At this moment, the banking sector is in the midst of a major transformation. The introduction of blockchain technology has ushered in a new digital age of banking. These new banks and service providers seek to capitalize on the many benefits provided by cryptocurrencies. As such, the crypto banking sector continues to expand at a record pace.
Benefits of Crypto Banks
The benefits obtained through the integration of crypto banking services are by no means a one-way street. Both financial institutions and regular users gain much from these platforms. For one, all parties gain access to reduced costs for critical financial and banking processes.
Along with cost savings associated with managing digital currency at a financial technology firm or a financial services provider, there is also more responsiveness and a higher quality of data obtained by these systems. Centralized banks also obtain a streamlined way to handle errors and reconciliation using permissioned blockchains.
Crypto banks can save users and banks a lot of headaches and errors as well. The integration of smart contracts enables these firms to remove the need for human intervention from the equation. Smart contracts are digital protocols that are predetermined to activate upon the completion of certain criteria. For example, a crypto bank could automatically issue you your car title when the system registers you have made your final loan payment.
Types of Crypto Banks
There are few different types of crypto banks available to the general public currently. Centralized crypto banks are similar to your traditional banks. They operate using a permissioned-private blockchain. These banks enjoy the speed and efficiency of cryptocurrencies, without losing any of their control.
In most instances, centralized crypto banks operate as custodial institutions. This designation means that you must deposit your cryptocurrency into a network bank account to be eligible to earn interest or access other features. Centralized crypto banks are more likely to have regulatory approval compared to their decentralized counterparts.
The second style of cryptocurrency bank operates as a decentralized network. These platforms are usually built on public blockchain such as Ethereum. As such, they provide more transparency versus their centralized counterparts. A decentralized crypto bank operates as code, there are no humans reviewing, approving, or denying transactions.
In most instances, decentralized crypto banks are non-custodial in nature. Non-custodial platforms enable you to keep your cryptocurrency safely stored in your own wallet. These networks are unique because you simply link your wallet to the system to begin accessing its features. Non-custodial banks are more secure because they offer less reward to hackers as they don’t hold any customer funding directly.
Crypto Bank Features
There are a lot of cool crypto banking features available to users today. Each crypto bank offers a select combination of these options as part of its strategy. By understanding what features are available, you will find it much easier to find a platform that supports your overall investment strategy.
Crypto Savings Accounts
One of the premier services offered by crypto banks is savings accounts. These accounts are designed to function like your traditional bank account in that you deposit funds and can receive interest payments based on the number of coins held. The main difference between crypto accounts and your bank account is the amount of interest paid out.
On average, your typical bank pays around .25% APY (annual percentage yield). Crypto banks can pay out much higher rewards due to the fact that they save on operational costs considerably. A crypto interest account can pay up to 8% or 12%. These high-interest rates have helped boost the crypto banking sector in recent months. Notably, META 1, BlockFi, and Abra, all offer users crypto savings account.
META 1 Developers have taken the concept even further with the introduction of the world’s first self appreciating multi-asset stablecoin – META 1 Coin. The developers increase the entire network’s wealth by leveraging a percentage of the backing assets. This strategy enables META 1 to then place these funds in high yield trading platforms to produce a 4-6% monthly return. Impressively, these profits get distributed to the value of the coin via the network’s asset appreciation smart contract.
Crypto Debit Card
Another crucial feature that crypto banks can provide is debit card services. A crypto debit card operates in a slightly different manner than your typical bank card. When you swipe a crypto bank’s card, the system will automatically sell the corresponding value in crypto and pay the merchant in fiat currency. This process happens in a second and is not noticeable when compared to your regular bank’s processing time.
Additionally, crypto debit cards can offer you rewards. There are crypto debit cards that pay you rewards in Bitcoin, Ethereum, and even custom tokens supported by the platform. Best of all, these rewards are sent directly to your network account where they can earn you more rewards via DeFi features such as staking and farming.
Perhaps one of the biggest draws for crypto banks is their peer-to-peer lending protocols. These systems enable regular users to lend out their crypto and earn rewards. These systems employ large lending pools and collateral-based smart contracts to provide security to lenders and more accessibility to borrowers. Notably, p2p lending systems eliminate the gatekeepers. You can access funding in seconds rather than weeks.
Traditional Banks Begin to Offer Crypto Services
On July 22, 2020, US regulators deemed that “Federally Chartered Banks and Thrifts May Provide Custody Services For Crypto Assets.” Consequently, you can expect to see a bunch of hybrid crypto-related implementations and innovations in the near future.
For example, in February 2021, the Oklahoma-based Vast Bank announced the launch of crypto custodial services. They are not alone in their desire to enter the decentralized market. Financial technology provider Kasasa also plans to bring Bitcoin wallets to its network of over 900 community banks and credit unions in the coming weeks.
Notably, the New York-based investment bank, JP Morgan Chase, also wants in on the action. The firm now seeks to launch the first-ever major cryptocurrency backed by a U.S. bank. The new format will introduce a digital token called the JPM Coin that will enable the platform to instantly settle payments between clients according to CNBC reports.
Crypto Banks – A New Era is on the Horizon
The recent rise in popularity of crypto banks sticks with the broader trend of blockchain adoption. As more users and institutions become aware of the added security and efficiency these networks provide, more institutions will join the revolution. For now, crypto users have more crypto banking options than ever.