Cryptocurrencies have grown in popularity in recent times. Crypto coins like Bitcoin, Dash, Ripple, Litecoin, Bitcoin Cash and others have gained prominence in the last few years. The reasons are many and need dedicated content to discuss the same.
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One entity worldwide that is still not open to the use of cryptocurrency is Banks. These traditional financial institutions are not just close to the idea of cryptocurrencies; they are resisting it with all force. Even though the online medium is open to accepting cryptocurrency payments, banks hate the idea because these currencies are a far cry from the traditional fiat currencies. The reason often cited behind the opposition is that cryptocurrencies are decentralized, operating in the open-source ecosystem, whereas the traditional currencies are all under the control of the federal government.
Here is an example to understand why cryptocurrencies are immensely popular with the masses. Supposing you had purchased about $1000 worth Bitcoins eleven years back, in 2010, the Bitcoins would be worth $20 million today.
Here are 5 reasons why banks do not favor cryptocurrencies:
1. Cryptocurrencies work in a decentralized format
Banks work in the traditional format where the federal government or a centralized authority control and regulate the monetary space. But, not in the case of cryptocurrencies since they work in the peer-to-peer open-source and decentralized ecosystem. There is no intermediary here that works in between to ensure that a transaction occurs. Banks do not want to accept cryptocurrencies because there will be no control of bankers if cryptocurrencies replace traditional currencies.
Cryptocurrency transactions are fast and secure compared to traditional currencies. Banks fear that they might lose customers as more and more people start using cryptocurrencies. Banks view cryptocurrencies as competitors rather than contributors to economic development.
2. Bankers need to invest time and money to ensure that cryptocurrency transactions are legal
There are multiple ways that bankers track time and money in validating transactions involving cryptocurrencies. What makes life difficult for bankers is that it is impossible to track the source of funds in cryptocurrencies. This model makes it difficult to investigate the source of funds, and therefore, it is not easy to validate if a transaction involving cryptocurrencies is legal or not. Banks view cryptocurrencies as high-risk elements because of this. Bankers have a tough time verifying if the funds have been generated due to legal or illegal activities. All this takes a lot of money and time, increasing the compliance costs considerably.
Besides this, there are other compliance issues too. For example – when US citizens use cryptocurrency, their bank needs to inform the US IRS about the same. Similarly, for other countries too, regulatory bodies need to be informed and kept in the loop.
3. The phenomenal growth of the cryptocurrency market also makes bankers oppose it fiercely
Let us take an example to understand this point better. The market size of the cryptocurrency market was about $470 billion in February 2018. The size makes it bigger than the biggest bank in America – JPMorgan Chase. A major factor of concern for bankers is the swelling size of the cryptocurrency market globally. That is why they are opposing cryptocurrencies because they believe doing so will slow down cryptos’ growth rate. In recent times, many banks worldwide have banned their customers from using cryptocurrencies during payments with their credit cards. The strategy is to slow the rapidly growing crypto market.
4. Risk to employment
Since cryptocurrencies are operated via strong digital technology, there is a rising cause of alarm amongst bankers that if cryptocurrencies replace Fiat currencies, there could be a major risk to employment. Bankers fear that most of them will lose their jobs leading to a personal financial crunch. There is an alarm that the moment crypto coins come into the mainstream banking sector, fiat currencies and the traditional banking systems will get outdated, causing major disruptions in the banking industry and causing loss of employment to bankers.
5. New technology
The infrastructure of cryptocurrency is complex and based on sophisticated technology. The shift in technology acts as a big demotivator and overwhelming for bankers who are used to operating with simple traditional banking systems.
With cryptocurrencies growing at neck-breaking speed, there is a growing sense of insecurity in the banking industry. Bankers are overwhelmed because of the reasons mentioned above. The greater degree of concern amongst bankers is that traders and investors love cryptocurrencies. In such a scenario, it is only a question of time before the traditional banking industry needs to strategize with their governments to find a midway out. The best part is that many banks have opened up to cryptocurrencies in the midst of all of this. In the Middle East, certain entities have now started accepting cryptocurrencies – take the case of Kiklabb. Kiklabb is a free-trade zone in Dubai. The government-owned entity is responsible for issuing licenses, visas, and trade permissions to companies willing to start operations in the free-trade zone. It also has a cruise liner named Queen Elizabeth 3, anchored at Port Rashid, Dubai. Commercial customers can lease office spaces aboard the cruise liner. Kiklabb has started accepting payments in Bitcoin, as per the Gulf News, reported in February 2021.