In recent years, the cryptocurrency market has captured the world’s imagination with its promise of a decentralized financial system.
It is just a new version of Tulip Mania during the 17th century for the skeptics. However, for believers, it can be a digital stepping stone to creating a free banking system.
As of today, the crypto promise has yet to be realized. However, as the world embraces the future of a cashless society, the market is seeing more opportunities to penetrate the mainstream.
Unsurprisingly, more banks and digital wallets have become more open to crypto transactions. In this article, we will discuss its integral role in shaping the future of banking.
Blockchain Technology and Banking Integration
While the crypto market promises individual anonymity, it utilizes blockchain technology to maintain transparency across all transactions. A digital ledger stores information in blocks linked together in a chain.
Likewise, banks can use blockchain technology to conduct transactions more efficiently and transparently.
By creating a fusion of banking systems and blockchain technology, the banking industry may see faster payments, easier identity verification processes, and lower client transaction fees.
For instance, it can simplify settlement and clearance systems even for large banks. The global banking system still faces challenges in money transfers, especially cross-border transactions.
However, since this crypto technology acts as a chain that interlinks transactions, banking settlements and clearance may substantially improve.
More interestingly, blockchain technology’s transparency can help reduce fraud and scams. It is no wonder that many banking professionals in the European Union expect blockchain technology to improve bank payment processes by FY25.
In addition, banks around the world can use smart contracts to automate their processes and lower paperwork. Smart contracts may reduce the level of trust needed between transacting parties since transactions depend on computer-programmed codes, not a person’s behavior.
As such, they can act as a third party for mortgages, credit letters, and other loans. In Singapore, government agencies already accept Ethereum contracts as payment for their services.
Lastly, blockchain technology can expedite compliance and bookkeeping processes due to its capacity as a ledger. Banks can easily access decentralized recorded transactions by inputting transaction data to blockchain technology.
Increased Crypto Adoption
Many medium- and large-scale banks, such as Goldman Sachs, JP Morgan, Standard Chartered, and HSBC, have already adopted cryptocurrencies and blockchain technology.
Given this popular trend, it is just a matter of time before central banks create their own digital currencies. An alternate future is for cryptocurrencies to become legal tender in other countries.
While there are still countries prohibiting the use of crypto, the majority have already legalized crypto transactions. In El Salvador, Bitcoin is already accepted as legal tender.
With increased crypto adoption, domestic and cross-border money transfers and other transactions may become instantaneous. Digital securities may also be issued and supported by smart contracts and/or digital ledger technology (DLT).
The European Investment Bank in the EU has already capitalized on the DLT to generate digital bonds.
If all these materialize, it won’t be surprising to see clients opening online checking accounts using cryptocurrencies. Currently, online banking and e-wallets allow account owners to buy and sell cryptocurrencies.
New Banking Business Models
The fintech revolution continues to heat up and transform traditional banking models. That is why banks create new strategies to meet the evolving market needs and stay competitive. These include digital banking and partnerships with digital wallets and other fintech firms.
Hence, we may see a lot of banks using blockchain technology to improve efficiency and lower their operating costs.
Services like blockchain-based money transfers and asset tokenization are some solutions that can be expanded in the succeeding years. Its fintech goal may be realized by working with AI to increase client engagement, improve banking and trading models, and simplify fraud detection.
Key Takeaways
Doubts from skeptics still surround the cryptocurrency market. But its expansion has been evident over the past decade. With its increasing popularity and enhanced capabilities, it continues to enter the mainstream market. Hence, the market can work together with many banks to improve the current system.
ZeroGPT
