Cryptocurrency V/S the traditional banking system
Coined in 2008, Bitcoin was the first cryptocurrency to allow peer-to-peer transactions that were both secure and affordable. Although it has numerous uses, the term “blockchain” has become synonymous with the technology that gave us Bitcoin. How do crypto and banking systems differ? Let’s find out.
What Is Cryptocurrency?
The term cryptocurrency refers to a digital or virtual currency that is protected by encryption, which makes it nearly impossible to counterfeit or double-spend digital cash.
Several cryptocurrencies are built on blockchain technology, a distributed ledger enforced by a distant network of computers. Cryptocurrencies are characterized by the fact that they are not issued by any central authority, making them potentially impervious to government meddling or manipulation.
In cryptography, virtual “tokens” are used to make secure online payments. These tokens are represented by ledger entries on the system’s internal ledger. For example, elliptical curve encryption, public-private key pairings, and hashing functions are all examples of cryptography.
What Are the Advantages of Cryptocurrency?
Coins have several advantages and disadvantages compared to legacy systems because of blockchain’s decentralized and peer-to-peer nature.
In addition to recording monetary transactions, such as those involving cryptocurrency, blockchain is a decentralized digital ledger that may also be used to record other types of data. An extensive network of independent miners maintains its operation, with no single individual or group in command.
Note that decentralization extends beyond technology and permeates the whole cryptocurrency/blockchain sector. To develop a cryptocurrency, you don’t need a government-issued license and don’t need many funds. Smart-contract platforms like Ethereum (ETH) also make it easier to create new coins.
Traditional Money vs. CryptoCurrency
Start by defining the distinctions between ordinary fiat money (euros, dollars, pounds, and so on) and cryptocurrency (bitcoin, ether, etc.). What sets crypto apart from other digital currencies is that it is a decentralized and global digital currency independent of banks and is not backed by any central government. Bitcoin is therefore impervious to government control and interference.
Aside from that, there is no fundamental difference between the two approaches. Money or currency can refer to fiat currency as well as cryptocurrency. To a large extent, they are both exchange mediums that are used to store and transfer value.
High-Performance Investment Vehicles
According to some estimates, from less than $1 in 2010 to a high of around $64,000 in 2021, Bitcoin has increased by over 20 million percent. When compared to that, the S&P 500 stock market index has just “tripled” in value throughout that time. Individual equities such as Netflix and Domino’s Pizza have seen remarkable returns exceeding 4,000 percent over the previous decade, but they are nowhere near as impressive as Bitcoin’s.
Merging Banking and Crypto?
Banks and cryptocurrency systems may not merge in the near future, but it is clear that cryptocurrencies must adapt to new rules and regulations, while banks must learn to play the new game. Institutions must embrace a fluid role and abandon some of their more traditional operational practices. The banks may be able to keep up and upgrade their operational models if they use blockchain technology in their current business.
What About Cooperation Instead of Competition?
However, PoS payments are a sector where cryptocurrencies are complementing existing solutions rather than replacing them. Retail retailers are increasingly accepting crypto payments, either via dedicated PoS payment terminals or crypto ATMs put in their shops, attracted by the potential to access a bigger market and the advantages of quick settlement and protection from chargeback fraud.