in the same direction. Many banks have adopted blockchain technology and utilized the public ledger mechanism. Crypto banking, with the help of blockchain, can make this industry more transparent and profitable.