Millions of people in the United States are using digital currency to benefit their business. It has different benefits. This is why people, especially young people, find it very beneficial to trade digital currency loans. So, what impact will cryptocurrency have on the banking industry? Can it replace traditional banking? Next, let's have a look.

What impact will cryptocurrency have on the banking industry?

Although encryption is steadily expanding and becoming more and more popular, traditional banks hesitate to use or adopt digital currency. This is because they are worried that digital currency will affect the current or current system. However, the OCC believes that virtual currency can play a positive role in the banking industry and drive the development of the industry with new innovations.

According to a study conducted by the Certified Anti Money Laundering Experts Association, about 66% of banking employees feel that the risks of encryption outweigh the opportunities. Why?

1. Decentralization characteristics

Digital currency is essentially decentralized. This means that it follows its own system, rather than keeping consistent with any centralized intermediary services such as the government and banks. Therefore, it is clear that digital currency follows its own standards and regulations, rather than completely destroying any centralized organization. However, traditional banking may be threatened by decentralized transactions. The decentralized nature of transactions may expose the entire banking industry to risks and uncertainties.

2. KYC problem

Whenever you set up an account in a financial enterprise, you must provide documents to ensure your registration in the financial enterprise. In this case, you need to carry out KYC with the bank. KYC transactions are mandatory. This is not suitable for virtual currency. When you apply virtual currency, transactions occur from point to point. Therefore, there is no intermediary between them. Therefore, banks generally feel that digital money will be used to shape illegal behavior. This led to a deficit of trust in digital currency in the banking sector, which hesitated to integrate it into the traditional monetary system.

3. Volatility

Another reason is to promote the fear and suspicion of digital currency. Digital currency is absolutely unstable. This means that you can be at the peak of economic success. But at the same time, you will completely collapse yourself in a few days. The traditional banking business is not volatile, will not increase abnormally, will not fall in price, so that you are completely exposed to risk. Unless the economic downturn strikes, the banking business will not collapse. Therefore, volatility becomes one of the risk factors related to digital currency.

Can cryptocurrency replace traditional banking?

Decentralized financing (DeFi) will soon become a buzzword. Because the DeFi platform allows users to obtain new decentralized borrowing, exchange and savings services, the blockchain will be sufficient to use digital currency to replace traditional credit business, and help people willing to accept this new ecosystem to use their own property in a more flexible way. There is no doubt that DeFi is not a credit business, it is just imitating the effect of banks. Specifically, it does not provide some of the other elements that banks focus on most - especially security.

This application field is unable to receive deposits, and it is difficult to return to the business paradigm of traditional banks, which is obviously a risk signal. They will not be responsible according to legal examples, so if the smart contract goes wrong, there is no investor protection plan suitable for recovering the lost currency. In short, from the most realistic point of view, few institutions can be called "cryptocurrency banks". However, no matter how few, blockchain solutions have been gradually improved in the hands of the financial team, and they have also begun to accept supervision and guidance from the regulatory authorities.

At present, blockchain applications face double challenges: first, they must be in a regulatory environment and be provided with complete and reliable solutions by abundant local talents. In Germany and other countries/regions with more enlightened policy formulation ideas, enterprises and organizations with legal tender and monetary assets can easily participate in decentralized economic behavior through cryptocurrency banks. Cryptocurrency banks represented by Bitwala and Spot9 are expected to gradually become the bridge between legal tender and digital currency economic system, or at least the foundation for building a bridge.

Under the supervision of the Federal Financial Supervisory Authority of Germany, Bitwala's savings are guaranteed by the German deposit guarantee scheme (like other German banks), with a maximum margin of 100000 Euros (equivalent to 113000 US dollars). Bitwala has also established a cooperative relationship with Solaris Bank, which is regulated by the European Union, to ensure that the account holder can operate Bitwala like a general bank account - including payment, rent and bill payment, currency exchange, initiating inter-bank remittance, and seamless deposit ordering currency and digital currency.

Because blockchain finance has a series of unique advantages, many large scale digital currency companies can provide similar banking services to other large enterprises before the laws and regulations have taken shape. Taking the United States as an example, the Securities and Exchange Commission of the United States has not clearly recognized that these enterprises have the right to overall banking business, but blockchain based investment funds have long been emerging. Coinbase Custody is one of the most typical examples, but it can only be a fund - not a "bank" - before being approved by the regulatory authorities.

Serious investors and enterprises are more willing to operate under the full supervision of the tax authorities and regulatory authorities, and report work content when necessary, so as to legally exchange conventional assets for the currency provided for Coinbase Customer. At present, Custody allows participants with a large amount of digital currency input to obtain a separate trading mode, and enjoys the seamless integration, deposit insurance, investment tools, customized reporting and third-party audit services provided by Coinbase Pro Exchange.

In fact, people have gradually realized that the combination of digital currency and the current monetary system is like putting a round steel nail into a round hole. At present, the most advanced platforms are trying to eliminate the competitive financial institutions and regulators that have long been rooted, but they forget the lack of such transferability, resulting in the lack of one of the five most basic characteristics in the definition of loan currency.

Like fiat currency, currency is scarce, sustainable, divisible and replaceable, but the regulatory authorities can certainly block the link of transferability. That's why MyCrypto Bank Advanced platforms such as io decided to use the stable goods linked to legal currency to carry out free cross-border transactions, expenditures and investments. However, the so-called digital currency with real valuable certificates such as US dollars or stocks as its core also has problems. The regulatory authorities still have the right to block the circulation of this cryptocurrency, tighten the channels for the use of this fund, and even prohibit the exchange of this asset for legal tender.

Speaking of this, I believe you have a certain understanding of the impact of cryptocurrency on the banking industry and whether cryptocurrency can replace traditional banking business. In general, the value transmission and storage capacity of digital currency is gradually gaining general recognition, but it is still slowly progressing on the most important issues. As digital currency will play a greater role in the next few years, the comprehensive economy with higher degree of bank management freedom will become the largest beneficiary. In addition, since Bitcoin, the "ancestor of encryption", has not yet really entered the financial center, it can be basically determined that the mainstream acceptance of digital currency is still a long way off.