Crypto Banking: All You Need To Know

Cryptocurrencies have enjoyed a lot of use cases and attention not only from institutional investors but everyday monetary users as well. A new landscape has emerged within the crypto world that is being referred to as crypto banking; one thing that needs to be made clear here is the fact that banking, in general, has nothing to do with the crypto market or cryptocurrencies. It is not the fiat element of banking that is being discussed or associated with cryptocurrencies, it is a whole new horizon, and it’s just getting started.

The concept of cryptocurrencies is that anyone with an active Internet connection can buy, sell or trade cryptocurrencies actively on the crypto market using just their mobile phone or personal computer. It has shifted all the roadblocks and lifted all the difficulties that were involved in masses getting the financial care that they are entitled to but couldn’t get their hands on because of a lot of regulatory pressure and centralized individuals being cross over their financial situation, having no job or education. Cryptocurrencies, on the other hand, don’t discriminate based on this sole denominator, and that is why it is something that is accessible to all.

To better understand how a crypto bank works or, in all fairness, what it means, it is important to take the word cryptocurrency and divide it into two distinct sections that are crypto and currency, basically a digital form of money that is embedded and placed within a computer code instead of giving it away to central banking authority such as how federal works. There are more than 19,000 cryptocurrencies, to be exact and only a few of these, such as Bitcoin, Ether, and XRP, have widespread appeal among the people.

Now for the ‘currency’ part as in the ‘bank’ part, it is an institution that is able to withhold assets and trade them in the form of US Dollars and is regulated could be termed as a bank or something that it takes care of such as the ‘currency’ part, takes it from the Federal Reserve and distributes it among the people in a sophisticated fashion.

Introduction to Crypto Banking

Both these elements are put together, and we have got ourselves a crypto bank which is likely any financial institution that has the licensing to oversee the trading of digital assets and elements for a select few of their users.

It is basically the management of digital currencies at any regulated banking authority that you might come across; JP Morgan Chase, Goldman Sachs, Barclays, and all other banks are presently involved in crypto banking, which means that they allow their users to trade in cryptocurrencies, allow them to buy cryptocurrencies directly via their currency that is placed securely in their bank accounts.

The currency is managed and controlled by their banking provider and sell them as well as working as a centralized crypto exchange allowing them to initiate the transfer whenever they need to.

It means that you can call any ordinary Fiat Financial authority crypto bank as well if they are managing and taking care of digital assets along with the Fiat assets such as stocks, bonds, and cash for their investors and customers. These fiat banks have been given the designation of crypto banks solely based on the fact that these are managing digital assets along with the Fiat currencies.

There is a catch, however, because crypto banks just can’t lend money like the traditional banks out there, and there is no sense of insurance through the Federal Deposit Insurance Corp. These kinds of banks don’t actually enjoy full federal regulations, and there is no supervision to the happening of legal activities such as money laundering which are some of the risks that the regular banks don’t have to take.

Difference Between Traditional and Crypto Banks

Even though companies out there have the authority to become some kind of a crypto bank and regular banks shouldn’t be called crypto banks just because they are offering the services because there is a difference. A bank that is offering mortgages or has mortgages simply can’t be called a mortgage bank; similarly, a bank that is just offering you crypto services cannot be called a crypto bank. The term crypto bank, however, has a fixed and very concrete meaning.

If you are going to call any regular bank out there a crypto bank just because they are offering crypto-related services, then it would only add to the confusion, and it doesn’t matter if these banks are safe or regulated because regulated banks out there don’t normally engage with cryptocurrencies. The offering of crypto products is something that is very new for fiat-oriented banks, and many banks have still not initiated the offering of cryptocurrencies or put them up for active buying, selling, or trading.

You can’t March into any bank out here and put down a request to open a crypto-oriented bank account because this isn’t how many of these banks work; you have to be vigilant in your investigation about the bank whether or not it is offering crypto services and have attained itself the status of the crypto bank. One more thing that you need to be aware of is the fact that U.S. dollars are regulated and insured by the world governments, but cryptocurrencies in no shape or form are insured by government entities of any given country or state.

How Does Crypto Banking Work?

The term crypto banking is new, and it can point to various different activities or correlations for different people out there. Many people have had their exposure to the crypto market not by banking but through investing their money into the paradigm.

They use a trading platform or a crypto exchange for the sake of buying and selling these digital assets; some of these trading platforms are centralized, which means that it is a centralized exchange that has a physical presence. Most of these are decentralized exchanges which means that they don’t have any oversight of any regulatory authority over them, and most likely than not, they don’t have a physical location.

Traditional banking is more likely involved and focused on the management of cash and credit at a physical location, such as you go up there and opening up a checking or savings account directly with the bank for the sake of receiving loans and asking for mortgages on your home.

Crypto banking as a service at its most basic refers to any physical bank or financial technology firm that is presently managing digital currencies on its portfolio as well alongside other financial services. For a bank to be called a crypto bank, first, all the services that you can receive from the said organization might include the holding of crypto balance, use of your cryptocurrencies with the help of your debit card in which you can load up the balance in the form of cryptocurrencies.

You can then use this debit card for the sake of paying for products or services that you can buy online; whenever such a transaction is initiated, the balance present within your debit crypto card would be converted into Fiat currency that is applicable to the said region and only then the transaction will be processed. Another service that you can avail of from such banking solutions includes the earning of interest through the staking of your cryptocurrencies at one or many mining pools out there that the financial service in question is hosting.

What happens here is that you stake away your cryptocurrencies for a definitive time. And the bank uses those cryptocurrencies for the sake of lending them to potential borrowers earning interest over your crypto, and part of that interest is paid back to you as a reward, and a part of that goes into the pocket of the bank or financial body in question.

How to Start Using Crypto Banking Services

The first thing that you need to do for this business to work is to buy cryptocurrencies. Therefore you are in need of a crypto wallet that will hold the crypto that you have bought behind a computer key code that can be accessed via the public or private keys for your crypto wallet. Many crypto exchanges that allow you to buy cryptocurrencies also allow you to safe keep or hold those cryptocurrencies on your behalf, which can be accessed through their partner websites or mobile apps.

If you are, on the other hand, using a crypto exchange such as Coinbase or other financial tech firm solutions such as PayPal, then it is pretty straightforward to buy crypto. You can pay in whatever Fiat currency that is applicable in your region and can get an equivalent value in the form of digital currency that you’re chosen maybe Bitcoin, Ether, or any other cryptocurrency for that matter. You can then view the balance of your crypto wallet just as you would a bank or other investment account balance, and depending on the service that you have chosen, you might be able to send and receive crypto from other users out there as well.

Most of the crypto firms out there that you are choosing for the sake of buying crypto will not allow you to directly spend your crypto, which means that it must first be converted into an alternative that can then use as the balance in your account for the sake of buying products and services either online or physically.

There are crypto debit cards out there that many crypto exchanges or funds that you have chosen for the sake of buying crypto will allow you to have, these will have your crypto balance on them, and whenever you make a purchase, your crypto would be converted into an equal balance of Fiat currency of your choosing and then you can use that balance for the sake of paying for goods or services.

Types of Crypto Accounts

There are actually two types of accounts that you can open with the help of crypto banking first type of account that you can open right away is a crypto interest account, and the other type of account is the crypto checking account. As the name implies, the crypto interest account allows you to set up a platform where you will be able to earn interest over the cryptocurrencies that you have staked away as a way for the bank or the financial authority to lend those crypto tokens to the borrowers.

You will be able to earn interest on your crypto tokens, and in some potential cases, it is as high as 10%. One thing that you need to know here is that no one in the fiat sector is offering this much interest rate on an interest or savings account, and with the help of turning your fiat currency into crypto alternatives, you are really getting the best exposure in terms of the savings that you can scoop up over the years. You can reach out to some of the crypto exchanges out there that are serving you with crypto trading and other potential services to set up your interest account right now.

The other form of account that you can open right away with an issuing authority is a crypto checking account, but it serves as the normal checking account that you have with any fiat or traditional banking environment out there. You will be able to put away multiple cryptocurrencies within this account, and these will stay there for as long as you want.

One thing that you need to learn here is that as it is only a checking account, you will not be earning any potential interest from the cryptocurrencies that are present in the account; however, there are some potential financial firms out there that allow you to earn monthly rewards for making eligible purchases.

Such as, if you are using Bitcoin for the sake of buying products and services out there and the associated exchange through which you are conducting the transaction is connected with that business from whom you are purchasing stuff, then you will be able to earn some cashback. Some rewards are as high as 1.5% of the total purchase made, and the rewards would also be converted into the crypto tokens that you are holding within your account, so that is also a plus point of this crypto checking account.

Risks Associated with Crypto Banking

As you might have read earlier that cryptocurrencies in any shape or form are protected by Federal Deposit Insurance Corp, which means that if you lose the investment and if the company that you have bought your crypto from ends up deceiving you and running away, then there is potentially no way to rescue your investment, it is gone for good.

On the other hand, any investment that you have made in the form of U.S. dollars is retractable because it is insured and protected by Federal Deposit Insurance Corp. it is important that you work with reputed crypto banks and perform your due diligence because if you end up with the wrong crowd, then it is going to hurt you in the long run.

Volatile Nature of Crypto

Investing in the crypto market comes at the cost of extreme volatility; these crypto elements are prone to an exuberant amount of volatility which means that as soon as you pour your investment into a dedicated cryptocurrency, it is likely that the asset will plummet to nothing in the few days or even weeks because of the notoriously volatile nature of the crypto market.

And things are still pretty unsure even when the crypto market itself is stable because market fluctuations can happen out of nowhere, and it feels like a subtle blow or even a harsh one depending on the severity of market fluctuations and the volatility aspect of the asset that you have invested your money into.

Crypto Hacks and Fraud

It is not a hidden truth that cryptocurrency and decentralized finance applications are prone to hacking incidents and other cyber-criminal activity, which is why you need to be mindful of the fact that your investment might not be secure, given the repeatability of hacking attempts on different crypto assets out there and the success rate is pretty steep too. This is why you need to think of protecting your investments at all costs; think of investing into a cold wallet which will allow you to protect your investment because it will always be on-person and cannot be hacked.

Future of Crypto Banking

The future for crypto banking is looking pretty solid because there is a huge need for such a banking environment to be around because most of the time, people are not found eligible to have a traditional bank account because of their monetary situation or their earnings which is why the best thing that can happen here is to facilitate them with some kind of financial platform and crypto banking is a solid statement right there.

The adoption of blockchain technology in the banking sector is also looking pretty good, which means that sooner than later, the traditional banking environment is also going to shift to blockchain implementation, which will further the cause of crypto banking.

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