Introduction: Defining Cryptocurrency And Traditional Banking Systems- Thebanksathi
Cryptocurrency emerged at the beginning of the last decade, and it gained real recognition thanks to Bitcoin. Bitcoin has become so popular that people mistakenly believe that Bitcoin is a cryptocurrency. This gives us an idea of how popular Bitcoin is. Bitcoin became the first cryptocurrency in the world to allow secure and cheaper peer-to-peer transactions without intermediaries than traditional transactions.
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However, as where there is money there is competition, competition also started in cryptocurrencies and new coins began to enter the market. And started attracting people to it by offering various lures. This led to rapid growth in cryptocurrencies. But, as this currency has no legal recognition or controller, the amount of misuse also increased.
To stop all the above abuses, the government of some countries launched a digital currency parallel to cryptocurrency. which will be controlled by the central bank of that country. So now the question is, what will happen to many cryptocurrencies like Bitcoin if such a government-sanctioned cryptocurrency becomes available in the market? What will be the future of cryptocurrency? Also, what will be the impact of digital currency on cryptocurrency and traditional banking systems? We will get detailed information about this through this article.
What is cryptocurrency?
Cryptocurrency in simple terms is a digital asset designed to act as a medium of exchange. The technology used to secure and verify all these digital transactions as well as control the creation of new units of a particular cryptocurrency is called cryptography.
Unlike traditional currencies, such as the US dollar or the euro, cryptocurrencies are decentralized, meaning they are not controlled by any government or financial institution. It is distributed through blockchain technology where there is no middleman.
The Emergence of Cryptocurrency: A Brief History and Current Status
Today cryptocurrency has become the most famous and widely traded digital currency in the financial world. It was first created in January 2009 by an individual or group of programmers operating under the pseudonym Satoshi Nakamoto. The true identity of this person or group is still unknown. whose real identity has never been verified.
A 2008 white paper by Bitcoin’s enigmatic creator essentially revealed the blockchain system that would be the backbone of the cryptocurrency market. Blockchain is a decentralized digital ledger that records transactions securely and transparently. The ledger is replicated and distributed over a computer network, making tampering nearly impossible.
People were fascinated by the concept of a decentralized currency that was not controlled by any government or financial institution. Bitcoin therefore quickly gained popularity among early adopters within a short period. Bitcoin skyrocketed in value within a few years of its launch and has since become a mainstream investment option for many.
Despite being among the most popular in the cryptocurrency world, Bitcoin has faced significant challenges, including regulatory scrutiny and extreme price volatility. However, its impact on the financial world cannot be denied, and it has paved the way for the development of numerous other cryptocurrencies that are now traded worldwide. But the popularity of Bitcoin still remains.
The Future of Cryptocurrency
The future of the ever-volatile cryptocurrency looks somewhat promising, but experts predict that cryptocurrencies will become more mainstream and widely accepted as government-sanctioned digital transactions. Here are some factors that will contribute to the growth of cryptocurrency in the future.
Cryptocurrencies such as Bitcoin and Ethereum have gained significant popularity over the past few years due to their decentralized and secure nature. However, the US government has expressed concern over potential threats associated with these digital currencies, such as money laundering and terrorist financing.
Over the past few years, there have been some positive developments for cryptocurrencies in the US. In October 2021, the Securities and Exchange Commission (SEC) approved the first bitcoin futures ETF. This was seen as a major step toward the mainstream adoption of cryptocurrency.
Overall, the future of cryptocurrencies will depend on how regulators balance the potential benefits of cryptocurrencies with their risks. If the regulatory environment becomes more favorable, we can expect the adoption and growth of cryptocurrencies to continue.
Demand and Acceptance are Increasing
As more individuals and businesses start accepting cryptocurrencies as a form of payment as a digital move, the demand for digital currencies will automatically increase. Currently, major corporations such as Tesla and PayPal have already started accepting cryptocurrencies, and other companies are likely to follow suit.
Chances of government approval?
Some governments are still hesitant to accept cryptocurrencies. So, some countries are beginning to recognize their potential benefits. For example, El Salvador recently became the first country to accept Bitcoin as a legal tender. India also developed its own digital currency in November 2022. Also, other countries such as China and Russia are exploring the development of their own digital currencies.
Potential Impact of Cryptocurrency On Traditional Banking Systems
Cryptocurrencies such as the world-famous Bitcoin and Ethereum have gained significant popularity in recent years as alternatives to traditional banking systems. These cryptocurrencies are not regulated by any government or financial institution. It is distributed through blockchain technology where there is no middleman. Hence, they have a potential impact on the traditional banking system. Let’s take a look at what potential impacts cryptocurrencies have on traditional banking systems.
Decentralization
As cryptocurrencies serve on a decentralized basis and allow users to conduct secure and inexpensive peer-to-peer transactions without intermediaries such as banks, it may potentially reduce the need for traditional banking services. This is likely to reduce the demand for traditional banking services.
Competition
Cryptocurrency prices are always going up and down, volatility is a property of cryptocurrencies. Still, people are fascinated by cryptocurrency. Cryptocurrencies also offer an alternative to traditional banking services, which can increase competition in the financial industry. As a result, traditional banks may be forced to offer new services to remain competitive.
Rate Reduction
Transaction fees in cryptocurrencies are significantly lower compared to traditional banking services. Due to this increasing adoption of cryptocurrencies, banks in the traditional banking system may have to cut their fees. This reduces the revenue that banks get from transaction fees.
Increased Financial Inclusion
Cryptocurrencies provide easy access to financial services to individuals who do not have easy access to traditional banking systems. This will allow more people to participate in the global economy.
Finally, cryptocurrencies have the potential to significantly impact traditional banking systems. Therefore, the traditional banking system should be reformed in time to allow digital movement. Because even though cryptocurrencies are popular, they still lack legal recognition, so people still have faith in traditional banking systems.
Conclusion
Although cryptocurrencies are gaining popularity, traditional banks are still hesitant to use digital assets because they think they are risky. However, regulatory agencies such as the Office of the Comptroller of Currency (OCC) are working to change banks’ minds. He believes that digital currencies can improve innovation and efficiency in financial institutions. As a result, some countries have launched digital currencies through their central banks.
The OCC has issued letters to explain how banks can use digital currencies. They hope this will help banks become more accommodating to them. The OCC also stated that banks can use public blockchains and stablecoins for payments. This means banks can process payments more quickly and without third-party agencies. This puts blockchain networks in the same category as other payment systems.
Banks may be worried about using cryptocurrency because they think it is risky and requires a lot of due diligence. But digital currencies can benefit financial institutions and their customers. They just need to try it.
Also read:- Trends In Mobile Banking And The Impact On The Banking Industry