Last updated on July 5, 2022
At this moment, the banking sector is in the midst of a major transformation. The introduction of blockchain technology has ushered in a new digital age of banking. These new banks and service providers seek to capitalize on the many benefits provided by cryptocurrencies such as added transparency and efficiency. As such, the crypto banking sector continues to expand at a record pace.
Benefits of Crypto Banks
The benefits obtained through the integration of crypto banking services are by no means a one-way street. Both financial institutions and regular users gain much from these platforms. For one, all parties gain access to reduced costs for critical financial and banking processes.
These systems eliminate the middleman from the equation and provide a peer-to-peer trading experience for users. By removing the multitude of third parties and centralized groups from the banking equation, crypto banks can offer higher rewards and more earning opportunities compared to their centralized counterparts.
Along with cost savings associated with managing digital currency at a financial technology firm or a financial services provider, there is also more responsiveness and a higher quality of data obtained by these systems. Blockchain networks leverage consensus to obtain real-time insight into the network’s activities and overall health.
Centralized banks can handle errors and reconciliation using permission blockchains. Permission blockchains are private networks that require users to be approved before entering the network or utilizing any of its services. Permission blockchains are most commonly used in the enterprise and banking sectors because they retain a certain level of centralization as the bank requires a way to alter and approve transactions when necessary.
Crypto banks can save users and banks a lot of headaches and errors as well. The integration of smart contracts enables these firms to remove the need for human intervention from the equation. Smart contracts are digital protocols that are predetermined to activate upon the completion of certain criteria. For example, a crypto bank could automatically issue you your car title when the system registers you have made your final loan payment.
Smart contracts eliminate the need for human intervention from the banking equation. As such, they are a critical component of today’s crypto banks. They save money and remove emotion from financial services. By eliminating the gatekeeper from the banking scenario, anyone can gain access to financial services.
Additionally, the use of blockchains makes it easy to verify transactions and balances on the network. In the current system, you need to contact your bank to see where your payment is and if it cleared. This process is time-consuming and requires a lot of people to complete. When dealing with a blockchain network, this process becomes streamlined. All that is needed is a blockchain explorer.
Types of Crypto Banks in Use in 2022
There are a few different types of crypto banks available to the general public currently. Centralized crypto banks are similar to your traditional banks. They operate using a permission-private blockchain. These banks enjoy the speed and efficiency of cryptocurrencies, without losing any of their control.
In most instances, centralized crypto banks operate as custodial institutions. This designation means that you must deposit your cryptocurrency into a network bank account to be eligible to earn interest or access other features. Centralized crypto banks are more likely to have regulatory approval compared to their decentralized counterparts.
Large centralized crypto banks are kind of link a bridge between DeFi (decentralized finance) and traditional banking. They may possess characteristics you would associate with your local bank such as the need to verify your identity or financial history to access certain features. In comparison, DeFi banks are more open by default.
Decentralized Crypto Banks
The second style of cryptocurrency bank operates as a decentralized network. These platforms are usually built on public blockchains such as Ethereum or the META blockchain. As such, they provide more transparency than their centralized counterparts. A decentralized crypto bank operates as code. No humans are reviewing, approving, or denying transactions.
In most instances, decentralized crypto banks are non-custodial. Non-custodial platforms enable you to keep your cryptocurrency safely stored in your wallet. This approach is safer for traders for a couple of reasons. For one, your crypto never leaves your wallet so if the bank gets hacked or there are service outages, you’re never separated from your crypto.
DeFi banks provide more privacy to users as well. These systems provide open enrollment to a global audience. In most networks, you simply link your wallet to the system to begin accessing its features. Non-custodial banks are more secure because they offer less reward to hackers as they don’t hold any customer funding directly which eliminates the huge paydays associated with crypto hacks in the past.
Crypto Bank Features in 2022
There are a lot of cool crypto banking features available to users today. Each crypto bank offers a select combination of these options as part of its strategy. By understanding what features are available, you will find it much easier to find a platform that supports your overall strategy. Here are some of the top crypto banking features in use today.
Crypto Savings Accounts
One of the premier services offered by crypto banks is savings accounts. These accounts are designed to function like your traditional bank account in that you deposit funds and can receive interest payments based on the number of coins held. The main difference between crypto accounts and your bank account is the amount of interest paid out.
On average, your typical bank pays around .06% APY (annual percentage yield). Crypto banks can pay out much higher rewards since they save on operational costs considerably. A crypto interest account can pay up to 8% or 12%. These high-interest rates have helped boost the crypto banking sector in recent months.
Notably, META1, BlockFi, and Abra, all offer users crypto savings accounts. The META VAULT pays out 10% to users leveraging its savings account features. A nice aspect of this account is that your rewards are automatically deposited in your holdings which enables you to leverage them for future yields. In the end, these accounts create a wealth-generation loop that outpaces inflation and the rising cost of living at the moment.
Fight Inflation at its Core
The current inflation rate is at a 40-year high which has left savers in a bad position. Their holdings have already lost about 30% of their buying power over the last few months. As hyperinflation begins to set in, there is a growing base of traders seeking out safe-haven tokens to protect their wealth.
Developers have taken the cryptocurrency concept even further with the introduction of the world’s first self appreciating multi-asset stablecoin – META 1 Coin. The META 1 coin derives value from a basket of gold-related assets rather than fiat currency like its competitors. This strategy brings some serious advantages such as self-appreciation and more stability.
The token recently demonstrated its stability features during the latest market correction. While major networks like Ethereum and Bitcoin took 20% losses, META 1 remained stable and even grew in value. This occurrence helped to cement the project in the eyes of savers and traders seeking a reliable safe-haven asset during times of economic uncertainty.
Leveraging Yield Generation Pools
The developers behind the META 1 concept continue to increase the entire network’s wealth by leveraging a percentage of the backing assets. This strategy enables META 1 to place these funds in high yield trading platforms to produce a 4-6% monthly return. Impressively, these profits get distributed to the value of the coin via the network’s asset appreciation smart contract.
Crypto Debit Card
Another crucial feature that crypto banks can provide is debit card services. A crypto debit card operates in a slightly different manner than your typical bank card. When you swipe a crypto bank’s card, the system will automatically sell the corresponding value in crypto and pay the merchant in fiat currency.
This process happens in a second and is not noticeable when compared to your regular bank’s processing time. Since the vendor only receives fiat currency they are not aware that you are using a crypto-based product.
Additionally, crypto debit cards can offer you rewards. There are crypto debit cards that pay you rewards in Bitcoin, Ethereum, and even custom tokens supported by the platform. Best of all, these rewards are sent directly to your network account where they can earn you more rewards via DeFi features such as staking and farming.
Perhaps one of the biggest draws for crypto banks is their peer-to-peer lending protocols. These systems enable regular users to lend out their crypto and earn rewards. These systems employ large lending pools and collateral-based smart contracts to provide security to lenders and more accessibility to borrowers.
Most of these protocols leverage large lending pools and DeFi yield generation strategies to buffer any potential losses. There are systems today that even incorporate credit checks to provide businesses with under collateralized lending options.
Notably, p2p lending systems eliminate the gatekeepers. You can access funding in seconds rather than weeks. These systems are ideal for people who need to access global funding without delay. They are also a better option for startups that require access to global capital with a low overhead.
Traditional Banks Begin to Offer Crypto Services
On July 22, 2020, US regulators deemed that “Federally Chartered Banks and Thrifts May Provide Custody Services For Crypto Assets.” Consequently, you can expect to see a bunch of hybrid crypto-related implementations and innovations shortly.
For example, in February 2021, the Oklahoma-based Vast Bank announced the launch of crypto custodial services. They are not alone in their desire to enter the decentralized market. Financial technology provider Kasasa also launched a plan to bring Bitcoin wallets to its network of over 900 community banks and credit unions.
Notably, the New York-based investment bank, JP Morgan Chase, also wants in on the action. The firm launched the first-ever major cryptocurrency backed by a U.S. bank. The new format will introduce a digital token called the JPM Coin that will enable the platform to instantly settle payments between clients according to CNBC reports.
Crypto Government Banks
Another major development is governments making Bitcoin legal tender. El Salvador paved the way for next-generation banking services when the country’s president announced that Bitcoin would now be accepted across the country.
As part of this strategy, the government set up crypto banking services for the population. Everyone received a bank account with $30 in Bitcoin that they could claim by filling out the required verification forms and providing facial recognition. The move catapulted El Salvador into the crypto spotlight and helped to inspire other countries to follow suit.
Ukraine recently made the move to legalize cryptocurrencies as part of its strategy to accept more global donations. The war-torn country decided to make Bitcoin legal tender after its citizens received millions in donations in the crypto. This move enables citizens to access these funds to purchase goods and services during the conflict.
It’s only a matter of time before more countries take similar actions. The legalization of Bitcoin ushers in a new era of Bitcoin banking that empowers users to secure more returns with less risk. Bitcoin national banking services are now a reality for millions of bankers with more awaiting their chance to experience these next-gen financial features.
Crypto Banks – A New Era is on the Horizon
The recent rise in popularity of crypto banks sticks with the broader trend of blockchain adoption. As more users and institutions become aware of the added security and efficiency these networks provide, more institutions will join the revolution. For now, crypto users have more crypto banking options than ever.