Banks and other central entities of traditional finance are raising their voices against cryptocurrencies as cryptos are gaining unforeseen popularity all over the world
From supply chain management to copyright protections, blockchain is becoming an inseparable part of the infrastructure.
Even after critical remarks on cryptocurrencies, the Bank of International Settlements made it clear that a complete ban on crypto will be against the foundational principles of society and hinder useful innovation
The recent blunders in the crypto sphere have invited the harshest of remarks from leading figures of traditional finance. The recent ones are coming from no one else but the bank of banks itself. Matteo Aquilina, a senior economist from the Bank of International Settlement along with Jon Frost and Andreas Schrimpf co-authored a Thursday bulletin that acutely hits on cryptocurrencies and their future.
While sharing the views of the bank of technology, the bulletin said,
“Recent developments underscore that the decentralization in crypto and DeFi markets is illusory,” they said, reiterating the bank’s stance from last year.”
The bulletin went on to explain that the main objective of cryptocurrencies is to get away from financial intermediaries. However, they rely heavily on centralized entities that go against their core ideas. The bulletin rhetorically continued to demand the regulators look out for options that cannot be evaded while also being feasible to implement on a large scale.
Banks and other central entities of traditional finance are raising their voices against cryptocurrencies as cryptos are gaining unforeseen popularity all over the world. This not only goes against the interest of banks but also threatens the central entities by reducing their control over the flow of money in economies.
Apart from that, central banks see cryptocurrencies as a competing force rather than an aid to the present financial ecosystem. The governor of the Reserve Bank of India, Shaktikanta Das, also compared cryptocurrencies with gambling and requested the government to treat it with regulations decided for gambling.
“Anything whose valuation is dependent entirely on make-believe is nothing but 100 percent speculation, or to put it bluntly, it is gambling. In our country, we do not allow gambling. If you want to allow gambling, treat it as gambling and lay down the rules”, said Shaktikanta Das.
However, the complete negation of blockchain technology is not possible. Governments all around the world are working towards embracing blockchain tech by developing their own CBDCs. From supply chain management to copyright protections, blockchain is becoming an inseparable part of the infrastructure.
Cryptocurrencies are designed for creating a peer-to-peer value of transfer ecosystem that is not controlled by a central entity. But does it mean that cryptocurrency will wash out the banking system? The answer to this is a complete no because of the services that banks provide to the users.
The present banking system is not only based on settling transactions for the users by charging them a little fee. Banks provide their users with different services including
Advancements of loans
Cheque Payments
Discounting on bills of exchange
Collecting and paying the credit instruments
Guarantee by Banks
Consultancy
Funds Remittance
Debit Cards/Credit Cards
Insurance services
Portfolio Management Services
All these services provided by banks cannot be replicated using cryptocurrency without the need for a central entity. This makes it clear that even though blockchain provides an immutable ledger of records, it cannot replace the entire banking system. However, it is for sure that banks would be embracing blockchain tech to incite transparency, trust, and the right mix of centralized control on their services.
Cryptocurrency adoption is inevitable with time but the possibilities of their impact on the future of finance cannot be put into metrics. However, the advantage and disadvantages of mass crypto adoption can be compared for insight.
Cryptocurrencies are based on blockchain technology that ensures a new level of security in all transactions
Double spending or counterfeit currencies cannot exist due to the individual identity of every crypto coin
Cryptocurrencies are decentralized and none but the nodes spread out all across the world are responsible for validating the transaction
No centralized structure is required to streamline transactions across the world as everything is hard coded in the blockchain programs
Blockchains provide an immutable ledger for all the transactions happening on the network, with no information being lost anyone can verify transactions manually
Due to the technicalities related to cryptocurrencies, centralized crypto companies have gained a significant edge
The pseudonymous nature of blockchain has made cryptocurrencies a top choice for illicit financial transactions
The stance of global economies on crypto regulation is still unclear and restricting the future aspects of crypto expansion
Cryptocurrencies are highly volatile and that makes it really hard for the end users to adopt them as an alternative to fiat
Cryptocurrencies and blockchain technology are here to stay and it is inevitable that they become a part of our daily life. Moreover, this is also not possible that cryptocurrencies will replace fiat and traditional financial institution in the coming times.
Even after critical remarks on cryptocurrencies, the Bank of International Settlements made it clear that a complete ban on crypto will be against the foundational principles of society and hinder useful innovation. While the regulation of cryptocurrencies will ensure consistency in financial activities and enable the regulated players to innovate in this space.
It is high time that banks, instead of working against it, work towards embracing blockchain technology. Blockchain and crypto have the scope of revolutionizing traditional finance and making it more effective and transparent. Cryptos are not a rival to banks but an effective tool in changing finance as we know it today.
