Learn how high-street banks are treating crypto, in this blog post by Compare Banks.
The Rise of Cryptocurrency: How Banks are Responding to the Crypto Revolution
Rise of Crypto: How Banks are Responding – FAQs
What makes fintech so popular?
Banking and other financial services are becoming easier to use and more accessible thanks to fintech. Technology users may make use of automation to speed up tasks that were previously handled by humans.
Some financial services still use a hybrid of human advisers and automated systems, while others, like applying for a mortgage or a loan, may be completed quickly, easily, and digitally with no human involvement required. While this is fantastic news for consumers, it is producing major disruption for the industry’s established players.
How can financial institutions benefit from cryptocurrency?
The widespread use of cryptocurrency might completely alter the economic landscape. This increased demand has presented banks with additional regulatory hurdles, however. Here is what financial institutions may take away from the blockchain and cryptocurrency.
Criminals are no longer the only ones who can use cryptocurrencies. They are being used by an increasing number of reputable companies as a means of payment. To automate transactions or regulate interactions between parties, businesses utilise “smart contracts” built on Ethereum.
Before expanding into a new market, a bank has to learn the rules that will be in place there. As authorities try to figure out the best way to deal with blockchain and cryptocurrency, there is currently no clear solution. When it comes to protecting their citizens and their investments, some nations have taken a hard line and outright outlawed cryptocurrencies, while others have sought to regulate them carefully. There are several ways in which financial institutions might profit from cryptocurrency:
- Banks can choose which markets to join with more knowledge of the regulatory climate;
- By offering services that facilitate clients’ usage of cryptocurrencies in a secure and user-friendly manner;
- Through educating and collaborating with other financial institutions on how to use cryptocurrencies, and
- Investment in blockchain technology itself has the potential to improve the safety and efficiency of financial transactions.
How can banks control cryptocurrency transactions?
Many people are interested in cryptocurrencies and blockchain technology, but some banks are wary of the potential security dangers linked with these innovations.
To keep an eye on the cryptocurrency market and its users, certain authorities are examining how to regulate crypto-assets and exchanges. Take a look at the ways in which banks are adapting to the regulatory uncertainties of the cryptocurrency markets.
The Financial Stability Oversight Council (FSOC) is formulating guidelines to legalise crypto investments by regulated institutions including banks. In March, the organisation announced a request for feedback on new laws that would limit the scope of “digital asset exchanges and other similar platforms”. Companies providing services related to digital assets would be required under the proposed rule to follow AML/CFT guidelines. The FSOC is debating whether to regulate Initial Coin Offerings (ICO).
There have been many reports of state solicitors looking at ICOs to see whether they fall within their jurisdiction as securities transactions. New York Attorney General Eric Schneiderman declared in December that his office will be looking into claims that BitConnect, PlexCoin, and Mysterium were all fraudulent initial coin offerings. South Dakota’s attorney general, Marty Jackley, said in January that his agency is looking into five ICOs for possible fraud and theft of investor monies. In addition, eight ICOs were announced to be investigated by the California attorney general’s office in February for potential breaches of state securities legislation.
What are the risks associated with cryptocurrencies?
Although the use of cryptocurrencies as a form of payment is growing in popularity, it is not without its pitfalls. Since cryptocurrencies are not backed by any central bank or government, they are vulnerable to market fluctuations. Decreases in the value of cryptocurrencies might discourage their use and have unintended implications for merchants that accept them as payment.
In addition, there is no physical backing for cryptocurrencies, thus they may be easily lost or stolen. Cybercrime is a concern for certain individuals because of the nature of the internet. Banks have been reluctant to react to regulatory difficulties in the crypto markets, in part because they don’t fully comprehend them and in part because they’re afraid of being left behind if clients abandon conventional banking products in favour of cryptocurrency.
But authorities everywhere are taking note, so banks will have to change their practises rapidly if they want to maintain their competitive edge.
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