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Cryptocurrency and the Banking Industry: What You Need to Know

July 05, 2023

Cryptocurrency and the Banking Industry: What You Need to Know

Cryptocurrency is a form of currency that exists in electronic or virtual form only.

It uses a technique called ‘cryptography’ that has algorithms and principles that transform data into a format that cannot be counterfeited or read by unauthorized individuals.

This digital form of currency has brought a large change in the banking landscape.

Cryptocurrency in Banking Sector

Cryptocurrencies have had a large impact on the banking industry.

One of its important aspects is the ability to transfer funds without using any traditional banking services.

Therefore, there is no need for an individual to facilitate the transfer of money as such transactions are directly conducted from one individual to another. Additionally, they are fast and efficient too.

Bitcoin and Ethereum are a few examples of cryptocurrencies that are integrated into the current banking systems.

In these cases, individuals use ‘digital wallets.’ These wallets provide a way for people to store their cryptocurrencies and access them whenever needed.

Additionally, cryptocurrency banking enables users to make payments, transfers, and investments using their digital assets.

To understand the functioning of Cryptocurrency, it is essential to understand the use of blockchain technology.

It is a decentralized, distributed ledger that securely records transactions across multiple computers or nodes in a network. Any information that is stored in the blockchain cannot be modified and thus remains safe from any financial threats.

To join the new trend, several Indian banks now support cryptocurrency.
For instance, HDFC Bank, ICICI Bank, Federal Bank, and Deutsche Bank allow customers to purchase bitcoins and other cryptocurrencies.

Benefits of Cryptocurrency in the Banking Industry

    • Customers can link their cryptocurrency wallets to traditional bank accounts. This makes buying, holding, and selling of cryptocurrencies easier.
    • Customers can choose alternative payment options. For instance, customers do not have to depend on traditional banking systems; they can use cryptocurrencies for peer-to-peer transactions and cross-border transfers.
    • The transfer of funds is fast and efficient and can also be conducted globally. The transactional costs for such transfers are either minimal or zero.
    • Cryptocurrencies are now an investment asset class, and banks have begun offering cryptocurrency-related investment products to their customers. This includes cryptocurrency funds and futures contracts.
    • The transactions in Cryptocurrencies are secured and verified with blockchain systems. This system allows the customer/users to track the movement of funds.

However, apart from all the advantages, there are a few risks in cryptocurrency. Cryptocurrencies are not backed by the government or the central bank.

Therefore, they can cause security breaches, hacks, and thefts.

Due to this reason, cryptocurrencies have been largely associated with activities such as money laundering and fraud. Additionally, the prices of cryptocurrencies are extremely volatile. A sudden price change can affect the value and pose a potential loss to the bank.

It is important to understand that banks can transform the finance industry using cryptocurrencies.

With the many benefits that it offers, cryptocurrencies also pose challenges in the areas of regulation, security, and risk management.

Therefore, it is necessary for banks to effectively address both opportunities and challenges while dealing with cryptocurrencies, which can rightfully be called today’s digital revolution.

Know more about the difference between Digital Currency and Cryptocurrency.

Formal education in finance can equip you with the right knowledge and skillset required for jobs in the banking, finance, and insurance sector. To know and join a banking course, visit tscfm.org.

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