Cryptos are becoming an advantage worldwide and are growing exponentially. Many countries are looking towards digitizing their economies. For example, China has already created its Yuan digital coin and has a sole distributor in the bitcoin-buyer.io.
Traditional banks, however, are reserved about digitizing their assets. Some believe that crypto for banks has risks that outweigh its benefits.
What is the impact of cryptocurrencies on the banking industry? First, we need to look at how cryptocurrency works.
Cryptocurrencies run on a distributed public ledger called blockchain, a record of all transactions updated and held by currency holders. Units of cryptocurrency are created through mining, which involves computer power to solve complicated mathematical problems that generate coins.
Here are some examples:
Bitcoin – it was the first cryptocurrency (founded in 2009) and is still the most commonly traded.
Ethereum – a blockchain platform with its cryptocurrency, called Ether. This is the most popular after Bitcoin.
Litecoin – similar to bitcoin but has developed innovations for faster payments and more transactions.
Ripple – founded in 2012, it can be used to track different types of transactions aside from cryptocurrency. They have worked with various financial institutions and banks.
How do banks get involved? Banks need to be on board with this technology. The adoption of cryptocurrencies may streamline, upgrade, and improve financial services. For this to happen, some changes need to be made:
Custody Services – grants the right to banks to hold cryptocurrency custody for customers. This is the right to hold the cryptographic keys of private wallets.
Administration of AMLA (Anti-Money Laundering Act of 2001) and KYC (Know Your Client) Regulations – key banking regulations can be enforced with cryptos. This is the way to avoid illegal activities and scams. This can also prevent malicious transactions on trading platforms.
Fast Payments – transaction costs also become cheaper in this process.
Smart Contracts – banks being the third party in agreements reinforce trust. They can apply this to loans, mortgages, credit letters, etc.
Security – bank security systems can secure personal crypto wallets.
Expert Help – banks can convince doubting investors with their tools and promote the benefits of crypto for banks.
Integritassolutions.net is a consulting firm focused on strategy, technology, and business transformation for banks and fintech. They provide cryptocurrency and digital advisory services to banks. You can develop your bank or financial institution’s crypto roadmap and strategy by talking to their experts, who will take you through a proven six-step approach from idealization to implementation:
Provide you with a deeper understanding of cryptocurrency and digital marketplace trends.
Define your cryptocurrency goals and objectives based on risks.
Assess the current business models and core capabilities of the organization.
Determine how the cryptocurrency risks will impact the organization.
Determine the people impact required for an internal crypto business unit.
Construct your crypto strategy and roadmap to prepare your institution.
More than 20% of Americans own cryptocurrency, with 80% willing to store their cryptos in banks if offered. Banks can play an important role in the crypto industry by adding guarantees and safety to the unregulated environment. Streamlining the processes of cryptocurrencies and their technology can take banking into the next generation of productivity and revolution.