8 August 2020
Cryptocurrency can be labelled as a digital or virtual asset secured by cryptography designed to act as a medium of online exchange. Cryptocurrencies are based on blockchain technology, which creates decentralized and independent networks for them to operate on.
In contrast, traditional banks are popular due to the vast array of services that they offer, including business loans, mortgages, credit cards, and savings accounts.
With conventional banks, everything is done and audited on paper that helps to build trust and confidence within the process. The services here are more personalized, which removes room for any doubts and helps to tackle technological challenges.
Centralization vs Decentralization
The above two financial systems discussed serve their advantages. Still, it can be said that cryptocurrencies have the edge over the traditional banking system in the 21st century. A primary advantage is transaction speed, specifically the time it takes to transfer money from one person to another. Most cryptocurrencies only take minutes, even seconds, a typical bank wire can take days to process due to antiquated anti-fraud processes.
Additionally, customers have to pay certain payments to banks in the form of maintenance charges and transfer fees. In cryptocurrencies, there is no need to pay any maintenance charge and transferring them from one wallet to another costs very little comparatively.
In banks, there is always an obligation to visit the branch to get certain things done, whereas, for cryptocurrencies, everything can be done online from anywhere. Strong security and easier international trade are other merits that put cryptocurrencies ahead of traditional banking systems.
Banks in the US to Offer Crypto Custodial Services?
In July 2020, United States OCC (Office of the Comptroller of the Currency) confirmed that all the nationally chartered banks, as well as federal savings associations in the United States region, can provide legal custody services for cryptocurrencies.
In simple words, the banks will now have the authority to offer storage services for cryptos (i.e. digital assets).
Through cryptocurrency, traditional banks have a unique opportunity to utilize encryption, specifically cryptographic keys, to provide their customers greater security. Additionally, cryptocurrency offers banks a new revenue stream as they look to convince customers to store their digital assets with the bank. Despite these immediate benefits, the greater impact will be experienced as the overall scope of the cryptocurrency industry will increase dramatically.
Scope of the Crypto & Banking Industries
Previously, the right to hold the digital assets was limited to designated investing firms and cryptocurrency exchanges. The process required that each organization obtain required licenses in each state that they operate in, which ultimately creates a disparity in where certain services are available and inhibits the rate of innovation in the banking sector.
Given the new custodial policy change, many reputed and well-established financial institutions who are already offering safekeeping services can now enter into this stream. As a result, the scope, usage, and popularity of crypto will subsequently grow.
It’s important to note that banks will have to shape and modify their existing business operations to successfully align themselves with the rising digital culture. The modification in the business model will help the banks to leverage and adopt the latest technology to provide blockchain-based solutions to their customers.
Furthermore, the policy will also allow banks to offer their services to cryptocurrency businesses as long as they are properly complying with the regulations & managing the risks effectively.
The move of OCC will definitely open a lot of doors and opportunities for both the banks as well as crypto industries to grow and progress together. Also, the United States OCC is currently under the leadership of Brian Brooks, who has proposed a lot of other reforms that would help the crypto companies. An example of one such reform includes the national payment charter, which will allow the crypto startups to bypass the lengthy and tiring state-by-state approach to secure money transmission licenses.