Cryptocurrencies are becoming adored assets worldwide. Perhaps this is because of the fact that it has been the only industry that has given more millionaires than any other industry.
Sensing the hidden potential of the currencies, countries like China and tech giants like Facebook have launched their own Cryptocurrency to leverage the potential of the market.
On the other hand, traditional banks have kept their hands tucked inside and refuse to regulate Cryptocurrencies for many reasons.
So while it is true that Cryptocurrencies bring many opportunities to the financial market, even you will accept that it is an infant industry with a lot to work on.
Why Are Banks Cautious Of Cryptocurrencies?
According to a study made by ACAMS and UK’s Royal United Service Institute, almost 60% of the employees working for any bank department sees Cryptocurrencies as a risk rather than an opportunity.
This is perhaps because of the following reasons.
- Volatility: The price of Cryptocurrencies has always been volatile because of their small market cap. Because of this, even a small transaction can look big and create turmoil in the trading graph. Banks see these features as a risk because if something is not stable, it is hard to trust such a current or asset.
- Decentralized Nature: The whole existence of Cryptocurrencies is based on offering an alternative to financial banking systems. Because of their decentralized nature, individuals do not need any intermediaries. Banks fear that the lack of intermediary can expose the risk of money being transferred to the wrong bank account. With the immutable feature, the transfer can’t be reversed.
- KYC Concerns: As we all know, Cryptocurrency allows P2P transactions without being regulated through intermediaries. Because intermediaries are not involved, users can make transactions easily without any barriers. In Cryptocurrency transactions, banks are not identified. Instead, the whole transaction is linked with the transaction ID. It is because of this lack of bank connectivity that people worry about this network being exposed to potential money laundering events.
How Do Cryptocurrencies May Impact The Banking Industry?
Cryptocurrencies have many use case applications that can be implemented in the banking sector. If the banks want to move in the face of the world, they need to take the ride of the Cryptocurrencies – that is, if they don’t want to be left behind.
Cryptocurrency adoption can streamline and enhance the traditional financing services and offer solutions to the bank’s current problems. To know the true potential of Cryptocurrency, visit the bitcoin loophole.
Not that you know there is a possibility of banks using Blockchain and Cryptocurrencies, but here is how they can start.
1. KYC Regulation Administered
In the banking sector, the most important part is KYC. Without KYC, nothing was initiated in the banking industry. That being said, there is a possibility that Blockchain technology could automate the KYC and AML verification.
In addition, Blockchain could allow the users to access the data in a streamlined view on their bank details, loans, credit, debit, and other activities.
2. Tending To security Concerns
While banking networks are considered secure, we still hear cases of money laundering. This is because, at some point, no one was tracking or monitoring the network.
However, with Blockchain technology, Banking sectors can revamp their security and come up with an improved hack-proof network.
3. Smart Contracts
When entering an agreement, there is a reduced level of trust among the parties. This is because of the success of the transaction demand on the computer code and terms and conditions.
If the terms and conditions are met, computer code executes itself. Banks could use smart contracts to reinforce their contracting operations and process.
Conclusion
Currently, guidance and regulation around Cryptocurrencies are sparse, leaving many central financial institutions thinking about their approach related to Cryptocurrencies. In addition, concerns about security and stability also prevent banks from moving forward with Cryptocurrencies.
It is indeed a new technology with many loopholes. Banks need to understand that this is true for every new venture. Instead of just focusing on their fear, they must look at the possibilities.
Feature Pic By RODNAE Productions from Pexels
