Fintech is an ever-evolving industry that has been unfolding to exceed our expectations in recent years.
Especially with new technological innovations and unprecedented business models being introduced in Fintech, it will keep booming and won’t stop anytime soon.
Many Fintech Trends have played their part in the evolution of the Fintech industry over the years.
The destiny of the Fintech industry looks promising with [AI] Artificial Intelligence, Smart Contracts, [RPA] Robotic Process Automation, [AR|VR] Augmented Reality | Virtual Reality, [ML] Machine Learning, and Cloud Computing.
All these Fintech trends have their consequential roles in developing the Fintech industry, but something stands out among those key trends; the Cryptofication of Banking.
This article illustrates why Cryptofication of banking is the next big thing in the Fintech Industry.
Let us begin with the basics and dive into details in the later parts of the article.
What is cryptocurrency?
Cryptocurrency, or simply crypto, is a digital currency and a form of the payment system which doesn’t require any bank for transaction verifications.
Crypto is a peer-to-peer digital transaction system that allows encrypted transactions regardless of time and place.
Crypto utilizes encryption for transaction verification, where it gets its name [from]. It incorporates some serious coding to facilitate security and surveillance while storing and dispatching cryptocurrency data between crypto wallets and to the public ledgers.
In simple words, crypto-currency 💱 is an alternative to physical banknotes but is digital, and crypto users should perform all transactions digitally.
Bitcoin is the first-ever crypto created in 2009 by a Japanese Scientist named Satoshi Nakamoto.
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What is the cryptofication of Banking?
Cryptofication of Banking can be defined as the approach to creating and utilizing digital currencies as an alternative to physical banknotes.
It also incorporates the existing digital currencies or cryptocurrencies within their system, bound by some guidelines and banking policies.
Cryptofication of banking is not all of a sudden act, but a series of skeptical thoughts and ignorance turned into a legal reality by financial institutions to address the accumulating customer demands.
Central banks and other financial institutions did not approve of the cryptofication of banking in the beginning and still do not guarantee the protection of any such services.
Despite all these hindrances, the number of crypto users is growing significantly.
Banks and other financial institutes are steadily acknowledging the increased demands of crypto users and the potential of the crypto market in the future. Most of the developed countries have legalized cryptocurrency, while there are still many countries where cryptocurrency is illegal.
Many banks and other financial establishments, especially in developed countries, have started crypto-friendly services to capitalize on the potential of the crypto market.
The fear of being obsolete and left behind by the competitors when ignoring the requirements of crypto users is the driving factor in the cryptofication of banking.
The evolution of cryptofication of banking and crypto-banking relationship.
As mentioned earlier, central banks and other financial institutes did not approve of the concept of cryptocurrency and were completely against it.
It was illegal to mine and trade crypto globally since banks, and other financial institutes were afraid digital currencies could put them out of business.
Despite being illegal and incompatible with the current banking system, cryptocurrency spread like wildfire.
It gained popularity among all groups as people bought into the hype of being millionaires overnight. Some earned a fortune from crypto, while others lost millions.
Crypto users understand the risk and are still willing to take those risks, growing the crypto market every day.
It is believed that more than 18 million Bitcoins are actively circulating on the crypto market to date. Additionally, you can find 1583 types of cryptocurrencies on coinmarketcap.com.
You can only imagine the horizon of the crypto market globally. Statista stated that the global crypto users increased by nearly 190% from 2018 to 2020. Another reliable source crypto.com predicts the number of Global Crypto users to reach 1 Billion by the end of 2022. It is apparent that the crypto market is on the rise daily.
Seeing these metrics, the banks and other financial institutions have started incorporating crypto-friendly services in their portfolios. Some front runners want to capitalize on the potential of the crypto market as much as possible. In contrast, others are compelled to do so by the fear of being left behind and obsolete.
Some big names in the financial industries have dived right into the crypto market and introduced their [own] cryptocurrencies to fight against the leaders in the market like Bitcoin.
JP Morgan, a giant in the US banking sector, has initiated a digital coin [JPM Coin] and allows affluent [wealthy] management customers access to its crypto funds.
Additionally, many Central Banks across the globe 🌐 have started crypto projects to commence their [own] cryptocurrencies, i.e., Central Bank Digital Currency (CBDC).
Central Bank of Nigeria, Peoples’ Bank of China, Eastern Caribbean Central Bank, Bahamas’ Central Bank, and Zimbabwe’s Central Bank are some central banks scouring digital currencies. El Salvador went a step further and legalized Bitcoin as a currency.
We can witness the rise of digital currencies over the years, and the cryptofication of banking is imminent worldwide. It is just a matter of time before cryptofication becomes the main thing in the Fintech industry.
What are the reasons behind the adoption of cryptocurrencies by banks and financial institutions?
We learned how banks’ perspectives have changed toward digital currencies over the years. So let us find out the reasons behind such transformation of attitudes of the banks that lead to the massive adoption of cryptocurrencies by banks and other financial institutions.
Below are the two major reasons/factors:
- Increasing customer demands for crypto-friendly services.
- Fear of being obsolete and left behind by crypto competitors.
Increasing customer demands for crypto-friendly services.
Cryptocurrencies had a different hype among the people who knew about them. Those people played a crucial role in the evolution of digital currencies that led to the cryptofication of banks as a result.
As mentioned earlier, cryptocurrencies have the potential to make fortunes at the same time with the same amount of risks involved. People buy themselves into the positive aspect of crypto, undermining the risks, which is the major contributor to the growth of the crypto market.
The number of crypto users is growing at a tremendous rate daily. A DIGITAL 2022: GLOBAL OVERVIEW REPORT by GWI published in Datareportal indicates that the number of crypto owners has increased by 37.8% at the start of 2022 compared to that of 2021.
Additionally, Triple A published a report in 2021 that showed approximately 300 million+ crypto users existed at the time of reporting. It also indicated that more than 18,000 businesses accepted digital currency or cryptocurrency payments worldwide.
You can only imagine the growth of crypto owners and the size of the crypto market in the coming years. This growth doesn’t come easy; it also increases user demands that their banks or institutions allow them to provide crypto-friendly services.
Crypto owners want their financial institutions like banks to address their needs and protect their crypto assets. These needs of crypto owners aren’t properly being met, and this situation may lead crypto users to boycott banks and other financial institutions.
The banks and other financial institutions have realized this huge opportunity to capitalize on the crypto market and make a fortune. They need to address the crypto owner’s demands as much as possible, and it is almost the right time for banks to come into the equation.
Some banks have initiated programs to incorporate crypto-friendly services and even introduced their digital coins into the market. And other tech companies have started accepting digital currencies as payment.
A famous example can be Tesla accepting Dogecoin as payment for specific merchandise.
Fear of being obsolete and left behind by crypto competitors.
Many banks and other financial institutions are steadily migrating toward the new age of digital payments and cryptocurrencies. Still, there are many countries where cryptocurrencies are illegal, and these countries will certainly fall behind with time.
Banks have started incorporating digital currencies in their operations in countries where digital currencies have legal status. If everything goes right, these banks will be the front runners in the market and gain an advantage over other normal banks.
This fear of falling behind has become a major contributor to the banks welcoming digital currencies and accepting crypto as crypto assets. They have a constant fear that if they do not incorporate digital currencies at the moment, they will become obsolete with time and lack to retain their business status in the future.
Despite the fact that the Federal Deposit Insurance Corporation doesn’t presently ensure and protect these crypto-based services, many banks are prepared to face the possibility of the potential loss. Why? Because they don’t want to fall behind, and there are chances of making fortunes if nothing goes south.
The other fear is digital currencies depend on Blockchain technology, a decentralized finance technology ⚙ that doesn’t necessarily require banks. If banks don’t become innovative and cash in on time, they will be excluded from the equation.
As always, fear drives people to make critical choices even if it means harm in the future.
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Conclusion: What does the future hold for cryptocurrencies?
Cryptocurrencies will stay in the market and continue growing regardless of legal ⚖ jurisdiction by the government. The question is whether the banks are willing to address the crypto owner’s increased demands and include crypto-friendly services in their operations.
What happens if banks do not incorporate crypto? It is clear that crypto will have a detached space in the market where crypto users will boycott banks and other financial institutions. It definitely is not a good idea to back off from the potential of the crypto market.
Why are some banks reluctant to adopt cryptocurrencies? Because of the regulatory clarity, it is still undefined if the countries worldwide are willing to legalize cryptocurrencies. Despite this, countries with depreciating fiat currencies have a high probability of adopting crypto and other digital currencies.
Despite the concern about the future of cryptocurrencies, many banks and businesses are likely to adopt crypto-friendly services and crypto payments for their services and products. Some banks have issued their [own] digital coins to compete with Defi [Decentralized finance] used by cryptocurrencies.
The demand for cryptocurrencies is not declining despite the banks coming up with their digital currencies because those digital currencies [Central Bank Digital Currency] are centralized, while crypto is decentralized.
We can discern the legalization of cryptocurrencies globally at some point. The countries and banks that are reluctant to adopt crypto in their services now will suffer colossal fiasco in the future. Cryptofication of banking could change the dynamic of the whole Fintech industry within a few years.
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🔁Can crypto replace banks?
We can say that crypto can replace fiat money. Crypto uses a decentralized blockchain technology that can replace the banks with lower fees for faster payments and transactions, smart contracts, and a higher level of security.
✋Can government stop cryptocurrency?
Governments can ban cryptocurrencies legally. Despite being illegal, crypto will keep growing with time. It is almost impossible for governments to stop 🛑 cryptocurrency.
🤔Can you buy crypto through banks?
Currently, you cannot purchase crypto through banks and other investment firms. It is a possibility in the near future.
💱How can you buy cryptocurrency?
You can buy cryptocurrency through cryptocurrency exchanges (trading) platforms like Coinbase, Crypto.com, Gemini, etc. They facilitate the exchange of your fiat money [USD] for the cryptocurrency you desire.
🏦Which banks are best for cryptocurrency?
The top 5 banks for cryptocurrency are Bankprov, Wirex, Revolut, Ally Bank, and USAA.