The use of digital assets is not adopted by traditional banks, despite the fact that the world of cryptocurrencies is constantly expanding and gaining popularity. There are, however, ways in which banks can be successful with cryptocurrency, despite the hesitance. Regulatory bodies, on the other hand, are striving to modify banks’ perceptions about digital currencies, considering that these assets may help them enter a new period of innovation and efficiency.
Banks may be apprehensive about bitcoin, believing that transactions involving these assets carry a higher risk and necessitate extensive and costly due diligence. However, financial firms and their clients might benefit greatly from digital currencies if they are willing to accept the risk.
To avoid falling behind, banks must learn to embrace technology and see it as a partner instead of an enemy. Cryptocurrency adoption has the ability to streamline, enhance, and modernise global banking networks for crypto businesses, and there have been several industry breakthroughs that can alleviate banks’ concerns about the risks and allow them to focus on the potential benefits instead.
Here are some of the benefits that banks can profit with cryptocurrency.
- Custody Services
Customers can be provided with custody services, such as access to private wallets through unique cryptographic keys. In terms of holding cryptocurrency, banks could either hold the cryptocurrency itself or give their customers access to it through a personal digital wallet.
- Easy Onboarding And Expert Assistance
Banks might help bring in fresh, less experienced individual investors by offering tools that make it easier for their customers to accept cryptocurrency. Inexperienced cryptocurrency investors, for example, may not be able to set up their own wallet to store their cryptocurrency. Rather than keeping their crypto “off exchange” or with an unregulated third party, individuals may find it more convenient and secure to keep it with a reputable banking institution.
Customers might invest in crypto on the back end via other financial tools, and banks could offer interest-bearing crypto accounts. Banks may also ease some of the concern of investors who aren’t specialists in the subtleties of crypto.
- Security Concerns
Banks can assist crypto users with their security worries. Many users are concerned about personal wallets and exchanges being hacked. Well-known banks might help protect digital currency from theft or hacking and easing clients’ concerns. Bringing cryptocurrency under bank oversight could reduce criminal activity and halt the impression that cryptocurrency transactions aren’t safe to outsiders.
Blockchain networks can help banks speed up existing payment procedures. When it comes to processing transactions, blockchain technology is a faster and less costly alternative to clearing institutions. If banks used blockchain technology, clearing and settlements could be completed much more quickly.
- Smart Contracts
Because the completion of the transaction is dependent on computer code rather than an individual’s behaviour, there is a lower level of trust required between parties when entering into a smart contract arrangement. Banks could build trust by acting as a trusted third party for smart contracts used in mortgages, commercial loans, letters of credit, and other transactions.
Due to the lack of regulation and guidance surrounding digital assets, many financial institutions are hesitant to use them. Institutions are also hesitant to enter the cryptocurrency field due to concerns about its security and stability; however, instead of fearing the technology’s risks, banks should focus on its potential benefits.