Traditional banks are still wary of adopting cryptocurrency and enabling the usage of digital assets, even though cryptocurrency has grown in popularity in recent years, join the bitcoin revolution. According to banking systems, cryptocurrencies are a risk factor that has the potential to overshadow the benefits that banks deliver to customers.
Keeping an eye on the issue, the Office of the Comptroller of the Currency (OCC), a sound currency body, attempts to persuade banks to rethink their opinions about cryptocurrencies and their risk to the banking system.
Following the excitement and the need to persuade banks, the OCC used interpretive letters to provide specifics on how institutions can expand their services while integrating digital currency. With the regulatory guidelines, OCC believed that this strategy would eventually persuade banks and assist them in coming to terms with the concept of digital assets.
IN JANUARY, the OCC declared that banks and state-owned savings institutions can now use the public blockchain and stablecoins to conduct payment operations. Banks can use the blockchain approach to process payments quickly and without the involvement of a third party. This letter compares the blockchain network to others such as SWIFT and FedWire to increase the banking system’s efficiency.
Banks may view bitcoin and transactions involving the notion of digital assets as a potentially costly and time-consuming risk. However, there is no doubt that these digital currencies bring a slew of advantages to banking firms and their consumers; all they have to do is take a step forward.
Why Are Banks Not Ready To Accept Cryptocurrency?
According to surveys from the Association of Certified Anti-Money Laundering Specialists (ACAMS) and the Royal United Service Institute of the United Kingdom, more than 63 percent of the banking system’s population believes cryptocurrency is a possible concern rather than an opportunity.
Let’s look at a few issues that will help us understand why banks aren’t ready to embrace cryptocurrencies just yet.
- Decentralized Network
The primary goal of introducing cryptocurrency was to provide a viable alternative to the current banking system. Unlike banks, Bitcoin was created to create a completely separate entity that does not require the assistance of the government, central bank, or any financial institution.
The cryptocurrency relies entirely on its blockchain technology and distributed ledger, obviating the need for any third-party involvement.
The cryptocurrency that a central bank manages eliminates the asset’s appeal in the first place. As a result, many banks do not feel themselves to be a good fit for the space. Furthermore, the cryptocurrency’s decentralized network offers the idea that banks will have no control over the currency.
The volatility of cryptocurrency is the primary source of concern for banks. Cryptocurrency has experienced several ups and downs in its market value in a short period of time, less than ten years. This could be due to a variety of factors, including market size, incorrect rumors, and so on. The fundamental reason that banks are skeptical of cryptocurrencies is their unpredictability.
For a long time, crypto has shown no signs of being stable, which is why banks regard it as a risk factor that could cause them problems in the future due to its instability.
How Banks Can Manage Their Involvement in Crypto
The crypto market is gaining in popularity, and the payment system’s future is set to be changed, as expected. In light of this, banks must devise a strategy for entering the cryptocurrency market. Furthermore, they must adapt to new technologies and find a means to overcome all of the risks associated with cryptocurrency finally.
Once accepted, cryptocurrency may simply improve the financial system. Furthermore, other areas can assist banks in overcoming their threats and allowing them to see some of the potential rewards.
The following are some of the most critical factors that can assist banks in managing their involvement:
- Services for Custody
- Proper Guidance and Expertise
- AML/KYC Regulations
- Smart Contracts
Banks may believe that cryptocurrency poses a threat to their banking system for the time being. However, they will quickly discover how useful it would be to adapt it better and allow it to pass through the system so that processing can be done promptly and accurately, as opposed to traditional banking.
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