Cryptocurrency enthusiasts believe that banks are evil. In fact, probably the majority of people in the world consider banks a “necessary evil.” They are aware that banks earn from high interest rates and overcharge some services such as international transfers. But there should be a solution, an alternative of sorts. What is the best solution right now? Cryptocurrencies.
Once “cryptos” appeared on the world’s stage, banks were pretty wary of them. In fact, they are sometimes outright afraid of what might happen should cryptos become adopted on a massive scale.
What’s so different about cryptocurrencies? How are they threatening the current financial order in the world? If you’re new to the cryptocurrency market, here’s a short overview.
Banks are highly centralized
One thing that you need to know about banks is that they are centralized. Essentially, they are a body that makes decisions, which can affect their users without the users having to agree to that. Our entire world works in a highly centralized fashion. Although democratic countries choose presidents and governments, these figures are the sole representative of a centralized system.
Banks, especially the national ones, also have the power to control financial processes within the country. At this point, you might wonder this — why is centralization bad?
Centralization isn’t bad — humans are
Greed is one of the human desires which is not listed among positive traits. Humans tend to be greedy, and this is especially possible if they control things such as finances. Therefore, all it takes to create an unfair and unjust world is to have a couple of greedy individuals at the top of a centralized pyramid of national and private banks.
Therefore, centralization as such can be good. It allows some decisions to be made faster, and a chain of command to be clearly visible. Moreover, in a centralized hierarchical structure, the overall quality of work is improved. It’s an effectively functioning mechanism, as long as the main cog works well. But, relying on one cog alone for the mechanism to work properly doesn’t seem like a good idea.
Decentralization isn’t new — but only now is possible
Decentralization, as a concept, isn’t new. It’s something that has been tried a couple of times. However, humans were simply not prepared enough to pull it off properly. With the introduction of blockchain, the idea of a decentralized network where the entire system wouldn’t rely on one authority suddenly became more than possible.
However, blockchain technology is fairly new. It is yet to be explored, along with all the potential it could bring to the table. It could affect not only the financial industry of the world but many other things as well.
The only reason why we talk about banks here is that the first successful implementation of blockchain actually happened with cryptocurrencies — Bitcoin, to be precise.
But what is so different about cryptocurrencies that make banks afraid of them?
Cryptocurrencies do not require middlemen
One of the first differences between cryptocurrencies and fiat currencies is the need for intermediaries to conduct financial operations. In a centralized world, these middlemen are usually banks. How so?
When you need to receive your salary, for example, you need to have a bank account. Then, you need banks to send and receive money, and even to pay bills. Everything we do with our money is in one way or another connected to a service that facilitates transactions.
This changed with cryptocurrencies. All of a sudden, a distributed ledger entered the game. Instead of a centralized authority being in charge of transactions, we have a network of nodes, or individual computers, that power these transactions all around the globe. It’s a decentralized system that doesn’t require services from middlemen, be it banks, e-wallets, or anything else.
How do cryptos affect banks?
Cryptocurrencies are already better than banks when it comes to payment services. First of all, they have smaller fees for making transactions. Simply put, you don’t have to pay bank commissions for sending or receiving money. Actually, you have to pay a small amount of cryptocurrency that is used for sustaining the blockchain network. But these fees are much lower compared to those charged by banks.
However, fees are not the only thing that’s overall better when cryptos are compared to banks. Traditional banks require a lot of time to verify certain transactions, meaning it takes up to several days before the money you sent reaches its destination. Since all processes on the blockchain are conducted automatically, cryptocurrency transactions are much faster. Therefore, banks may feel a bit redundant when it comes to the overall speed as well.
Conclusion: It takes time
Cryptocurrencies and its underlying technology have the potential to change the world we live in. Although it’s difficult to predict whether that will actually happen or not, it’s safe to assume that they are at a very early stage of development. Therefore, scientists still need to research how to better harness the power of blockchain and use it to further develop cryptocurrencies and their potential.
So, we could assume that banks are going to be there for the time being. Their power, though susceptible to greed and corruption, is still the best thing we have. Thus, the “necessary evil” epithet will probably be there for some time.
However, crypto and blockchain enthusiasts hope that one day, we will be able to cross out that “necessary” part and simply proclaim them evil. At that point, cryptocurrencies will take over, disrupting the existing financial order and creating, hopefully, a just world with better wealth distribution, and with every single person being able to access financial services for free.