One of the advances and innovations in many fields that have emerged in today’s world is the crypto money created with the encryption technique. Developments regarding cryptocurrency have attracted and continue to attract the world’s attention.
Cryptocurrency, which is limited to be used as a medium of exchange today, has started to be seen as an investment tool. On the other hand, how exactly cryptocurrency is defined in the banking and finance sector is an issue that is still under discussion. There has not yet been a clear explanation by banks and supervisory institutions in the world public opinion on this issue, which is so talked about by people and seen as a serious investment and fast money-making tool.
It is difficult to say that cryptocurrencies will completely end the banking sector; but it is certain that it can lead to major changes in the sector. Here are the potential impacts of cryptocurrencies on banking:
Decentralised Finance (DeFi) Becoming an Alternative to Banks
Decentralised finance (DeFi) applications allow users to borrow, lend and invest without the intermediation of banks. In this system, smart contracts and blockchain instead of intermediaries provide security and reduce costs.
Low Costs in Money Transfers
Cross-border money transfers with cryptocurrencies are faster and lower cost compared to traditional banks. This may reduce banks’ revenues from money transfers.
Banks Providing Crypto Services to Customers
As the popularity of cryptocurrencies grows, banks may start offering crypto custody, trading or investment services through their own platforms. For example, some major banks have started to offer Bitcoin and Ethereum services.
New Customer Expectations and Digitalisation of Banking Services
The transparency and speed offered by cryptocurrencies may lead customers to demand more digitalisation and speed from banks. In this case, banks will need to invest more in new technologies to acquire and retain customers.
Central Bank Digital Coins (CBDC)
Many central banks are in the process of developing their own digital currencies (CBDCs). CBDCs can have serious impacts on the banking system because centralised digital currencies have the potential to make banking transactions faster, more secure and cost-effective.
Loss of Reputation and Trust Factor of Banks
Since cryptocurrencies emphasise financial independence and decentralisation, some users are turning to crypto by reducing their trust in banks. If banks lose confidence, alternative platforms may become more attractive for people who want to keep financial control.
Overview of Cryptocurrencies
Value exchange, which is as old as the history of humanity, has evolved over thousands of years. Moreover, it has taken its current digital form. Rapidly developing information and technology tools integrate many new concepts into our lives. As well as the convenience they provide in our daily work. While some of these concepts are quite easy to understand and interpret, others can be complicated even for experts to predict their benefits and potential losses. This is relativel one of the concepts that can be considered new is the new form of ‘money’. It has been one of the factors with the greatest power in social life since ancient times – ‘digital money’ or in other words ‘cryptocurrencies’.
Cryptocurrencies are seen as the currency of the future for some reasons. Such as intermediary-free and fast money transfer, high-level encryption methods, decentralised structures and anonymous account information. On the other hand, it brings along problems such as rapid depreciation. For example, being open to manipulation, and the lack of a power and authority behind it. At this point, there is a need for expert opinions on what kind of stance should be taken towards these currencies; whether to see it as an opportunity and invest, or whether to see it as risky and stay away from it.
Banking and Cryptocurrency
Throughout the history of human beings, tools such as barter, precious metals, gold, silver, metal money, paper money and cheques and promissory notes that can replace money have been used in daily life. In the current century, money has been digitised with technological development, and instead of physical money, digital money, which is only visible in bank accounts as a number, has started to be used. In parallel with these developments, features such as credit cards, debit cards, contactless payments, fast account transfers have long become an indispensable part of economic life.
Banks and the banking system are indispensable in this process.
Cryptocurrency Concept and Properties
In recent years, technology has opened the door to rapid and radical developments. It has brought inventions that will also affect the economy. ‘Crypto Coins’, which have a completely different infrastructure than all payment instruments so far, are now on the agenda of humanity. The biggest and most distinctive features of cryptocurrencies are that they are decentralised. They also provide free unmediated money transfer independent of the country and the bank. They provide the wallet information where the money is stored is anonymous.
Cryptocurrencies are digital values that allow cryptographic or encrypted secure transactions and additional virtual money supply. Cryptocurrencies are alternative currencies, digital and at the same time virtual money. Bitcoin and its derivatives are often confused with digital and virtual currencies. However, digital and virtual currencies other than Bitcoin and its derivatives are not currencies in their own right. These currencies are linked to the national currency of the country they represent and can be regulated and controlled by the central authorities of that country.
Bitcoin is an autonomous currency, which cannot be regulated and controlled by any central authority. Bitcoin is a decentralised crypto currency that was defined in 2009 to solve the problems of systems. Since 2009, many altcoins have been identified as alternatives to Bitcoin. Unlike centralised electronic money and banking systems, cryptocurrencies are decentralised. This decentralised structure is controlled by block-chain transaction databases.