The idea of making individuals “their own bank” was once an ambitious goal of Bitcoin. In 2008, when Bitcoin’s white paper published it, felt foolish and absurd. After a decade, the traditional idea of cryptocurrency still revolve around finance, however with it decentralized industry and replicated the idea of a lot of financial services on blockchain, thereby providing services that were exclusively served by the banks.
DeFi isn’t banking!
In recent times, a lot of people are talking about Decentralized Finance(DeFi). DeFi isn’t banking as such so do not make a mistake, it does mimic various banking functions but still it lacks the most important role of banks, i.e., security. Also, they do not take any liability through legal procedures, and there is no protection schemes for investors. However, they do allow people to connect with others by letting them lend, exchange, and save money as a cryptocurrency can act as an alternative to many traditional banking services. CEO of Skrill, a popular online payment company, told Cointelegraph:
“Many companies claiming to be banks operate in the cryptocurrency ecosystem, however almost all would find it hard to maintain that title in a regulated space. They use this terminology as it implies a level of safety and regulation found in the wider financial world, something that will most likely be missing from their product.”
The major drawback is that these applications are not able to withdraw to a bank nor they are able to accept deposits, which in turn is a red flag. DeFi is a great opportunity for people who are comfortable in operating in this ecosystem. There do exist the well known “cryptocurrency banks” which are yet to be fully materialized. Teams of both sides of the finance industry have matured with their blockchain solutions and are regulating them to learn more about the revolution that is knocking on their doors.
What is a Crypto Bank?
Banking institutions that are able to engage in activities that are related to money like withdrawals, deposits, borrowing, lending, saving and investing in a wider range of markets and instruments are called Crypto Banks. This does describe the banks property as a standard perfectly, while the crypto banks operate by integrating crypto currency to resolve their financial functions. In the eyes of local authorities, somehow they have gained legality.
There is a twofold challenge that blockchain faces: The first is to have enough local talent that can provide trusted and mature solutions, the second one is to make it tolerable to the regulating environment. Germany is a place which has progressive policy makers, institutions and businesses that hold fiat money and assets based on that can easily participate in an economy that is decentralized by a crypto bank. Bitwala and Spot9 are those kinds of crypto banks, they are essentially the building blocks of what’s going to be a bridge between the crypto economies and segregated fiat, that is in the process of emerging out.
Bitwala deposits are regulated by Germany’s Federal Financial Supervisory Authority, thereby insuring the deposits via German Security Guarantee Scheme that is up to 100,000 euros, i.e, about $113,000. Its partnership with SolarisBank which is regulated by European Union ensures that the Bitwala account holders can operate things in the ways they do with a regular bank account, this includes getting paid, paying bills and rent, send interbank payments, store money and exchange currencies in both cryptocurrency and fiat easily.
Convincing, but futile facsimile
There are unique capabilities associated with a blockchain finance, among the largest crypto firms, there are many that are offering enterprise level businesses a service that resemble a bank. United States, for example, there are no indications provided yet by the Securities and Exchange Commision regarding their integration with regular banks, for now, they are investment funds essentially. One of the most anticipated examples, Coinbase Custody, can play being a bank if regulators provide them their approval.
To legally invest fiat into the Coinbase Custody’s tokens available, businesses and serious investors are now preferring not to operate in absence of eyes of regulators and tax authorities as they tend to report the necessary legwork. It allows organisations and people with large investments to invest in crypto market, thereby letting them avail while getting seamless integration of Coinbase Pro exchange, staking tools where available, third party auditing, customised reporting and insurance for deposits.
BTC banks burgeoning worldwide
Is Coinbase’s custody missing a solution? Meanwhile, for US citizens, it provides storage and exchange in a trustworthy manner, but bills cannot be paid and salary can not be received in it. While in the case of movies, crypto can be used as payment or a method to repay the friend that had purchased your ticket. For example, a user would have to cash out Bitcoin(BTC), and then use Coinbase to send it to a connected bank, and then to the user’s bank from the connected bank. The reason being that without a regulatory approval, fiat and crypto can be turned into each other, but crypto and fiat does not signify the same definition that a bank pertains for money. So, there are many obstacles ahead clearly. In opinion of Skrill’s Pellegrino:
“While cryptocurrency will definitely play a large role in the future of payment rails, we believe that they will be complementary to the current systems, rather than in full out competition. Established payments companies like ours will be key in helping this adoption.”
As one realizes, it becomes quite apparent that fitting crypto into the current monetary system is like picking a square peg for a round hole. To render obsolete regulators and entrenched competition, the hardest attempts are taken by most advanced platforms, however, they always forget that transferability is one of the five key properties that a currency has and crypto is lacking it.
Tokens have durability, fungibility, scarcity and divisibility down pat, however, regulators have the privilege to force stalemate on its transferability. That is the sole reason why many advanced platforms including MyCryptoBank.io are able to use stablecoins for seamless and free transactions across borders, investing and spending, however if a user decides to hold on real USD or the equities(not derived from blockchain), there occurs a problem. These movements of cryptocurrency can be prevented by regulators and roadblocks can be prepared for individuals for using their money for a purpose of their own, it can happen even in fund transfers into fiat currency.
Banking isn’t verb, it's more of a label
When it comes to money, people want it to be usable in everything, not xyz% of everything. Tenuous partnerships to provide staked debit card solutions are not enough. As concluded by a McKinsey report. Without an approval by a regulatory, three to five days time is required in settlement are subjected to fiat underlying all blockchain finance. The report says, “If counterparties were to exchange cryptocurrency assets (digital currencies that do not need a central regulating body) rather than fiat currencies, for example, payments could be made and settled in minutes via blockchain, rather than in days as with current systems.”
Towards the universal recognition, slow steps like letting a cryptocurrency store and transmit a value are lined up, however, in the most anticipated areas it is quite slow. Meanwhile in upcoming years, when cryptocurrency lay out its foundation completely, most benefit would come to the economies integrated into the most liberal banking authorities. It is a safe prediction that the acceptance is way off as the oldest of all cryptocurrencies are still facing financial fringes.