Published: 2018-11-16 20:20:06
With all the constant news about the price of Bitcoin, it’s possible to forget what it was invented for. Cryptocurrency trading plays only a small role in what Bitcoin and blockchain technology can do for our world. Most importantly, they can end the hegemony central banks have on the way we make payments to each other.
Today, there are supposedly thousands of cryptocurrencies available. Many of which seeks to fix the issues central banks have created. However, they don’t all have the same goals. While some may wish to obliterate our current banking system, others simply want to improve it. Banks must find a way to work with these co-operative cryptocurrencies or they will likely face extinction.
The Current Banking System is Too Complicated
In 2015 a global financial literacy test found that 57% of adult Americans are financially illiterate. It’s not surprising then that most people don’t know how complicated it is to transfer money between banks. It’s painstakingly complicated, it’s the reason why payments can take so long – days or even weeks in some circumstances.
When money doesn’t leave a bank, transfers are easy. For example, if two people use the same bank and transfer funds between themselves it’s very straightforward. The bank simply debits the payer funds and credits the receiver.
But when we need to pay someone who uses a different bank this becomes an issue. You would assume that it would work the same way, but unfortunately not. Instead, each bank must have an account with each other to give and receive funds.
To pay someone who belongs to another bank, the funds must first be given to the bank. The bank then takes that money and puts it in their own account in the other bank. Once that money is there, it is transferred to the receiver. This means funds can sometimes be swapped between different hands numerous times before they reach their destination. This entire process becomes even longer when there are large quantities of funds involved.
Blockchain technology can simplify this process, making transactions more direct. Additionally, this also makes transactions cheaper as well.
Blockchain Technology is Ripe for the Globalized World
The old method that is currently in place does not fit in with the world we now live in. Companies are increasingly multinational with offices in many different countries. The process above becomes even more complex when it includes foreign banks. These banks may not have accounts with each other, which might mean a third country may need to be involved.
This is an irrelevant issue for blockchain technology which overcomes this issue. With Bitcoin, overseas transactions can take place at the same speed as domestic transactions.
Funds will be safer
Blockchain technology has also been highlighted as a safer alternative to transferring funds as well.
Decentralized vs. Centralized
One of the key selling points blockchain is that it is decentralized. Centralized networks, such as banks, put themselves at risk because they are easier to hack. Once inside a centralized network, a hacker has access to everything. It only takes one weakness to be manipulated.
By being decentralized, all information is shared amongst everyone all the time. This means that no one is in control of the network. For a hacker to manipulate the information on the network, they would need to control at least 51% of it. This is no easy feat and would require an extremely powerful computer.
Restoring Trust with Transparency
Trust is a major issue for many banks, especially after the 2008 crash. In 2017, a YouGov survey uncovered a number of interesting insights into global trust in banks. While 74% of Americans trust banks, only 37% of Europeans do.
Blockchain technology is also able to restore people’s trust in banks. Most blockchain’s use what is called a distributed ledger. This ledger is used to record every single transaction that takes place and can be viewed by anyone.
With such a powerful tool, banks can be properly regulated. This not only reduces illegal activity, such as money laundering. It also shows clients how their money is being used and transferred.
Cryptocurrencies Working with Banks
Some cryptocurrencies have been designed specifically to work with banks. One of the largest already doing this is Ripple, which is also considered the third largest cryptocurrency. Ripple works by acting as an exchange for money transfer. By doing this, transactions are more direct, much faster and cheaper as well.
Bitcoin was designed as an alternative to fiat money. In an ideal world, users would not need to have banks or bank accounts, they would only need bitcoin. This, of course, puts it at odds with the banking world.
Despite the above, it is still possible Bitcoin can integrate with it. Some banks are already doing it and it could ensure their survival. Though, for wide-scale adoption to happen, it is likely Bitcoin will need to be a lot more stable.
Until that point is reached, Bitcoin is prime to be traded. Traders can utilize BitMex signals and Deribit Signals to make the most of it.
Blockchain technology benefits many industries for the better, most of the time making them more efficient. Banking is another industry that urgently needs to be simplified and blockchain looks like the perfect way to do that.
There are several benefits to adopting blockchain technology: banks can simplify transactions between themselves, making the process quicker and cheaper; banking institutions will be impenetrable to hackers, ensuring their client’s funds are safe; banks will be able to increase trust in their clients by utilizing a distributed ledger.
The banking sector will find it tough to accept the changes and some may fight them. This may even result in some banks closing and some new ones opening. It should be considered that different countries may adopt blockchain at a slower rate and may use a different blockchain. But the result will be the same, banks must embrace change or “bite the dust”.
Feaetured Image: depositphotos/ nils.ackermanm.gmail.com
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The views and opinions expressed in the article Bitcoin and Blockchain | Banks Must Embrace or “Bite the Dust” do not reflect that of 48coins.com nor of its originally published source. Article does not constitute financial advice. Proceed with caution and always do your own research.