Banking has been around for centuries. From the taxation systems, if the ancient feudal systems to the Knights and their associates collecting toll from peasants, banking has come a long way. The current banking infrastructure is a huge monolith spread over continents, catering to over 60% of the world’s population. However, with great powers come great responsibilities. Though the institution of banking has evolved, it’s robustness has also given way to officiousness and excessive bureaucracy. Also, with excessive oversight, it has become intimidating for the simple depositor. At such time, the cryptocurrency is born. It did appear on a minuscule scale way back in the late 80s as Ecash, but it really bloomed when blockchain, as a technology, appeared. Based on the concept of universal ledger or blocks, this meant multiple consensuses were available to oversee a transaction. Hence, security wouldn’t be an issue.
The cryptocurrency was digital currency, which was essentially a peer to peer, decentralised system. It gave unbridled freedom to the participants. And since, there was no third-party authority, it had a quick turnaround. The transaction cost was next to nothing too. It was a direct challenge to the establishment, that had ruled the roost for ages.
However, naysayers have put their fears across vehemently. And they have value reasons for it.
Cryptocurrency puts too much emphasis on technology. In the event of a catastrophic failure in systems, the investor has a possibility of losing his or her entire portfolio. While the banking system thrives on creating innumerable backups, cryptocurrency does not have that opportunity.
Also, one of the primary reasons which made cryptocurrency popular, the unbridled freedom, has become its panacea. Because of the lack of oversight, money laundering and frauds had a field day. Also, illegal transfers for anti-national activities found a new mode of communication. Regulating this system is the only way out, screams the critics. With Bitcoin commanding more than 50% of the market cap, diversifying the portfolio from the perspective of an investor, also is a hindrance. Moreover, the current system does not allow cross investments, ie. From fiats or government-controlled instruments to cryptocurrencies. This becomes a challenge in the case of creating liquidity.
However, the banks have realised the potential of cryptocurrencies and symbiosis may be in the offing, albeit in a limited manner.
Cryptocurrency does have the ability to transform banking. But it will require some canny workaround to satisfy all stakeholders.