Crypto 101

Crypto Banks and How They Work




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crypto banks

Recently, crypto banks have been engrafted into the financial sect of most countries. They operate like the traditional standard bank. But they have a line of distinction which sets them apart from regular banks. This distinction has its base on the emergence of cryptocurrency. Crypto banks have integrated cryptocurrency into some core financial functions.

Crypto banks are always in the eyes of local financial watchdogs; this probably prompted them to sign up for legality. Since crypto banks deal on the blockchain, they are often tackled with challenges. Such challenges include having a receptive environment with friendly, regulatory policies. Another challenge is having enough skills to provide realistic and trusted solutions.

However, crypto banks have been said to thrive in countries that are progressive in their financial policies. For instance, in Germany, most business bodies trading with fiat-based money. They can still invest or participate in a decentralized economy via crypto banking. Futuristically, crypto banking is presumed to be the bridge to link crypto economies and the fiat. That is quite segregated.

How Do They Work?

Cryptocurrency is based on a decentralized system. It works through a string of ledger technology typically referred to as blockchain, which serves as a database for public financial transaction. You should also note that the blockchain technology doesn’t require a central figure hence the feature, decentralized.

The blockchain technology maintains an overview of owners and their cryptocurrency value. The system decides and defines whether there’s a need to create new cryptocurrency units. Plus, the technology describes the circumstances that can be used in affirming and linking a particular user to his cryptocurrency units.

In a blockchain account, payments or transactions are made via the use of tokens which are sometimes referred to as crypto coins or crypto tokens.

Each country has its cryptocurrency policies. Some countries have explicitly permitted their use while other countries have banned it. Some countries, however, are yet to decide whether to integrate cryptocurrency into the economy as they probably have it under investigation.

However, in some countries, Bitcoin has been classed differently. Cryptocurrencies are legalized in Russia, but it is deemed illegal to purchase goods with any currency that isn’t the Russian ruble.

According to Cointelegraph, most crypto firms offer bank-like services; regulatory bodies are yet to come to terms with the banking features of crypto firms. Considering the US for instance, the SEC (Securities and Exchange Commission) is yet to affirm that crypto firms can integrate with the banking system as they are primarily referred to as investment funds for now. Coinbase custody is one of such examples.

Legally Invest fiat to Crypto

Most businesses and investors prefer to operate under the full surveillance of regulatory bodies and tax authorities. They will need to go through the necessary process to legally invest fiat into the tokens. That is the payment medium on Coinbase Custody. With this option, people with massive investment in decentralized economies can leverage on the unique features of the Coinbase Custody. These features include seamless integration, third-party auditing, insurance for deposits, and customized reporting.

Furthermore, you should also know that while Coinbase is known to be quite reliable in storage and exchange, you cannot pay bills or receive your salary with your Coinbase account. This is quite common in the cryptocurrency world. You can choose to repay a friend with Bitcoin by sending money to his/her bank account. But note that you would have to cash out Bitcoin and send it via Coinbase to a linked bank then to your domiciliary bank account. This process indeed affirms that fiat can be turned to crypto and vice versa.

Crypto and Fiat Aren’t Seen as Money

However, crypto and fiat aren’t termed or seen as money as it pertains to regular banks. Based on the process involved during exchange or transfer, it has been quite challenging to fit both currencies into the monetary system. Most cryptocurrency platforms have tried to foster the use of crypto, but one fact that is being forgotten is the aspect of transferability, which is one of the crucial features of a currency.

Most tokens used by crypto firms have most features of a common currency such as scarcity, divisibility, and similar sorts, but the aspect of transferability has been left unattended to. Advanced crypto platforms such as harness the use of stablecoins for international transactions, spending, and investing. But the other user or investor would still prefer to hold on to the real USD other than crypto. This can pose a serious threat to crypto firms as regulators may come up with a policy that forces individuals to use their own currency for their own purposes thereby making crypto less-transferable.

The Core Concept of Banking

Everyone wants to be able to spend at will, whenever and wherever. People want to use their money in diverse ways having a 100% (not 99%) control of what they can do with it. Blockchain derivatives or stacked solution built on a string of partnerships aren’t enough and would likely arouse suspicion and doubt. A report on McKinsey affirmed that the crypto sect operates with the policies of the fiat system, which is subject to the 3-5 day payment schedule.

However, payments can be settled in a matter of minutes if counterparties transact with cryptocurrencies. That applies to those who don’t need the authorization of regulatory bodies.

The core concept of banking still revolves around general acceptability and transferability; in that regard, cryptocurrency is advancing slowly. It would take a universal recognition for cryptocurrency to fully get integrated into the banking system. Cryptocurrency keeps teething. So, integrated economies with a flexible banking system and authorities will be at the forefront of its benefits.

Cryptocurrency still hinges itself on the values of finance. That makes it safe to say that general acceptability may not come in a hurry. We hope that in years to come, cryptocurrency will be globally recognized.

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