Cryptocurrency has now been in existence for over a decade, and it appears to be here to stay for the long run. This alternate storer of value has some investors and economists speculating whether or not Bitcoin or some other variant of crypto technology could become the future of the world’s currencies.
There have been tons of boom-and-bust breakthroughs over the years, with new assets claiming arrive to supplant the dollar as the world's most prominent currency, but none have yet to do so. Cryptocurrency might be the first asset, digital asset specifically, that may have a chance to become a viable alternative for the future of currency. It has a lot of intellectual backing behind it and a lot of motivation from people to see it through and ensure that the future of money is decentralized in nature. This can and should impact the world in many positive ways, but there are also sectors that will suffer as well, such as banking in some cases.
Cryptocurrency is already changing the way the world sees money, and before long, it could be changing how it’s used entirely. Your traditional banking systems may not be around forever, and the future of crypto might affect them in several ways.
Looking At Money As A Whole
Money is only valuable when it is perceived as such. Fiat currencies aren’t backed by anything tangible, and therefore their value is derived from trust and a general socially accepted assigned value.
The same could be said of gold, actually, and Bitcoin, and anything used as a store of value for transactions. Nothing has value if the receiver doesn’t value it. If someone offered a financial advisor living in Toronto a goat in exchange for services rendered, going to the trouble of converting that goat into value by selling it isn’t worth it, and the animal itself is nothing but a liability.
Currency can be likened to saying that beauty lies in the eyes of the beholder, and with a successful currency, we’re all looking through the same eyes. Money is simply a common intermediary that’s accepted for transactions. Even though you don’t have something someone needs, you can use the money to buy that product so that the seller can get what they need.
Understanding Crypto, And How It Affects The Banking Industry
Banks, because of the nature of the dollar, are what’s referred to as ‘centralized’ currency holders and distributors. In a sense, gatekeepers of a currency can regulate and influence it as they please. The government can induce inflation and deflation at their pleasure, raise and lower rates, grow or shrink the economy with it, and ultimately exert great influence because of this power. But as an add-on, they give clients a little bonus for opening an account.
With dollars, you have to store them in a bank or interact with a bank in some form or another at some point in your life. Although you could try your hardest to just insist everyone pay you in cash and stack it all up in your closet, you’d be less than wise for it, a not-so-great investor, and good luck getting approved for a mortgage.
Partially due to the influence of credit, banking has made itself a necessary go-between along the process of transacting and wealth acquisition. This is the centralized nature of money now. With cryptocurrency, on the other hand, this problem evaporates, at least in the truly decentralized options.
The Crypto Process Vs. The Dollar’s Process
If you do business with the dollar, you’re going to need a bank, and you’re going to need to use the currency that your country accepts and has influence over. With crypto, you simply use an exchange or a digital wallet to access, spend, and acquire your funds that don’t happen to be influenced by any central power, and are created and verified by the blockchain behind it.
As is with banks, though, you’ll want to make sure your wallet or exchange is high-caliber with a good reputation. You can check Coinformant’s recommended Canada exchanges or other exchanges of the country relevant to your reality for examples. There are plenty of newcomers to the crypto space, and especially if you’re a beginner, you’ll want an exchange with high authority.
Regardless of your exchange of choice, you should be safer from the fluctuations of the dollar that arise from various day-to-day world news. Because cryptocurrencies don’t rely on any central authority for their value, they’re not affected by political or economic fluctuations caused by the value of traditional money. This means consumers are able to trade more freely and securely without worrying about their money being directly affected.
How This Affects The Banking Industry Over Time
It comes down to trust, skepticism, and projections for the banking industry and how it will have to overcome cryptocurrency’s rise.
Physical banks will continue to close as they already have, with the rise of online banks and crypto exchanges continuing to grow. The dollar isn’t going anywhere anytime soon. But the level of profitability surrounding it for banks, with the increase in crypto’s use combined with the present low interest rates, will continue to decrease.
With skepticism rising about centralized powers and governments in general, banks are likely to be next. Many businesses are already beginning to accept cryptocurrency as a payment option, taking the power out of the centralized authorities’ hands in the process. The government and banks alike know they can’t democratically stop this, so they may do a number of things.
They’ll likely try to create and implement a fully digital dollar system sometime in the near future, because crypto eating into the value of the traditional dollar significantly burdens the government’s ability to implement their monetary policies. Such policies can be both good and bad, but at times overbearingly influential.
The banking industry as a whole should continue to shrink as national governments seek to avoid something of a currency anarchy situation, with the next three to ten years likely being a defining period for the future of money as a whole, both in your home country and across the world, too.