Bitcoin effects on banking industry

The cryptocurrency world is steadily expanding, with its popularity increasing worldwide. But, conventional banks are hesitant to accept and adopt the use of virtual currencies like Bitcoin.

On the other hand, some investors see virtual currencies as a new asset class.

To some players in the banking industry, cryptocurrencies have inherent risks that outweigh potential benefits.

On the other hand, several regulatory agencies are trying to change how banks perceive digital currencies because they believe that these assets can propel financial institutions to new levels of efficiency and innovation.

At the same time, more crypto exchanges are emerging, enabling people to access Bitcoin and other virtual currencies. Today, you can easily find trusted website like https://bitcoin-society.io that allows you to purchase this virtual currency using fiat money. But how will all these developments affect the banking industry?

Bitcoin’s Decentralized Nature
Satoshi Nakamoto created Bitcoin to serve as the traditional banking sector’s alternative. With this option, users don’t require an intermediary to complete transactions.

What’s more, Bitcoin doesn’t have a capacity that banks, agencies, or centralized governments tether to traditional currencies.

Rather than trust centralized intermediaries, Bitcoin transactions place trust in blockchain code and its distributed nature.
But this seems like a risk to conventional banks.

That’s because some banks are unsure about their ability to venture into the crypto industry successfully. What’s more, a decentralized currency can undermine the central banks ‘authority.

Thus, conventional banks may no longer be necessary or even control the supply of funds.

KYC Concerns
Bitcoin and other virtual currencies allow people to complete peer-to-peer transactions without involving intermediaries. Consequently, digital money enables users to transfer value quickly without paying hefty transaction fees. Rather than identify a transaction using a person’s bank account, Bitcoin links a transaction to the digital wallet’s ID on the blockchain.

Many banks are worried about this pseudonymity due to the lack of know your customer regulations. Essentially, many bankers think they can’t track Bitcoin transactions for know your customer and anti-money laundering considerations. And this can lead to scams and illegal activity on the network.

Volatility
Bitcoin has a generally volatile price. Ideally, Bitcoin’s value can fluctuate rapidly within a short period. And that’s because of several reasons, including liquidity, market size, and market participants.

To some bankers, this is a risk because Bitcoin price has historically been unstable. Thus, Bitcoin might not be a stable investment tool over time.

Banks Involvement in the Crypto Industry
The banking sector will lag if it doesn’t participate in the activities of the cryptocurrency industry. To avoid this, banks should find ways to embrace Bitcoin rather than see it as a threat. Adapting Bitcoin can enhance, streamline, and upgrade financial services.

Here are ways via which banks can participate in the cryptocurrency industry’s activities.

• Custody service provision: Savings associations and banks can provide Bitcoin custody services to their customers, including holding cryptographic keys for private wallets access.

• Expert assistance and on-boarding: Banks can bring new investors with less experience into the cryptocurrency industry by providing tools for facilitating crypto adoption by customers.

• Security concerns: Banks can help in mitigating security concerns for crypto holders. For instance, banks can help secure virtual currencies from hacks or thefts by putting Bitcoins under their supervision.

• Smart contracts: While entering an agreement via smart contracts, parties have a low trust level because transaction success depends on a computer code rather than an individual’s behaviour.

However, banks can reinforce this trust by acting as a reliable third party, utilizing smart contracts for commercial loans, mortgages, credit letters, and other transactions.

Final Thoughts
Regulation and guidance surrounding cryptocurrencies are sparse, leaving banks wary of their acceptance and adoption.

Also, many banks are wary of entering the crypto space due to concerns around virtual currencies’ stability and security.

However, banks should consider the potential benefits of this virtual currency and the technology behind it instead of fearing the potential risks. That’s because Bitcoin and blockchain hold a lot of potential for the banking sector.