Cryptocurrency is a type of digital currency in the form of a digital asset. It is used as a financial transaction. It operates by using encryption(which is a cryptography) to secure a fiscal deal and to regulate the creation of additional units and their validity.
Cryptocurrency Vs The Bank: The Process
As the word ‘crypto’ means to conceal or made secret, opening a cryptocurrency wallet employs the use of an encrypted algorithm resistant to attack. Cryptocurrency wallets such as in Bitcoin are created, and transactions are authenticated through a cryptography and stored in a public distributed ledger referred to as a blockchain.
Cryptocurrency uses a decentralised system which doesn’t require a central banking system or an administrator. It uses keys(codes) to spend or receive the currencies. The private key written in a public ledger makes the cryptocurrency spendable by its holder. The private key is a secured code that allows the currency owner to send it to recipients, while the public key enables cryptocurrency to paid into the account.
The banking system, on the other hand, more or less constitutes a group of financial institutions whereby money is deposited and banked for services such as payment, provisions of loans and money transfers. Compared to cryptocurrency, money authorities strictly regulate banks. This, along with the following reasons is what makes your money safer in a cryptocurrency account than at the bank:
Less chance of identity theft
Cryptocurrency account holders are ‘anonymous’. This simply means that they do not have account names accrued to holders as compared to the bank system whereby accounts are opened with a legitimate identification. The pseudonym makes a cryptocurrency holder safe from identity theft or targeted by fraudsters who break into bank account searching for biodata of wealthy customers.
Cryptocurrency is less trackable
Cryptocurrency transactions cannot be tracked because they are encrypted in a cryptographic system. Compared to the banking system where bank account transactions can be traced and tracked to the parties involved in the transaction.
In cryptocurrency, there are little to no charges in keeping your currency. Wallets are created with an almost free procedure. However, trading with cryptocurrency may attract some charges as a result of the mining process which depends on the location of the server used. In the banking system such as the savings account type, an account holder is charged either in a monthly or yearly bases for helping you bank your money.
The banking system also attracts charges for other services such as monthly ATM charges. ATM card can be stolen and its security PIN breached.
Fewer liquidity risks
Another reason why your money is safer in cryptocurrency than at the bank is the issue of risks. There are a lot of risks involved in the banking system. The first on the list is the liquidity risk. The term liquidity is how available is cash flow. Liquidity risk is a type of risk whereby a bank converts hard assets to cash without a loss of capital in the process. Funding liquidity is even more difficult in countries with inflation. This risk is never possible in cryptocurrency as money is always available because currencies are always in electronic state and can easily be accessed by users.
Since the cryptocurrency account is without an identity it is very difficult to identify. Transactions are also difficult to track. This is made possible because of the type of cryptographic system employed in the storing of transactions on ledgers. Internet fraudsters can not hijack or access transactions.
The banking system uses a physical structure for storing cash in vaults. Thick walls, fireproof, blast proof, security and sensor structures can be breached due to human errors. There is a capital-intensive commitment in securing such monies over a long period of time. It involves security personnel such as the Police and security gadgets.
Fewer market risks
Banks hold a significant portion in securing treasury operations. Securities are also held in collateral as a result of loans to customers. Thus making the banking system a business of capital market. Whereas with cryptocurrency there is no burden of securing an asset since its assets are digital ones.
In the banking system, there is System Risk. The financial system in the bank is complex, comprising of various banks connected in a network. Failure of one bank has the tendency of creating failures in related banks or branches as well. This is because banks work in chains of transactions with one another. Such System failure is not found in cryptocurrency because transactions are not in any form of a network but a separate address and code programs.
Less reputational risk
Some banks are renowned for their reputation. This reputation gives the bank the advantage to generate more business for more profits. Customers feel their money is safe when they are deposited in a bank with a reputation. Hence, if there is a negative news in the media about any bank, it affects the bank’s business as customers will withdraw their money and take their business to other banks. As the news spreads, other branches are likely to be affected. Thus creating a domino effect leading to further loss in business.
Cryptocurrency operates a decentralised structure. There are no regulations that can create any form of manipulations in its policies. No form of physical deposit safe management that its reputation will be at stake.
Less credit risk
Credit risks often arise from the possibility of non-payment of loans from borrowers; from the threat of giving birth to the risk of delay of payment. When this risk becomes so high due to loans not been serviceable, the bank suffers, and the effect is catastrophic.
Cryptocurrency gives you a safer feeling because you are the manager of your account. Unlike in the banking system where an individual or central system is in control of your money.