The crypto market currently has been experiencing a phase where even price declines shouldn’t be considered negative. Most investors and businesses consider this period as a step backward that could result in an unexpected boost up. Amidst all this, the role of crypto exchanges has been exceptionally well in facilitating transactions globally. Our focus now will be on crypto exchange development, with an increasing number of questions arising on whether these applications would replace traditional banks. We will try and find a definitive answer to this question as we progress through the article with insights from recent crypto market incidents.
Table of Contents
- Crypto Exchanges: How They Are Today
- Banking Sector’s Position Right Now
- The Never-Ending Conflict Between Crypto Exchanges and Banks
- What Makes Crypto Exchange Development a Possible Successor to Banks?
- Crypto Banking: A Convergence of Two Distant Mechanisms
- Can Crypto Exchanges Replace Banks Outright?
- What about Financial Institutions in the Crypto Sphere?
- Reflecting Insights
Before we proceed any further if you’re still in doubt about the feasibility of cryptocurrencies in the long term, here’s a quote to cheer you up!
Every smart person that I admire in the world, and those I semi-fear, is focused on this concept of crypto for a reason. They understand that this is the driving force of the fourth industrial revolution: steam engine, electricity, then the microchip – blockchain and crypto is the fourth. – Brock Pierce, American Crypto Entrepreneur.
Crypto Exchanges: How They Are Today?
Crypto exchanges have been in existence for almost a decade now, with CoinMarketCap indicating 660 platforms in operation as of late August 2023. The business model behind these platforms has evolved significantly, with several sub-models based on user control, such as centralized (CEX), decentralized (DEX), and hybrid (HEX).
Many crypto exchanges have recorded significant increases in transactions in spite of several breaches and partnership closures. Businesses are learning from how missed calculations and selfish steps can lead to unsavory market situations, and many entrepreneurs even exhibit considerable interest in crypto exchange development, as the model reaches crypto consumers more than others.
Banking Sector’s Position Right Now
The banking sector has become internet-driven in more countries since the pandemic halted physical movements, and banks continue to embrace collaborative efforts with both offline and online offerings. Despite this, the global banking sector is experiencing a decline coupled with a financial recession under the covers.
With these firms dependent on fiat currencies issued by centralized authorities, political moves impact the sector, subsequently affecting the global economy. Other factors like weaker economic growth and sluggishness in the property sector contribute to degrading banking quality by inches, although things wouldn’t always be visible from the outside. The sector is yet to reach a proportion of the global population, which opens up the gap for newer monetary entities.
The Never-Ending Conflict Between Crypto Exchanges and Banks
While it might seem like crypto exchanges and banks function in unison or even without caring about each other, the reality is far from that. Although exchanges facilitate purchasing cryptos for fiat currencies through bank-based transactions, that is only a modest operation.
Crypto exchanges allow users to deal in various currencies on the go, whereas the scenario is next to impossible in banks due to numerous restrictive policies. Banks and crypto exchanges also differ in how they recover missed funds with physical cash and governmental restrictions hardening the former. While entities based on these business models may not be at loggerheads all the time, their operational nature tends to bring more conflicts.
What Makes Crypto Exchange Development a Possible Successor to Banks?
- Crypto exchange development enables businesses to process transactions publicly through blockchain ledgers that ensure transparency.
- These applications also offer unmatched security due to the immutable nature of the blockchain without having to fear server breaches.
- As many people invest in cryptocurrencies, the prominence of crypto exchanges with added functionalities increases as people want to multiply their holdings.
- With the waning trust in banks, crypto exchanges tend to emerge as alternatives for a significant portion of investors, signaling the need for these platforms.
- The crypto exchange business model is flexible, as it can offer additional services just like a bank, making their case for succession stronger.
Crypto Banking: A Convergence of Two Distant Mechanisms
As we discuss the possibility of crypto exchanges replacing banks, we should touch upon a hybrid business model based on both – crypto banks. Crypto banks essentially let people purchase and trade cryptocurrencies through physical outlets, and they are even supplemented by crypto ATMs.
Various regions have such facilities, including the Americas and Europe. At times, even crypto exchanges might set up these facilities, enabling them to inch a step closer to becoming a banking entity. These ventures’ main benefit has been their ability to place trust in customers and ease user onboarding with processes similar to a bank.
Can Crypto Exchanges Replace Banks Outright?
Although crypto exchanges have the potential to overthrow banks and lead the new-age financial revolution, several issues circle their way to prominence:
- Most of them provide a complex user experience that reduces user adoption and induces uncertainty.
- The crypto market’s volatility is well known, which could plague the minds of new investors adopting cryptocurrencies.
- Cryptocurrencies and exchanges are unregulated in most jurisdictions, making it difficult for mainstream people to consider spending their hard-earned money there.
Apart from crypto market volatility driven by several global factors, other issues are being resolved by new-generation entrepreneurs who think from the user’s point of view. Also, more countries currently embrace crypto exchanges if they comply with relevant regulations such as Know-Your-Customer (KYC) and Anti-Money Laundering (AML).
In hindsight, crypto exchanges replacing banks might be a far-fetched scenario, but the most plausible outcome could be the formation of partnerships between these entities to expand their services.
What about Financial Institutions in the Crypto Sphere?
While we have spoken about crypto exchange development solutions replacing physical banks, we shouldn’t forget the role of financial institutions. These bodies are typically associated with large-scale fund transactions and investments that include banks. They can be owned both by government and private entities.
Many private institutions have already begun accepting cryptocurrencies in some form or another, enabling them to enter the digital financial realm. Still, the participation of government-owned institutions is essential to drive mainstream adoption of cryptos. If that happens, the role of crypto exchanges will be pivotal in onboarding billions of people to crypto-based banking and exchange services.
Reflecting Insights
We have seen whether crypto exchange solutions can reign over real-world banks. From the article and subsequent insights you might have gained, you could arrive at the conclusion that crypto exchanges becoming the equivalent of brick-and-mortar banks could be plausible. But, a total replacement would not sound ideal at the moment, as a lot of groundwork needs to be done before stepping further. Nevertheless, the crypto exchange model is worth considering as a business option as well because of the promises it offers. It will only be a matter of time until we experience the true potential these platforms have hidden.