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How the Banking Industry Might Be Affected by Cryptocurrencies


Traditional banks are reluctant to employ cryptocurrencies because they believe the inherent hazards outweigh the potential advantages. Even though the cryptocurrency sector is developing and becoming more popular, regulations such as those from OCC, on the other hand, are striving to shift banks’ views on digital currencies, thinking that these assets may propel financial institutions into a new era of creativity and efficiency.

Digital currency transactions (or new services) may now be carried out by conventional financial institutions, according to various OCC interpretation letters published recently. The OCC hopes that banks cease dealing with digital assets by providing more regulatory guidance. According to the OCC’s announcement in early January, national banks and federal savings organizations may now make payments using public blockchains.  Visit Bitcoin Assets for more information about cryptocurrencies.

Removes a Recession-Deciding Central Authority

Policies governing the creation of fiat currencies, which have long been the dominant form of money, are set by central banks. It implies that they are also creating and circulating paper money. Structures like this have the disadvantage of placing an excessive amount of faith and accountability in the choices made by a single entity. Studies show that central banks have used incorrect monetary policy measures in the past, leading to crippling recessions that have been revealed by many.

Since Bitcoin is a decentralized virtual currency, it would be impossible for governments to influence the money supply or exchange rates into conventional financial institutions. Financial transactions are simplified since there is no central body to oversee the creation and circulation of currency.

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Rising Use of Electronic Payments

Business owners, investors, and individuals use Bitcoin because of its decentralized nature, which enables them to send and receive money from anywhere in the globe. Because of this, Bitcoin remittances are quicker and safer than government-managed money transfers or credit card transactions, and they’re also less expensive. Using Bitcoin and other electronic payment methods encourages individuals to do so. According to several businesses and cryptocurrency trading platforms, Bitcoin transactions have been steadily rising.

There are a growing number of firms, investors, and people that utilize Bitcoin as an investment and payment mechanism. To guard against the hazards of central banks and government-induced market manipulation, many firms have amassed considerable Bitcoin holdings.

How Cryptocurrencies Affect Banks

They found that roughly 63 percent of respondents in the banking sector saw cryptocurrencies as a danger rather than an opportunity.

Dispersed Nature

Rather than relying on a centralized government, bank, or agency, they designed crypto-assets to alternative conventional financial infrastructure. For this kind of transaction, faith in the blockchain code and its distributed nature is in the blockchain itself. Some banks don’t feel they’ll succeed in the cryptocurrency market if the central bank oversees an asset, which lessens its attraction in the first place. We see the Decentralization of the currency as undermining central banks’ ability to regulate the money supply, leading some to feel that they are no longer necessary or incapable of doing so.

Concerns around AML/KYC

Due to the lack of a centralized middleman, cryptocurrency transactions are peer-to-peer and hence free of transaction fees. When a transaction is on the blockchain, it is not associated with a specific bank account but rather with an ID generated by the blockchain. Many banks are worried about the absence of anti-money laundering (AML) and know your customer (KYC) rules around digital currency transactions because of this form of pseudonymization. Many banks believe that bitcoin transactions cannot be traced for AML and KYC reasons, leading to criminal behavior and network fraud.

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Bitcoin’s price has fluctuated a lot during its brief existence. Market size, liquidity, and the number of players all play a factor in this. Due to the currency’s volatility in the past, banks see this as a risk since they feel it will not be a reliable investment vehicle in the future.

Assured Custody

Customers’ private wallets may now be under a bank’s or savings association’s custody, with the OCC stating in July that banks and savings organizations could offer such services. Because of this, the OCC thinks that banks may be able to securely and efficiently keep the cryptocurrency on a personal digital wallet for its clients.

Intuitive Orientation & Prompt Assistance

There are several ways that banks may assist in bringing in new, less-experienced investors into the cryptocurrency market. Some cryptocurrency investors may not be capable of setting up their wallets to store and manage their bitcoin assets. Banks might offer Interest-bearing crypto accounts, which would allow users to invest their crypto on the back end or via other financial instruments. By serving as a responsible third party that is well-respected in the financial business and can secure investors’ money, banks may alleviate some of the anxiety of investors who aren’t specialists in the subtleties of crypto.

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