This is how decentralized cryptocurrency will change the banking system.
A cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets. Decentralized cryptocurrencies such as bitcoin now provide an outlet for personal wealth that is beyond restriction and confiscation. Decentralized cryptocurrencies like Bitcoin and Ethereum have strong advantages over centralized financial systems, primarily because of their ability to function and operate without a single point of failure, which hackers and bad actors can target.
Non-custodial cryptocurrency wallets enable users to remain in full control over their funds, by only allowing users to gain access to their private keys and no other centralized entity or platform. As such, Bitcoin wallets like Blockchain, Trezor and Ledger cannot refund transactions or recover user accounts once the private key is lost, encouraging users to be more financially aware and responsible.
The offshore banking industry, which is dominated by influential financial institutions like JPMorgan, is structured around large banks that are able to clear big sums of money in an efficient and secure manner. But, the transfer of millions to billions of dollars requires significant manual labor including transaction verification, Anti-Money Laundering (AML) checks and payment clearing. In addition, the banking system is slower than the online crypto transaction when it comes to foreign transactions and currency conversions.
Regarding transaction settlement, offshore banking, and financial freedom, centralized systems of banks fall significantly behind major cryptocurrencies, which can offer all three services with low costs and a robust infrastructure. Cryptocurrencies like Bitcoin and Ethereum have significant advantages over banks in a number of areas, including security, borderless transaction settlement, efficient payment clearance, and lack of dependence on centralized service providers or entities.
Central bankers say the success of bitcoin and other cryptocurrencies is just a bubble. But it keeps them awake at night because these private currencies threaten their control of the banking system and money supply, which could undermine the monetary policies they use to manage inflation. However, the exposure to the cryptocurrency market to cyber threats and crimes, the traditional roots of banking systems would not erode completely.
Banks cannot vanish from the finance sector as there are parameters which crypto won’t be able to cover and run with. Banking systems might transform and get influenced by the crypto factor, causing a total turnover in the normal exchange mediums. It is too early to predict with which cryptocurrency, how and when the transformation would happen, but its impact will leave every user influenced.