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How Crypto Currency has Affected Banking

By Charlotte

Traditional banking system has been at the top of the world in managing every international and local financial transaction you can ever think of. Banks have been at the center of great successes as well as huge scandals that have occurred in our time since the introduction of the banking system. This huge impact by the banks can be credited to how reliable and how trustworthy the banks had become over the past centuries and many decades. Money payments ever since have been made through owning bank account numbers and through issuing of checks and withdrawals from cash out points like ATM points and other easy points for the withdrawal and deposit of cash in banks. One very interesting fact that made so many people cherish the traditional banking system is the fact that you could actually make money out of a bank by just dropping some money into it and letting others borrow for investments. Banks equally had and still wield the great advantage of letting its customers borrow money for business with the aids of worthy collaterals. These and more have greatly drawn people closer to them and thus made its name from it. But have you noticed the significant improvement other forms of money payment have started making particularly the bitcoin?  If you are fond of doing business online then you probably would have noticed that many companies now recommend that you pay them via the bitcoin or at least put the bitcoin as an option amongst the different modes of payment? Someone somewhere may be asking himself what this bitcoin stuff is all about that is threatening the dominance of the popular banking system. Well if you have been asking yourself what is bitcoin, then all you need to need to know about it is that it is a crypto currency or a new generation of internet based currencies which you neither can touch nor physically hand it to someone as it has no printed form which people use to do transactions, most especially online. Looking at the way these two systems function, you could tell they are completely different from each other and could even complement each other is the opportunity presented itself. But in essence it doesn’t seem to be the case and the cryptocurrency is seriously threatening to overtake the long dominance that the traditional banks had held for this long. Below, we analyze threat the crypto currency system pose to the traditional banking system and how its introduction has affected the banking system in this era.

  • Its highly uncertain value flops

This is one of the very important aspects of the bitcoin that has attracted millions of people to almost abandon the traditional banking system in order to join the crypto currency. When you look at the bitcoin value history and the current bitcoin value, you may be tempted to get involved into it because you probably see it might be of greater benefit to you than the traditional banking system. The value of bitcoin as of 2015 stood at $170, compared to the $2772 value as of July 2017. Such figures will definitely draw people into the system. This is especially very hurtful for commercial banks because the people drawn away by this fruitful feature of the crypto currency are the most loyal customers of the bank, especially the commercial banks which are out for the profit aspect of the business. This aspect could equally cancel the doubt on the minds of people who may be asking what is bitcoin worth that is actually drawing people away from the highly profitable banking system which has benefited them for the past century and many decades?. Simply by this highs and lows presented by the bitcoin to its users, it gives room for many speculations on when its value might go at extremely high levels as well as experience drastic drops. People can then predict when the right time comes to make much fortune out of it, as the bitcoin value history always gives you the reason to be optimistic about its profitability and how reliable it could be to depend on. Another reason for the increasing popularity of bitcoin to the disadvantage of the banks is the fact that bitcoins can be bought in fractions at a price as low as one tenth of a cent. This makes crypto currency for renowned business moguls to base all their attention or at least most of their attention to.

  • The politicization of money

Before the advent of the crypto currency era, many people were just happy and satisfied completing all their financial transactions via the various banks available for their different purposes. The banks had a firm grip on all the financial transactions and financial statements of every single neighborhood, country and even the world. Financial statements were and are still controlled by the traditional banks. But presently, the question is, with the evolution of the crypto currency and the current bitcoin value and equally tracing from the bitcoin value history, we are tempted to ask ourselves if the era of bank dominance is coming to an end? With the evolution of the bitcoion, the power that was vested upon the government and the central banks is gradually being shifted to the masses. You may ask yourself “what is bitcoin really” and “does this online currency without a central control unit really have that much power to make actual banks to fear losing grip over the money market? Yes indeed it is that powerful. The increasingly growing popularity of the crypto currency could see the flow of cash within citizens and within the country come to a drastic end if the traditional banks do not come up with counter measures. The security that accompanies this new online banking system motivates its users to the greater detriment of the traditional banks that deal in hard cash. The bitcoin exchange rate and its availability on all currency not only make it local banks affair but a global issue for the traditional banks.

  • Banks are no longer the middle men between the people and their payments

If you ask yourself what is bitcoin worth, and someone tell you it is worth the central bank having doubts on its services, don’t think the person is crazy, he or she simply is being honest. The crypto currency was created as a solution to one of the many problems that had been created by the traditional banks in their era of dominance. In the banking process, it requires that a transaction passes through an authority like the central bank which verifies and validates the deal before it can go operational or else annulled. Such processes took very long to get completed and it slowed down a lot of businesses. People obviously had to go through such complicated processes to complete financial transactions because they had very little or no choice at all or other alternative modes of going about this. But ever since the introduction of the crypto currencies like the bitcoin, especially taking to consideration the current bitcoin value from the bitcoin value history, bitcoin has sought for ways to completely eliminate the role of the banks as middlemen between the people and their financial transaction, making it possible for people to complete their transactions online without passing through any authority. Transactions can be validated by the millions of users of the decentralized peer-to –peer network used by the crypto currency. By this, the role of the bank as the sole financial power house and middle man is completely limited, with only a matter of numbers left for the crypto currency to acquire for the traditional banks powers to be completely limited to the reception and the disbursement of money to its users.

  • No personal information needed for a crypto currency account.

If there is one thing that people hate, it is when their personal information is being held or required by certain authority in order to complete a deal or for some clearance. Many people despise it and would go for the option that does not require you going through all those procedures. That is the exact problem that many people faced with the banks and government, as they often hold some basic data about their clients and citizens from which they can track their every moves and transactions. The current bitcoin value together with the security of it has greatly affected the dominance of the banks. Generally, the creation of a crypto-wallet (a crypto currency account online) requires little or no personal data or bank account information. Users of crypto currency perform their transactions without possibly needing to enter their personal information to any central control unit. This greatly affects the banks and central governments who use this information when they have to monitor people by the fact that they no longer have this information through which they could do all their monitoring and censoring and no means of blocking people’s accounts even if they do not have any data concerning them.

  • The growth of bitcoin affects the supply of money by the banks

It is important to know that before the introduction or the unprecedented popularity of the crypto currency, the central banks and government of different countries have always held the sole responsibility of determining how the distribution or supply of money may look like. But however, the rapid growth of the bitcoin, especially taking to consideration the current bitcoin value from the bitcoin value history we notice that the strength is gradually diminishing in favor of the users of the crypto currency. The circulation of the US Dollar, Euro, and the pounds amongst other currencies is in serious jeopardy with the growing influence of the bitcoin. There are future chances of issuing these currencies and influencing or interfering with any financial activity within the areas of influence. Someone may ask, what is bitcoin worth to challenge the power of the central bank and the governments? Well, this is especially so challenging and very tough for the government to handle because the value of the bitcoin is solely based on the laws of demand and supply and are generally not issued by the government, neither are they issued by a central control unit like the central bank or any other governing body. The strength and ability by the crypto currency greatly gives the central banks and various government a scare, as they are not able even if they wished to control the circulation of bitcoins, for the simple fact that the currency is not fiat and only the demand and supply for goods and services via the currency can alter the bitcoin exchange rate.

  • The Bitcoin gives the dark web an opportunity not given by other financial institutions

If someone was to ask what is bitcoin worth? then you might as well tell the person that the crypto currency is equally worth a lot of mischief as it is to ease work. The emergence and the growing popularity of the crypto currency bitcoin, has given an open opportunity for the dark web to fully go operational on their activities with very little or no interference by any senior authority or a bank. The dark web is that part of the internet that is not accessible through the search engines and is for the most shady deals of the present generation. The dark web accounts for most of the internet as what we actually are given access is actually not upto half of the existing internet. This dark web is accessible only through special software like the “Tor Browser” which has the ability to anonymous searching of the internet. This is especially a very disturbing fact as it is the platform whereby you can contact deadly cartels like assassins, drug lords, weapons and a lot other dangerous and highly illegal stuff. Now you may be asking yourself how and what has the crypto currency got to do with the illegal traffickers in the dark web. Well the response is simple. Bitcoin enables these illegals to practice their illegal businesses through the use of the crypto currency, without leaving any trace or clues for the bringing down of those. Crypto currencies like the bitcoin are a way to empower such transactions all around the world, which equally is able to increase high cyber-crime amongst the other effects of the bitcoin system.

  • Bitcoins are used to launder money out of the country

One of the most vital reasons for the traditional banks and local governments to fear the global domination of the crypto currency like bitcoin is the ability of the digital currency to launder money without any control out of countries and across international boundaries. Central banks all around the world have been very wary of bitcoins, especially based on the aspect of its unpredictable form of currency which is equally highly floppy. This continuous use of bitcoin creates loopholes in the banks data about the money transactions, leading to the inability to track economic activities to the countries directly affected by the massive use of this digital currency by most of its citizens. These currencies have emerged as powers in themselves, as a result, bringing a check on the activities of the once and so powerful traditional banks and governments.

  • Bitcoins take very little interest on consumer usage and behavior

If there is that one serious thing that banks too may fear from the growing popularity of the crypto currency such as the bitcoin, it is the fact that this currency does not take into account the type of consumers that use their services, most especially when they ignore new consumers behavior and preferences when it comes to how they transact and transfer money across international boundaries. There are very few illegal issues (even though they do exist), cited with this system of e-banking such as their perceived “haven status” for potential perpetrators of illegal deals. In as much as this greatly affects the smooth functioning of many banks, most of them central banks, it equally makes it very impossible for local and national government to track down cases of crime so that they could be apprehended and adequately dealt with. A relatively low bitcoin exchange rate (stood somewhere at 3.4 billion) presenting a sense of volatility with the value of this currency. The bitcoin though is gradually occupying the position or the void being left by the traditional banks, as there are still some persons somewhere out there who are not able to reach out the services of the banks for various reasons best known to them and would be glad to take alternatives if they are presented to them and the bitcoins do very well in filling in the blank spaces left out by the traditional banks.

  • Bitcoins are forcing the banks to go their own way

Bitcoins offer slightly similar but yet different services from the traditional banks, but the activities of this crypto currency have forced the traditional banks to go back to their drawing board and reason on strategies that could be brought to counter the growing popularity of this cryptocurrency. As a result of the gradual divergence of people towards the bitcoin, some central banks and local governments have sought equally to invent some sort of a digital currency through which they could equally relate to their customers both online as well as rendering to them physical services, similar to the services equally offered by most of the crypto currencies. Doing this already shows the banks as desperate and logically buying the ideas of the crypto currencies like the bitcoin, thereby undermining their own reliability and most especially their credibility as well organized established financial institutions. The big banks have often been found guilty and wanting in the sector of consumer unfriendly manipulations such as applying for debits before credits and then charging fees for insufficient funds.

Most of the these reasons and many more actually give banks a little scare on the face especially based on the fact that the more people use the crypto currency, the more the traditional banks keep regressing and the local and national governments keep losing their grips on their various economies. In as much as the banks fight to reduce the influence of the bitcoin, they could equally use the bitcoin system to their own advantage or to make profits out of them too. So below we would analyze some ways in which the banks and other financial institutions do benefit from bitcoin.

  • Banks could use bitcoins to work at a reduced fee

This could be a major achievement if actually implemented, because most or if not all of the financial transactions both in and out of the various countries all contain an amount or a fee. If you were to ask what is bitcoin worth? then someone could tell you that it is worth solving international financial transaction problems with little or nothing in terms of cost. All needed is a mutual understanding between the nations or communities in the agreement. This could be very feasible in trade, where the banks of the various countries, with an agreed bitcoin exchange rate, could agree to act on behalf of the seller or the buyer in accepting and the transferring of the funds. All these result in the transaction and exchange fees, which are typically passed unto the buyer. At this juncture, the bitcoin system can be brought into action, as it could make this transaction actually very cheaper and easier to carry out. This is so because a decentralized ledger doesn’t require any middleman or intermediary to keep track of the payment or of the buyer transaction information, making it easy for the buyer and seller banks to deal directly.

  • Banks benefit from bitcoins in times of increased value

The increase use of the crypto currency sometimes equally work in favor of the traditional banks when the bitcoin exchange rate and the value of the crypto currency actually go up. When that happens, most of the users of the bitcoin are forced or tempted to sell off their bitcoins to the highest bidders and make their deposits in full cash into the traditional banks and other financial treasuries. So looking at this from another point of view, the emergence and popularity of the bitcoin could not all be bad for the traditional banks.

  • Bitcoin can be used as a form of collateral security

Bitcoins could equally be used as a means of collecting some loans from the bank. One could use them as a collateral security. Currently though, there are no securities or processes binding the use of bitcoins as collateral security such as the US dollar and the EURO. But this is not all impossible though. In order to use this crypto currency as a means of collateral security for loans to be given out by the banks, you could sign up to a platform created by the bank that accepts that for collateral and make a bitcoin deposit and create an application. You could then receive a 70% of fiat money for the equivalence of the bitcoin depending on the market value of the crypto currency immediately. The received funds could then be withdrawn by an instant free transfer to a bank card or through a bank payment. When the money is finally paid in full together with the profits, the crypto currency is then returned in full amount.

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