4 crypto banking terms you need to know

There are many crypto banking terms that might be confusing for someone new to the crypto world. Crypto banking is a growing industry, and understanding how it works is important to take advantage of the crypto financial services it has to offer.

Check out these four must-know crypto banking terms.

1. Fintech

Fintech is a term you’ll probably come across while reading about crypto banking, though it isn’t exclusive to the crypto world. It’s a portmanteau of “financial technology” and refers to any technology company that combines innovative technology with finance. 

The goal of fintech companies is to make the financial services industry automated, digital-friendly, more efficient, and safer from security breaches.

Of course, fintech companies include crypto companies that are bringing blockchain technology, smart contracts, and artificial intelligence to the finance world.

2. Unbanked

“Unbanked” is a term that describes anyone who does not use traditional financial institutions or services, whether by choice or because they don’t have access to them. They primarily rely on cash and don’t have bank accounts, credit or debit cards, and even lack insurance. 

The term is also not exclusive to the crypto world, but it comes up often in the context of crypto banking because of crypto’s unique ability to bring financial services to these people. 

3. DeFi/TradFi

These terms stand for “decentralized finance” and “traditional finance.” They’re important crypto banking terms to understand because crypto banking falls under the DeFi umbrella. 

Traditional finance refers to the current financial system as we know it: centralized and trust-based. It includes banks, stock markets, hedge funds, and non-crypto fintech companies.  

The concept of decentralized finance, on the other hand, refers to an alternate, decentralized financial system that uses blockchain technology to eliminate the need for trust and third parties.

Instead of one company or group controlling a service, the power lies with a vast, global network of users.

4. Smart contracts

Smart contracts are a type of software program designed to self-execute once the specified conditions of the contract are met. They are essential to DeFi because they eliminate the need for third parties in a transaction. Instead, a computer automatically handles the entire transaction. 

Smart contracts are used in crypto banking for secure, trustless transactions like crypto-backed loans or transferring assets.

Understanding crypto banking terms

The crypto world is filled with its own terminology. These terms can seem confusing – and potentially alienating – to any newcomer seeing them for the first time. But by taking the time to learn about essential crypto banking terms, you’re giving yourself a solid foundation of knowledge you can work on as you navigate the world of crypto and crypto banking.