The rise of Crypto currencies and the Banking industry
What is Crypto Currency??
Crypto Currency is a digital means of exchange which uses cryptography as the mode of security, by which makes it nearly impossible to counterfeit or double-spend. Many crypto currencies are decentralized networks based on ‘blockchain’ technology and enables secure online payments without the involvement of third party intermediaries. However, as experts believe the ‘blockchain’ and related technology is likely to disrupt many industries such as finance and law.
Despite many arguments, the development of crypto currencies has gradually evolved over a period of one decade& has been increasingly popular among young investors due to its value & the convenience. In consideration of types of crypto currencies, Bitcoin remains the most widely traded and covered crypto currency in present business context. It was introduced to the world in 2008 by Satoshi Nakamoto through a white paper and made available to the public in 2009. The crypto currency market consists of thousands of crypto currencies with different functions and specifications. As per market statistics over 19Mn Bitcoins had been in circulation as of May 2022 with a total market cap of $576Bn approx.
With the wake Bitcoint’s success, various other crypto currencies have been introduced known as ‘Altcoins’,’Metaverse coins’ etc. Several such popular altcoins are Ethereum, ApeCoin, Kusama, Yearn. Finance, Polkadot, Cosmos, Tezos, Shiba Inu, Fantom, Dogecoin.
Legal aspects
Given the fact that crypto currencies are not backed by public or private sector entities, it has been difficult to make a case for their legal presence in different financial jurisdictions across the world. EI Salvador was reported to be the only country in the world which accepts ‘Bitcoins’ a legal tender for monetary transactions as of year 2021. As such the regulations relating to crypto currencies varies in different jurisdictions.
The ‘Payment Service Act’ in Japan defines Bitcoin as a legal property, where exchange and operating crypto-currencies are subject to collecting information about the relevant customer and the transaction. China has banned exchange and mining of crypto-currencies within its borders while Europen Union is having a positive attitude towards this new technology. The European Commission in June 2021 released the Markets in Crypto-Assets (MiCA) regulation which sets safeguards for users of crypto-currencies.
Advantages and Disadvantages
Crypto-currencies represent a fresh, decentralized model for money which
does not require centralized intermediaries such as banks to perform transactions.
However such decentralized transfers are secured by the use of public and
private keys and different forms of incentive systems. Furthermore it assures
easier and faster transactions compared to standard money transfers. Flash
loans could be depicted as a sound example for decentralized transfers which
does not involve collaterals and also processed within seconds.
However some critical negatives are also identified with regards to crypto-currencies, main such drawback could be depicted as crypto-currency transactions being anonymous and pseudonymous. As such crypto-currencies have become a popular tool among criminals for nefarious activities, money laundering and illicit purposes.
The
Impact of Crypto currencies on The Banking Industry
Despite the concept of Crypto-currencies being increasingly expanding
and gaining popularity, the traditional banking sector is hesitant to adopt the
use of digital assets, believing that its inherent risks outweigh potential
benefits. The main concerns for such thinking could be depicted as the decentralized
nature of transactions, AML/KYC concerns and the high volatility of
crypto-currency values. However regulatory agencies such as the Office of the
Comptroller of the Currency (OCC) are working towards changing bank’s
perception on digital currencies believing that such assets would positively
drive finance/banking sector in to a new era of innovation and efficiency.
References
FRANKENFIELD, J., 2022. What Is Cryptocurrency?. [online] www.investopedia.com. Available at:
<https://www.investopedia.com/terms/c/cryptocurrency.asp> [Accessed 18
June 2022].
www.analyticsinsight.net. 2022. BEST CRYPTOCURRENCIES TO TRADE IN 2022. [online] Available at: <https://www.analyticsinsight.net/best-cryptocurrencies-to-trade-in-2022 [Accessed 18 June 2022].
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