Cryptocurrency and banking could be the future of finance

From an outsider’s point of view, cryptocurrency and banking don’t seem to mix. Crypto is a thorn in the side of banking, and not just cryptocurrencies themselves; nowadays, there are crypto banks to reckon with. It’s a weird dance between decentralization fintech and the big bank cartels who have historically controlled financial services, but it’s being danced out. 

How does it all work, though? Are crypto banks the enemies of traditional banks? Can they somehow become partners? Are the two completely different species? Should they ignore each other and carry on? 

So many questions! 

I was recently asked whether it would be better for crypto to buy banks or to start new crypto banks, and it got me thinking. Let us imagine….

Should a cryptocurrency company buy a bank?

It’s a multi-faceted question, whether crypto should buy a bank. 

First of all, who would be buying the bank? Cryptocurrencies largely are not owned by anyone specific. The companies themselves could acquire a bank, I suppose—but to what end? The services of crypto platforms like exchanges and lending protocols versus traditional banks are not yet sufficiently overlapping for that to seem particularly useful.

Plus, what would the motivation be? Perhaps to smother the competition, but it seems like crypto is already on that warpath—just look at how many institutions, banks, and governments are beginning to pay attention and make crypto plays.

Maybe a DAO could have an interest in buying a bank. Even if it was just for kicks and giggles. Or maybe to get back a piece of the profits that banks have been gouging us on for so many years. But there are some other questions to consider as well.

Who can buy a bank?

Even if it was a good idea to buy a bank rather than create a new crypto bank, can anyone just pop off and buy one? Well, kinda. You’re likely not going to be buying JPMorgan Chase & Co., which has $3.38 trillion in assets, any time soon. But you could buy the local bank branch. In fact, individual banks are mostly owned privately.

Of course, it would take capital to make the purchase. And there is some personal and legal scrutiny one must go through to be trusted with owning a bank (you wouldn’t want Yosimite Sam owning your local  branch). If, for example, you’re buying a troubled bank, there will be specific capital reserve requirements. There is also lots and lots of paperwork, not to mention regulations, as you might imagine. It is possible to buy a bank, I’m just not sure any crypto enthusiasts would want to.

To buy or replace?

So, back to the original question: should a cryptocurrency buy or become/replace a bank. 

What if, instead crypto continues to do what it’s already doing naturally: create new crypto banks. DeFi is the hub for this sort of thing, but even outside of self-paying loans and staking, fintech is rapidly being developed in the crypto world faster than legacy institutions and organizations can keep up with. It’s likely that crypto and traditional banks will continue to collide, even if one doesn’t buy or completely defeat the other.

Embedded banking

Some of the ways this integration could play out is through embedded banking, which offers customers solutions at the point of need instead of as an independent service that must be sought out. For example, offering mortgage solutions during the home shopping process instead of 1) shopping for a home and 2) shopping for a lender. Crypto fintech solutions can help develop new embedded banking solutions as P2P solutions become easier.

Adopting and partnering

Banks are also beginning to adopt crypto without having to be bought out. The rapidly rising amount of capital being dumped into the cryptosphere does not go unnoticed and banks have to get on board or get left behind. They’re also beginning to utilize fintech developments in crypto to help advance their technological offerings. When mobile deposit and fingerprint sign-in became a thing, not all banks were able to jump on board immediately. Because banks are not tech companies, they often must rely on fintech to keep them from sliding into obsolescence.

Parallel DeFi system

There’s also the fact that DeFi is already beginning to build an entirely new financial system alongside the legacy banking system. There’s a lot of momentum and infrastructure that’s being built on brand new blockchain technology that wouldn’t benefit from or be sped up by retrofitting old banking models. I say: just jump ship from the old ways completely.

Examples of crypto banks

Besides the weird and wacky stuff happening on the cutting edge of DeFi, there are some crypto banks that are a bit more recognizable than traditional banks. 

Here are some examples.

Vast Bank

Vast Bank is one of the first nationally chartered banks to offer crypto purchases and custody to customers right inside their bank accounts. This crypto bank is hoping to ease adoption for those who want a more traditional banking experience.

Anchorage Digital

Another federally chartered bank to gain crypto approval is Anchorage Digital, which aims to join innovative fintech with traditional and regulated banking. By making crypto easily accessible to people who already have bank accounts, they can consolidate services.

BankProv

BankProv offers FDIC insurance for USD deposits (of course crypto is not federally insured) but it also offers Bitcoin ATMs, a crypto exchange, and even crypto lending services. It aims to provide crypto businesses with the banking solutions they need.

DeFi and exchanges

The most obvious crypto banks are, of course, the exchanges and DeFi platforms themselves. While centralized exchanges are by no means actual banks (and you definitely don’t want to keep your crypto on them), they often serve as middlemen with whom traditional banks partner. There’s also your own self-custody crypto wallet that can act as your crypto bank, and, of course, the many holding, staking, lending, and borrowing services all across DeFi.

So should crypto buy a bank?

Circling back to our original question, I’d say we don’t need to buy banks, rather we need to change banking. Luckily for us, crypto and the rest of innovative fintech industry is already doing that. 

Personally, I can’t even remember the last time I went inside a bank, although I do have an account. 

Most people do their traditional banking completely digitally these days. Perhaps it’s time to cut losses and completely switch over to the wonderful world of DeFi. Who needs to buy a bank?