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Looking at the bright future, more and more people consider it a great opportunity to invest in Cryptocurrency. However, the banking industry sees Cryptocurrency as a threat. People are discussing whether Cryptocurrency can affect the traditional banking industry. Let us find this out here to get a better answer to it.
The Role Of Central Banks
The role of Central banks has become important for many reasons. In a thriving democracy, the central banks stabilize the monetary systems. They ensure that the banks attain stability in the fiscal systems.
If there is a shortage of currency, the central banks have the power to print money. They are called banks of banks as they lend money to different financial institutions. Therefore they use their machinery to control the entire financial structure of a country.
How Cryptocurrency Affects Baking Industry
Although the world of Cryptocurrency is steadily expanding and gaining popularity, traditional banks are hesitant to use or adopt digital assets. This is because they fear that Cryptocurrency can affect the present or existing system.
However, the Comptroller of the Currency believes that digital currencies can play a positive role in the banking sector and usher in development in the sector with new innovations.
According to a study conducted by the Association of Certified Anti-Money Laundering Specialists, around 66% of the banking sector employees believe that Cryptocurrency is more of a risk than an opportunity. By Why?
1. Decentralized Nature
Cryptocurrencies are decentralized in nature. This denotes it follows its own system rather than aligning itself with any centralized intermediaries like the government, banks, and others.
Therefore, it’s clear that Cryptocurrency follows its own norms and regulation rather than completely undermining any centralized organization. However, the traditional banking sector might be threatened with decentralized transactions. This decentralized nature of the transactions can put the entire banking sector at risk and uncertainty.
2. KYC Concerns
Whenever you have an account with a financial organization, you must produce the documents that ensure you register with the financial institution. In this case, you need to do KYC with the bank. The KYC transactions are mandatory.
This is not applicable to digital currency. When you use digital currency, the transactions happen between peer-to-peer. Therefore, it leaves no intermediaries in between. Therefore, the banks often think that Cryptocurrency will be used to shape illegality.
This leads to the banking sector forming a trust deficit with Cryptocurrency, and they are hesitant to integrate it into the traditional system of currency.
Another reason propels stakeholders to raise fear and suspicion of Cryptocurrency. Cryptocurrency is completely volatile. This denotes you can be at the summit of economic success. But simultaneously, you bring yourself down completely within a few days.
The traditional banking system is not that volatile, meaning it does not increase the value abnormally, nor does it decrease the value so that you completely get yourself at risk. The banking system does not crash unless an economic recession hits it. Therefore, volatility becomes one risk element associated with Cryptocurrency.
Could Cryptocurrency Be The Future Of Banks?
Amidst the fear and apprehension that Cryptocurrency can completely dismantle the banking industry, people are also discussing the benefits. Traditional financial services follow a centralized structure. Thus, they can be completely under threat. If some malicious element successfully dents into the system, it can create havoc with the information.
But Cryptocurrency uses blockchain technology where information can be recorded in a decentralized ledger. A large network completely governs the entire working of Blockchain technology. Once someone records the information, it gets safeguarded in Blocks. So you are getting efficiency and security.
Moreover, by using Blockchain, one can manage transactions across borders with relatively low charges compared to traditional systems.
Closing The Discussion
The banking system follows its own rules. The central government controls the banking systems and makes sure that each and every section of the banking system works under some centrally managed system.
On the other hand, Cryptocurrency follows its own terms and conditions and completely undermines the traditional banking system. Therefore banks find the meteoric rise of Cryptocurrency as a threat.
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