Will Cryptocurrencies Replace Banking and Finance?

Will Cryptocurrencies Replace Banking and Finance?

With the astronomical rise in the popularity of cryptocurrencies this year, does this new crypto technology have what's needed to replace banks?

Are crypto and blockchain poised to replace traditional systems of banking and finance? And further, could they pose a major threat to central banks around the world? The short answer is yes. Cryptocurrencies are an existential threat to central banks, and the response from national financial authorities thus far seems to be, “If you can’t beat them, join them.”

The simple answer to if decentralized finance could replace banking and traditional finance is a resounding yes. Crypto can easily replace fiat in all its uses as a store of value, medium of exchange and unit of account. And decentralized blockchain-based systems can replace banking with faster transactions, higher levels of security, lower fees and smart contracts. We can lend or take out a loan, raise capital for projects, and make payments already with DeFi. And it’s just getting started.

Many believe that we could replace banking and finance easily with a more efficient digital decentralized economy. But will it happen? Banking and governments hold the most power in the world. It may be naive to think that they will stand by as crypto and blockchain replace them. Taxes need to be paid, and the government needs its cut. At this point, nearly all world powers have considered releasing a digital version of their currency from their central bank — the main reason being to head off Bitcoin and crypto from gaining too much momentum.

The new reality tends to look like centralized authorities will be adopting blockchain solutions to avoid the risk of becoming extinct. Instead of a free self-governing utopia, the future is taking shape to integrate traditional financial institutions and banks with blockchain technology. However, many central banks are confused as to what they can bring to the table. After all, they are antithetical to the original premise of Bitcoin, which was to provide a decentralized and private method of transacting.

Central bank digital currencies would need to provide most of the same benefits of crypto to stem the competition coming from DeFi systems. Central banks may need to let commercial banks fend for themselves as users could transfer funds to be held in CBDC accounts — this would allow for lower fees with fewer middlemen between transactions.

“These factors will increase the competitive pressures on commercial banks. They face the risk of disintermediation,” Barron’s reported via Morgan Stanley.

Commercial banks and financial services will need to adapt to provide more value to their users. The fact is that as the public becomes more educated on crypto and decentralization, the more they see the benefits in the future of finance and the internet.

To avoid being replaced, the other course of action would be to ban crypto completely, but many have doubts that this could happen. The public looks kindly on innovation, and massive companies like Microstrategy and PayPal have spearheaded a possibly irreversible adoption of digital currency.

Created on 29th Jun 2021