With the rapid advancement of technology, every day, more and more companies are shifting to cryptocurrency as their mode of transaction. Some of these institutions have even created their cryptocurrency to deal with their key contractors. Certain investment funds have turned to invest their financial capital in certain types of cryptocurrency. Cryptocurrency has revolutionized the economic infrastructure and has shot to fame in recent times. Will the traditional financial system decline because of the development of cryptocurrency?
Cryptocurrency vs. Traditional Financial system
Cryptocurrency is very different from the traditional banking system. While cryptocurrency is an entirely digital procedure, conventional financial methods involve cash or tangible assets such as gold. Cryptocurrency systems are safe, easy to use, cost-effective, and time-effective. Unlike traditional economic systems, they are decentralized in nature, which a central government mainly controls as it is not controlled by a single entity, cryptocurrency functions in an open environment.
While cryptocurrency has numerous apparent advantages over the traditional financial system, the role of conventional economic systems cannot be disregarded. In sharp contrast to cryptocurrency, traditional financial methods are bound by a proper legal framework.
As a result, many still believe that traditional financial systems are far safer than cryptocurrency. There is no doubt that conventional economic systems are more secure as compared to cryptocurrency as of now.
Moreover, cryptocurrency is characterized by higher valuation volatility, which poses risks for the users. Anonymity is the primary danger in using cryptocurrency. Fraud, the possession of weapons, narcotics, and the funding of terrorism may all benefit from anonymity.
Cryptocurrencies are entirely virtual, and there exists a central repository. So if your computer is hacked or malfunctions, your cryptocurrency balance is very likely to suffer. Cryptocurrencies are not safe against cyber-attacks.
However, with the rapid advancement of technology, it is anticipated that cryptocurrency shall have a stronger safety net for the protection of the users. Stablecoins, a type of hybrid cryptocurrency, already addresses the safety issue and is believed to be the future of cryptocurrency.
Although based on blockchains, stablecoins are attached to mainstream currencies. Shifting to cryptocurrency allows big multinational institutions to operate outside the clutches of governments and, in turn, get rid of institutional fees and payment delays.
Why are traditional financial systems under threat?
With the development of cryptocurrency, individuals and institutions have discovered a new way of transaction in businesses. With the tap of a few buttons, they can exchange the currency’s value without going through the numerous formalities of the traditional financial system.
Numerous institutions such as Facebook and JP Morgan have already introduced their version of cryptocurrency for institutional clients. As a result, rival companies such as Google, Apple, and Amazon are looking forward to launching their cryptocurrency. In this way, cryptocurrencies are becoming extremely popular.
People no longer have to go through the cumbersome process of actually visiting banks and completing hundreds of formalities to access financing. With the growing popularity of cryptocurrency, people who are turned off by the formalities of the traditional financial systems have an excellent alternative. From the looks, it appears that the future will see a cohabitation of corporate and sovereign cryptocurrencies.
The financial infrastructure will be completely different from the system in place today.
Therefore, it is safe to conclude that traditional financial systems are under threat with the constant evolution of cryptocurrency. However, this change is going to be gradual. It is believed that blockchain technology shall gradually disrupt the traditional financial value chains.
With mainstream adoption, cryptocurrency can have a permanent impact on the traceability and cost of transactions. This would need widespread policy-making and policy implementation to regulate the use of cryptocurrencies. Any technological advancement not only creates new economic opportunities but also has ramifications, such as infrastructure improvements and financial support.
It is essential to bear in mind that the development of cryptocurrency will not wholly obliterate the existence of traditional banks. However, how the traditional financial system works will be completely revolutionized.
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