You might have noticed that more online retailers are beginning to accept cryptocurrencies, like bitcoin, as payment for goods and services. These internet-based currencies have grown in popularity over the years. While you can’t hold or touch the money physically, you can trade cryptocurrency easily online. This is an entirely different form of banking that is unlike anything seen before. Because of this, many people feel as though it’s a threat to traditional finance and will eventually overtake all forms of physical money, like coins, cash and even gold.
Understanding Cryptocurrency
There are a variety of different cryptocurrencies currently available on the market. The most popular is bitcoin, but you may find people using Dash and Litecoin as well. Generally speaking, these assets are a form of digital currency that can be traded in exchange for goods and services purchased both online and off. One of the key features of these assets is that they are decentralized, which means they are not controlled by governments and are not specific to a country. Instead, they are regulated by a third party. They are both transacted and created online, and they are controlled both by internal networks and code.
How Does It Work?
Because many people are used to how traditional banks work, it can be somewhat confusing to understand how these are traded and what to expect when using these assets. Your bitcoin will essentially be stored on a public ledger. The ledger is responsible for using techniques to ensure that all transaction records are accurate and that the owner’s identity has been fully encrypted, or protected. Owners will have a digital wallet online, and the ledger that is used will help to keep the wallet accurate so that you know what your spendable balance currently is. The currency can then be used to purchase goods online and off, as many retailers are beginning to allow for its use.
What Challenges will Traditional Finance Face?
Because there has been a major shift in how people are able to trade and invest, it’s expected that more individuals will begin to use cryptocurrencies as a valid form of money. For people who might have been denied financing from a traditional bank, they may be able to receive the help that they need through online platforms. Many have compared the development of bitcoin to the motorcar when it was able to replace the railroad system. Because banks often charge fees and penalties for a lot of their transactions, people will benefit from the fact that these asset markets do not penalize customers. This can be very attractive to individuals who are otherwise tired of how traditional banks work.
How Banks are Responding
In an attempt to fight back against cryptocurrencies, many banks and financial institutions are implementing real-time services that keep people fully engaged with their money. This involves mobile banking, check depositing online and eliminating penalties and fees. Because many banks tend to have customer-unfriendly practices, like withdrawing money early and being late to deposit it, they have been making changes to offer more transparency to their clients.