Cryptos are becoming an adored asset worldwide and are expanding exponentially. Perhaps it is because many countries worldwide look towards digitizing their economies. Some countries like China have even created the Yuan digital coin towards this goal. In fact, in China, the coin has a sole distributor in the bitcoin-buyer.io, spearheading its trade.
Traditional banks, on the other hand, are coy about adopting the use of these digital assets. In fact, they believe that the risks that cryptos carry outweigh their potential benefits. A lot needs to be done to change this narrative and perception.
What, then, is the impact of cryptocurrencies on the banking industry? Below are some reasons that can help answer this question. This article also outlines what can be done to get the banks involved with cryptos.
Fear of the Banks
Recent studies show that 63% of people in the banking industry view cryptocurrency as a risk. They see no opportunity in it. Their reasons are:
- Cryptos’ Decentralization
Crypto assets are alternatives to traditional banking that require no intermediary. They are not under the control of a centralized authority like a bank, government, or agency. In fact, the coin’s trust is in the blockchain code and its distributed nature.
Banks are, thus, shy about dealing with the coin because one managed by a central bank loses its appeal. Decentralizing cryptos seems to undermine the central banks’ authority. This reason leaves many people believing that the coin may become obsolete.
- Cryptos’ Volatility
In cryptocurrencies’ short life span, especially Bitcoin, their prices have generally been volatile. Many reasons are attributed to this, such as liquidity, market size, and the number of buyers. To banks, this is a red flag, a risk given that the price is not stable. They see the coin remaining as an unstable investment medium in the long run.
- Concerns with KYC/AML
Since cryptos allow for peer-to-peer transactions, there are no transaction fees. Lack of control in such transactions means that the trust is on the blockchain’s transaction ID. Banks see this as a loophole that many traders can exploit.
They fear people may violate regulations on anti-money laundering (AML). In reality, it is impossible to implement know your customer (KYC) regulations successfully. Banks take it that the coins’ transactions could lead to scams and illegal activities.
How Do Banks Get Involved?
Banks need to come on board and embrace this technology. It is counterproductive to have them as enemies of the coin. Having them on board may lead to the adoption of cryptocurrencies.
In fact, the move has the potential to streamline, upgrade, and improve financial services. Some things need to change for this to happen, and these are:
- Custody Services. Banks can be granted the right to hold cryptocurrency custody services for customers. They can get the right to hold unique cryptographic keys linked to private wallets.
- Administration of AML/KYC Regulations. Since these are key banking regulations, banks can enforce them with cryptos. This way, the banks can help to avoid illegal activities and scams. They can also prevent malicious transactions on crypto trading platforms. Banks may be able to automate KYC and AML verifications when linked to blockchain technology.
- Speedy Payments. Banks can use public blockchains to speed up payments to customers. The transaction cost also becomes cheaper in the process.
- Smart Contracts. Banks can act as a third party to smart contract agreements to reinforce trust. They can use commercial loans, mortgages, credit letters, and much more to do this.
- Security Concerns. Banks can help allay the fears of crypto holders. Using their security systems, banks can secure personal wallets and exchanges.
- Expert Help and Easy Onboarding. Banks can convince doubting investors to take up cryptos. They can use the tools they’ve created to dispel any doubts and promote the coin’s benefits.
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