Cryptocurrency and innovations like DeFi, NFTs, and many more digital assets developed with blockchain technology have been growing in recent years. The main goal is to solve problems consumers face with the centralized systems in place.
Traditional banking, in particular, functions in a conservative manner which has become unsuitable for a more modern financial system.
To address this, crypto was introduced and designed to be an efficient and secure alternative with a better financial system in place through decentralisation. However, crypto is still in its infancy and is considered volatile. A problem expected to be resolved once crypto widens its reach in the mainstream market.
To further understand the difference between the two, including advantages and disadvantages, let us first discuss each individually here at Casino Days India.
What is traditional banking?
Traditional banks have existed for a long time and are the oldest form of handling finances. They operate strictly with the use of fiat money or legal tenders approved by the government.
To be a legally operating bank, a license needs to be acquired from the national banking regulator in the country in which the bank is located. Having a licence is necessary for banks so they can execute activities such as cash management, retail banking, merchant acquisition and asset management.
When it comes to bank transactions, clients are generally required to be physically present at the establishments. However, most banks nowadays offer online options wherein clients can access their accounts But a bulk of transactions, especially ones needing additional documents and verification, are done in person.
Many banks, if not all, now offer online banking to their customers. It is to cater to a younger, more tech-savvy generation. It allows them to access their money anytime. It also enables them to make financial transactions remotely through a financial institution’s website. These transactions include deposits, transfers, and bill payments.
What is crypto?
A cryptocurrency is a digital asset that is not controlled by a central authority. It is designed to be free from government interference, which is a key feature for many users. This is largely due to people’s mistrust of governing bodies and the need for freedom when it comes to personal financial management.
Additionally, crypto is secured by cryptography and blockchain technology which makes it near impossible to cheat or hack. Bitcoin, whose maker/s remain anonymous today, is the first cryptocurrency. At present, there are over thousands of cryptocurrencies in the world. Referred to as altcoins, each one offers different functionality. Some examples include:
As the first of its kind, Bitcoin was created to streamline financial transactions without the burden of government restrictions. It is largely used as a digital currency when making transactions online. Aside from its focus on security through blockchain technology, Bitcoin also boasts of allowing users to maintain their privacy.
Coming second after Bitcoin, Ethereum’s function includes enabling decentralized applications, called dApps, that are freely accessible to anyone in the world without fear of fraud and third-party interference. The platform is run on a cryptographic token called Ether.
Through Polkadot, developers are not only able to create dApps, but they can also make their blockchain while making use of the security of Polkadot’s existing chain. This is called shared security.
Crypto vs banks
The most obvious difference between crypto and traditional banking is the currency issued between the different parties.
With traditional banking, transactions are made with legal tenders issued through a government decree. It comes in the form of physical or paper money called fiat money. In contrast, cryptocurrency transactions are done over the internet. It is free from government regulation and can be used for transactions anytime and anywhere.
When we compare traditional banking to cryptocurrencies, another biggest difference you will hear is the system in place for currency exchange. Traditional banks run on a centralized exchange system whereas cryptocurrencies run on decentralized ones.
Centralized exchanges are maintained and operated by a central authority, which functions in a hierarchical structure. The responsibility of holding the ledger, securing data, and executing transactions is controlled by the governing company.
Decentralized exchanges, on the other hand, are free from centralized authority and are independent of any third-party interference. It allows peer-to-peer transactions without an intermediary. Ledgers are distributed equally to network members, allowing everyone to have access to the same data in real-time.
Aside from that stark difference between the two forms of banking, there are other distinctions between the two:
Availability is one of the biggest differences between banks and cryptocurrencies. Usually, the former operates during stiff business hours and weekends. This can pose an issue to customers, especially if they want to access their assets. Meanwhile, the latter runs on the internet and can be accessed anytime, anywhere as long as there’s a stable connection.
Traditional banking is vulnerable to cyber attacks, especially in the form of phishing which customers, especially older people, are susceptible to. In crypto, both parties undertaking a peer-to-peer transaction are protected by blockchain technology. It makes use of complex algorithms and advanced technology that ensure customer data and transaction information is secure and cannot be tampered with.
Banks are chartered institutions, legalized by the government. It allows them to function on a national level. Crypto is not as globally available; some countries have already banned it for several different reasons, the biggest one being that crypto cannot be regulated by the governing body and there are concerns about crypto being used to fund illegal activities.
Which is preferable: banks or crypto?
Both traditional banking and cryptocurrency have their advantages and disadvantages. However, traditional banking has always had an old-school process and is slow in adapting to the demands of the current market.
Especially in recent times, traditional banking has been failing to meet the new standard required by modern banking. Crypto, on the other hand, has been growing steadily since the first cryptocurrency entered the market in 2009. The different types of cryptos also provide a diverse range of services to their clients.
One of the biggest aims of crypto is to provide a better alternative for its consumers. This enables them to deliver more practical solutions that specifically answer problems that exist in traditional banking. Among these is providing a secure system to allow for more dependable transactions.
However, it is important to understand that crypto is still new. It means that there are still a lot of developments to be made to adapt to the needs of its customers.
With all that said, crypto is ushering in a new age of financial services that specifically meet the needs of modern consumers who are more digitally inclined. Casino Days India, for one, is thrilled to see just how much farther crypto can go.