How Cryptocurrency is beneficial for Financial Institutions

Cryptocurrencies and their underlying blockchain technology are being proclaimed as the next-big-thing as it has the potential to revolutionize the current economic structure and can change how the financial institutions operate. You've probably heard of the word "Cryptocurrency" in banking, investing, over the past 10 years. But what is Cryptocurrency? A cryptocurrency is a virtual currency which is used as a medium of exchange like normal currencies but designed for the purpose of exchanging digital information. It uses cryptography for security which makes it difficult to counterfeit. Since it is not issued by a central authority and that's why it has a strong advantage over centralized financial systems.

Traditional banking services often require financial intermediaries which makes it a time-consuming process and is subject to greater regulation and higher costs due to the prevalence of fraud whereas Cryptocurrency reduces the number of middlemen and also reduce processing costs.

Cryptocurrency comprises of the distributed network on which usually Bitcoin. To make the financial infrastructure reachable and accessible and because of its decentralized nature, cryptocurrencies can bypass any third-party control and bring opportunity to the users. Anyone can create a bitcoin wallet and transfer money internationally via the internet or even use bitcoin debit cards, which work like any VISA card but with the advantage of having much lower fees.

Blockchain technology is under serious consideration for adoption in structured finance because of its purported advantages in providing Financial Freedom.

Transaction speed

Individuals and businesses send hundreds of billions of dollars internationally every day in a year, and the process has traditionally been prolonged and expensive. Sending money to another country is an area where the bank can do the improvement. The emergence of Cryptocurrencies provided an “alternative” way to move money, instantly. All you need is a mobile phone or a laptop, an internet connection and instantly you will become your own bank making payments and money transfers instantly by eliminating the intermediaries leading to higher transactional speed.

Peer-to-peer network (P2P)

Digital currencies operating in the blockchain have created a peer-to-peer network that operates completely in the digital world regardless of holidays and weekends, users of Bitcoin and other cryptocurrencies can freely transact on a P2P basis, through the utilization of wallets. Cryptocurrencies provide financial freedom in trading and development for individuals and businesses operating in regions wherein government entities control banks and financial institutions.

Fraud Reduction

The blockchain network is secure and is embedded with cryptography. Cryptographic networks are complex to hack and thus, any kind of security breach in such networks is impossible. Cryptocurrency can help banks and others, identify individuals quickly and accurately through a blockchain-enabled digital ID. Plus, they’ll likely be easier and the costs of doing business will decrease, and presumably, the savings benefit everybody.

Cross-border payments

The transfer of value has always been an expensive and slow process in traditional banking services. For example: When customers pay with plastic, merchants pay processing fees, and those fees eat into profits, this is particularly true for cross-border payments. Blockchain payment networks like cryptocurrency are able to speed up this process - making it less- expensive. The Blockchain technology is excellent for keeping track of transactions, and that may be useful in several areas of banking services. Now the users and merchants of cryptocurrencies can send the money around the world instantly.

Disintermediation

When a consumer or a business send or receive a payment, the funds typically move through banks, and other processing networks, and other intermediaries adding up more complexity at each step, and every service provider expects to earn a fee for the part they play in payment. Cryptocurrency can help in eliminating the intermediaries to lower the transaction costs by taking back the control from powerful financial intermediaries.

Conclusion

Cryptocurrency is still relatively new, although banks and other industries are already innovating with blockchain technology. At this point, the technology is probably ahead of regulations, and it’s not always clear what to expect in terms of protection, privacy, and potential risks in the future. Blockchain payment solutions tend to be leveraged across multiple parties rather than within a single banking system. As there are still millions of people who are unbanked and blockchain-based solutions can easily serve them.