Up-to-date core banking has lots of lowlights and it is a known fact. Banks support business processes that are non-optimal through the lens of economics, employ large technical staffs, rent or buy expensive real estate for offices and branches. When all is said and done all these expenses are transferred to the shoulders of clients in the form of high commissions.
Over the last little while , the world of finance has undergone significant transformations owing to the emergence of cryptocurrencies and their connections. Crypto banks and traditional banks comprise two different paradigms over the financing facility field, each with its own benefits and drawbacks. In this article, we will carry over for consideration the key differences between crypto banks and economic banks, and be it further their impact on the financial system.
Traditional banks are financing agencies that render services for money management, gross of deposits, debt money, money transmissions, and investments of capital. They are regulated by government authorities and subjected to severe requirements to capital and liquidity. According to the data from the World Bank, there were more than 25,000 traditional banks worldwide in 2021.
Crypto banks, or crypto platforms, tout services surrounding cryptocurrencies. These can blanket digital assets, currency exchange, crypto-backed lending, and even the native tokens emission. Crypto bank operates on the basis of lighting technologies and often does not have strict regulations, as is the case with international financial institutions.
One of the main factors between crypto banks and economic regimes is the level of regulation. Frankly speaking, traditional banks must obey a slew of regulations and standards set by reserve banks and securities regulators. Let us say, in the US, banks must follow the Dodd-Frank Act rules, which requires them to underpin a defined level of capital and liquidity.
Crypto banks, in spite of the teeth, often operate in a less regulated environment. This can be an advantage and a disadvantage alike. On the one part, the lack of heavy regulations allows crypto banks to adapt quickly to shifts in the market. On the other hand, it also creates risks for users, as they can use fraudulent methods or losses.
According to Deloitte, about 60% of users prefer to use online banking for everyday transactions. At the same time, according to a study by Statista, in 2022, more than 300 million people around the world will be cryptocurrency owners.
Traditional banks provide a wide range of services, including:
Crypto banks provide unique services, such as:
Crypto banks provide 24/7 access to their services through online platforms. You can open an account and conduct transactions whenever and wherever you are with no need for visiting a bank department.
Traditional banks, if rather offering online services, may have working hours limits. For instance, based on the data of the American Bankers Association, about 40% of bank departments in the United States close after 5 p.m.
Crypto banks often have lower fees vis-a-vis traditional banks. For example, fees for transfers between users on the blockchain network can be as little as a few cents, while traditional banks can charge significant fees for international transfers.
Fees comparison
However, it is worth noting that some crypto platforms may charge high fees for withdrawing funds to fiat accounts. It is important to carefully study the terms of use of each platform.
Security is a critical aspect for traditional banks and crypto banks alike. Traditional banks use multi-level security, encryption and fraud monitoring systems are among them.
Crypto banks also use modern security technologies, but users have big boots to fill for protecting their funds. Losing access to private keys can lead to the complete loss of funds.
According to the CipherTracethe report dated by 2021, losses from cyberattacks on crypto exchanges amounted to more than $1.9 billion in the first quarter. This stresses the need for a no-nonsense approach to security in the crypto world.
Crypto banks are ahead of the curve of technological innovation. They use blockchain for reasons of transparency and security of transactions, and also develop new financial products backed by smart contracts.
Traditional banks are also beginning to introduce new technologies the likes of artificial intelligence and machine learning to improve customer service and risk management. To the contrary, their approach to innovation is oftentimes slower because of the need for regulatory compliance.
- Traditional banks: JPMorgan Chase launched its natural cryptocurrency, JPM Coin, for the sake of international transfers simplicity.
- Crypto banks: Celsius Network offers users the opportunity to run interest on their cryptocurrencies up to 17% per annum.
Crypto banks and traditional banks represent two different models of financial services with original benefits and drawbacks. Crypto banks offer greater flexibility and accessibility, but require users to take greater responsibility for the safety of their funds. Traditional banks reliabilize and provide security owing to strict regulation, but may be less user-friendly.
Between the jigs and the reels, the choice between a crypto bank and a traditional bank depends on the needs of the user. With cryptocurrencies moving higher, we can expect both models to develop further and be integrated into a single financial system.
