Banks can’t afford to continue ignoring cryptocurrencies
As crypto continues to gain traction, with spending portals popping up around the world, central banks are looking for alternatives.
Increasingly, customers of retail banks and institutional investors are expressing interest in the use of crypto payments. This is because they are more democratic and accessible than traditional banks, which have more demands attached to them.
The technology behind cryptocurrencies, blockchain, is also seeing an increase in engagement due to its unauthorized and transparent nature.
In turn, this means that more people will be able to access the entire decentralized finance (DeFi) ecosystem without government permission.
This is important for developing countries keen to take their populations to the next financial level as internet and mobile payments gain in popularity.
Therefore, governments and banks will have to catch up because they can no longer afford to ignore what is happening.
For this to be successful, however, there has to be a blockchain push and a willingness to bring digital infrastructure to everyone.
Internet changes banking
Emerging financial technologies such as artificial intelligence (AI), blockchain, Internet of Things (IoT) and quantum computing are essential to ensure the fair and secure adoption of digital assets.
By pushing the concept of blockchain further, early developers and adopters have a lot of knowledge to assess its risks and potential.
Technology is already transforming many industries: e-commerce, real estate, games, art, fashion and sports to name a few. It is now up to banks and financial institutions to adopt it or to be replaced by digitized populations.
Just as the internet is changing conventional banking processes, blockchain technology and DeFi are also transforming the financial industry.
Without the use of the Internet, conventional banking takes a long time. Check clearing is taxing, transactions take place at a slower pace, some banking services are only available during business hours, and administrators have a lot more work to do.
The Internet eliminates these problems. It does this by providing users with the information they need at the push of a button. More importantly, it puts them back in control.
This is exactly what blockchain technology and crypto do. Through open the financial system, more people in the world can access what so many others take for granted.
It is for this reason that a joint venture between the crypto world and the bank presents the best alternative.
The rise of CBDCs
One area that banks are focusing their attention on is central bank digital currencies (CBDCs). These are slowly becoming a reality.
The Bank for International Settlements (BIS) has fully supported the development of CBDCs. It indicates that finances need to be updated so that Big Tech does not take control of the money.
The Bahamas were the first to launch a CBDC. While China has a number of trials in place to launch his own. Yet as other countries experiment with CBDCs, the European Central Bank (ECB) warns that there is a “stability risk” if banks do not offer digital currencies.
With so many startups and crypto-native companies, it is possible to skip an entire infrastructure while still allowing those companies to launch the new ecosystem.
Ultimately, however, if banks don’t get started soon, they will be overtaken and outmatched by existing fintech and crypto companies that offer mobile banking options.
Outperformed and Outperformed
Yet while the banks may lag behind, they are favored by the government. In Europe, for example, the regulations in force concerning cryptography are draconian. The same could be said of the United States in early 2021 during the The Trump administration.
Essentially, in order to regulate crypto for the public, regulators are pairing their restrictions with those currently facing banks. Plus, if regulations stand in the way of innovation and affect crypto companies, banks have a chance to catch up.
Bitcoin is seeing progress and widespread adoption. However, its initial promise as a digital currency is not fulfilled as users prefer it as a store of value. Elsewhere, companies today, and perhaps central banks in the future, value it more as an investment asset to hedge against inflation.
Ethereum is the next logical candidate for decentralized payments. However, grid congestion, along with its gas charges, is becoming a high barrier to entry for many users, especially in developing countries.
Layer two solutions tackle this problem, along with a series of protocol upgrades that will collide in Ethereum 2.0.
Benefits of crypto and DeFi payments
Open, decentralized and transparent are some of the advantages of DeFi over traditional finance.
As the entire balance sheet is available in DeFi, it is clearer for users, lenders and borrowers, as well as for future users looking for a financial institution. There is also the possibility of making the balance sheet public every day, like an open audit.
Another advantage is chain transactions. It is not a custodian, so all funds are in the possession of the user. Added to this is the fact that on-chain assets are more versatile for trade and use in DeFi services.
In addition, the latest data suggests that the number of people with an internet connection was close to four billion in 2019. This means that more than half of the world’s population could soon gain access to crypto wallets and digital currencies.
Finally, different from traditional finance, DeFi has five qualities that distinguish it: autonomous, without permission, without custodian, transparent and without trust.
One example is the partnership between Yearn. finance, a DeFi project, and CREAM, a loan protocol, which saw the two come together to launch Cream V2.
As part of the merger, the Protocols launched the Iron Bank. This is a protocol-to-protocol loan system for the DeFi space. What makes it different is that it’s fast. Loans can be taken out without collateral. As a result, banks would also benefit, as it would bring fewer middlemen to the table.
To look forward
Even if the banks try to ignore it, cryptocurrencies and DeFi are here to stay. They will no longer be able to afford to ignore them.
If successful, the ecosystem will take much of the power of the centralized organizations, handing it over to the people. Since 2008, confidence in those in a leadership position has waned as consumers turn to alternative solutions.
Collaboration between crypto and banking sectors is key to fostering innovation. It also helps reduce overheads, increase revenue, and ultimately create better products for end users.
With the help of DeFi, the financial system can take it to the next level. This will help to bank the two billion unbanked people worldwide.
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