Exactly twelve years ago, Bitcoin not only changed the way we think but it also changed the world, becoming the first cryptocurrency to permit safe and low-cost peer-to-peer transactions without intermediaries. Over the past few years, blockchain has become popular as the technology that brought us Bitcoin and is often still linked largely with the crypto universe, despite its other qualities. Today, let’s have a look at the difference between crypto and banking systems.
In this blog, I have covered several usages of blockchain from public to private sector and concentrated less on Bitcoin and other cryptocurrencies. Today I aim to shed some light at the cryptocurrency in the context of the traditional banking system it has been disrupting.
Traditional Money vs Cryptocurrency
Let’s begin by mentioning the major differences between traditional fiat money (euros, dollars, pounds, etc.) and crypto (Bitcoin, Ether, etc.). The main difference would be that crypto is a decentralized and global digital currency, or, in other words, outside the control of the banks and not backed by a central government. And ultimately, cryptocurrency is immune to the old ways of government control and interference.
Other than that, there is no major difference. Both fiat currency and cryptocurrency can be called money or currency. Both, in their essence, are mediums of exchange that are utilized to store and send value. Cryptocurrency, as well as fiat currency, could be used to buy goods and services. Both have their value governed by supply, demand, work, scarcity, and several other economic factors.
Benefits of Decentralized Financial System
The most significant benefit would be crypto’s ability to function and operate without a single point of failure which hackers could target. Another vantage point is that as most of the cryptocurrencies are based on a P2P settlement system and are fully operational round the clock on holidays and weekends.
The financial freedom and independence that cryptocurrencies bring to the table are extremely profitable to businesses and individuals operating in regions wherein government entities control banks and financial institutions.
It could also be said that using and trading crypto rises the financial awareness of the consumers as they and only they have complete access and control over the funds. No one is going to refund any transactions or recover user accounts once the private key is lost.
Regulations: Empowering or Restricting Crypto?
As I mentioned above, the fact that cryptocurrencies exist outside the banking system and its regulations have resulted in the majority of the users considering it the easier way of doing transactions. The costs are cheap, there is no need for a middleman, service is available and functioning 24/7, the supply is fixed, cryptocurrency aligns better with ideological purposes — these are few of the reasons why people prefer cryptocurrency transactions over traditional bank transfers. However, in recent times, the regulators seem to be catching up with the fast developments of the Cryptocurrency.
So, on one hand, there are those who perceive the rise of such regulations as an abominable surveillance system that contravenes the censorship-resistant principles upon which bitcoin was built.
On the other hand, there are also those who despite all the negativity surrounding the topic, consider this an opportunity to bridge the gap between traditional banking and cryptocurrency to revolutionize the whole financial system.
Only time will show if these new regulations will help cryptocurrency to become more mainstream or rather help the banks to regain their standing.
Merging Banking and Crypto?
Even if the near future doesn’t hold promises of merged banking and cryptosystems, it has become apparent that while cryptocurrencies have to adapt to the new rules and regulations, the banks have to learn to play the new game. Most of the more traditional operational methods need to be ditched and as an institution, they have to adopt a more fluid role. Maybe using blockchain technology in conducting their present business would assist the banks to stay afloat and modernize their operational models.
Fintech in Emerging Markets
The way mobile phones have changed consumer behavior and how people access the internet is also the reason why in the table above they differentiate between the developed and developing countries and speak about Fintech 3.5 when it comes to the latter. As of now, the countries with the highest Fintech usage are China (69%) and India (52%). China, India, and other emerging markets never had time to develop western levels of physical banking infrastructure, which has left them more open to new solutions. In the case of China, the fintech penetration is well above the average global adoption (33%) as well as that of the average adoption across emerging markets (46%).
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