How Banks Can Benefit from Digital Currencies

As more and more people become accustomed to online payments, they begin to understand the benefits of digital currencies like Bitcoin and Ethereum. These currencies are available to anyone with an internet connection, which means they can be used just as quickly by bank customers as they can by people who aren’t banking customers at all.

Cryptocurrency Benefits

Digital currencies offer many advantages over traditional currencies, and banks would be wise to take advantage of them as soon as possible if they want to stay competitive in today’s market. The sooner you open an online bank account, the sooner you can start enjoying these benefits in your own business.

What is Cryptocurrency?

Cryptocurrency is a digital currency that is created and managed through encryption techniques. According to experts at SoFi, “it uses cryptography to secure and verify transactions and control the creation of new units. The most well-known cryptocurrency is Bitcoin, released in 2009 as open-source software.”

Real-Time Settlement

Achieving real-time settlement at scale is a long-standing goal of financial institutions. Real-time settlement benefits all parties: payers, receivers, and financial institutions. However, there needs to be confidence in underlying transactions to realize these benefits, ensuring that transactions are valid when money changes hands. (You can always investigate suspicious activity later.) This is why crypto asset companies need banks—they offer precisely that kind of validation for large volumes of near-real-time payments.

Records of Transaction

Digital currencies are made possible by blockchain technology, which records each transaction in a public and transparent ledger. For any payment to be valid and irreversible, it needs to be validated by some entity with access to the global ledger. This means that someone can’t spend funds they don’t have. Cryptocurrency is also an effective anti-money laundering tool because banks can trace all transactions back to their originator (through block explorer).

Validating Transactions

Banks charge transaction fees and participate in network value in return for validating transactions. To be sure, they also need to take on risks if they offer direct conversion between fiat currency and cryptocurrency. However, it’s important to note that financial institutions do not bear any principal or counterparty risk on their customer-to-customer transactions as long as they remain compliant with existing regulations.

Key Trends

Robust consumer protection protocols and (crucially) a regulatory environment promotes consumer trust in digital currencies. In short, banks need to be where their customers are. And if it’s bitcoin, banks should try to offer bitcoin-based services as well.

Cryptocurrencies provide many advantages over current currencies and financial systems. They offer faster, safer, cheaper, and more transparent means of exchanging funds worldwide. This makes them ideal for small-scale global transactions and large cross-border payments.

Blockchain’s Opportunities in Banking

Digital currencies’ main value proposition is in lowering transaction costs. This can help banks by reducing their operating expenses and boosting revenues. For example, banks could use blockchain-based systems to process payments more quickly—an area where bank revenue growth has slowed as more consumers pay with digital devices. They could also lower foreign-exchange trading costs and reduce settlement times for securities trades.

With lower barriers to entry than traditional banking systems and structures, blockchain can bring new competitors into an established market, challenging incumbents by offering lower fees to consumers or higher returns to investors. As a result, we believe that cryptocurrencies will be commonplace in a decade.

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