Understanding Crypto Banking: An Extension of Blockchain

To tell you the truth, the future of our world now rests in the hands of some long-found technologies, discovered with conscious efforts and otherwise.

You know what we are inferring, right?

It is technologies such as Blockchain that are spreading their wings and word has it some predictions are made on what else they would offer.

Blockchain has birthed many subsets like Open banking, Smart contracts, and cryptocurrencies in banking. A buzzword, cryptocurrencies have made their way into the digital wallets of people, but are still facing issues to land fully into the real world.

Enter Crypto Banking.

What are Crypto Banks?

To facilitate the usage of cryptocurrencies and make the currency more fluid for transactions, crypto banking is introduced. The platforms which support crypto banking are generally known as crypto banks.

Since traditional banks and fiat money are failing the needs of users of today’s time, it was about time for a revolution — a revolution brought by Blockchain in the banking sector.

In simple words, crypto banking is more of a process than a banking ‘institution’. Meaning, the word here is used more as a verb than a noun. It is the process that entails the easy flow of cryptocurrencies into the market where owners could perform transactions of all kinds.

Over the years, many platforms have emerged in the form of cryptocurrency wallet apps and web applications — bringing the process right to your fingertips. These platforms enable currency holders to store crypto assets and make everyday payments whenever they like. Another crucial part of crypto banking is crypto wallets, as banking comprises other things like lending, storing, and borrowing.

How does Crypto Banking work?

It’s nothing different than what you do with your digital money really, except that it is a little. Let’s break this paradox to have a clear understanding of how it all works.

Let’s work our way up with an example.

Suppose there are two people — 1 and 2. Now, person 1 wants to make a transaction with person 2 for something with its crypto assets, i.e., cryptocurrency. Here, what person 1 would have to do is go to a trusted crypto platform, say, Coinbase and would have to make a transaction directly from the crypto wallet.

Two types of crypto wallets exist — Custodial and Non-custodial wallets. Apparently, non-custodial wallets are more popular among the people since they offer autonomy.

Here comes the thunder. When person 1 will start the payment, at that time he would be required to enter a private key. This key is given to each user at the time of registration (more like a PIN given in traditional banking). Custodial wallets are a bit different since there is no private key required.

Now, through this crypto banking process, there is no third-party involved in the transaction, as opposed to traditional banking where banks hold the key to your safe. This way, person 1 and 2 can freely engage in crypto transactions anytime while avoiding high interests.

Now, let’s look the other way around. Suppose person 1 is now on the receiving end of the transaction. Then, all that he would be required to do is share the public key, an equivalent to the Account number in traditional banking.

Well, these were only one-way transactions, very simple and uncomplicated. Why don’t we up the level and look at other processes as well? — lending and borrowing.

Like casual transactions, these processes have also moved towards the wave of decentralization. Gone are the days where you had to beg your banking institution to provide you with a loan.

Now that the users already own cryptocurrency, they can easily lend it to each other and borrow more as well. The lender or borrower does not have to someone acquaintances even as they can borrow/lend from/to anyone on the platform having cryptocurrency.

You ask how? By using collaterals like property, security bonds, and other things that banks usually accept. Again, the only difference is — no third party required. Its people’s own bank for their own money.

To put at ease the security concerns of this whole volatile and speculative process, smart contracts are used. Therefore, there is no way or any party to tamper with the original documents and the transactions in general, making this process even safer and transparent.

So, all in all, speculating that crypto banking is going to be the future of banking since fiat currency could only take us this far, will not be wrong.