The growing popularity of cryptocurrencies and blockchain technology has raised some concerns on the traditional finance side. The integration of digitalization into commercial relations also brought some question marks. Will cryptocurrencies and blockchain replace banks in the near future? Moreover, could they pose a major threat to central banks around the world?
In fact, there is a clear answer to these questions: Yes! Cryptocurrencies pose an existential threat to central banks, and so far, the national financial authorities’ assessment on this issue has been “If you can’t beat them, join them”.
Crypto can easily replace fiat in all its uses as a store of value, medium of exchange and unit of account. Decentralized blockchain-based systems can replace banking with faster transactions, higher levels of security, lower fees and smart contracts. That way, we can lend or take out loans, raise capital for projects and already make payments with DeFi.
On the other hand, the new reality tends to look like it will adopt blockchain solutions to avoid the risk of central authorities disappearing. The future is shaped by integrating traditional financial institutions and banks with blockchain technology, rather than a free, self-governing utopia. However, many central banks are confused about what they can bring to the table. After all, they have a management system that goes against Bitcoin’s original premise, which was to provide a decentralized and private method of transaction.
Many of the benefits provided by cryptocurrencies need to be provided by the central bank to stop competition from digital currencies, DeFi systems. Central banks may need to allow commercial banks to fend for themselves, as users can transfer funds to be held in CBDC accounts.
Big companies like Microstrategy and PayPal have spearheaded the possibly irreversible adoption of digital currency. So as the public became more educated about crypto and decentralization, they began to benefit from the combination of finance and the internet. Commercial banks and financial services will also need to adapt to deliver greater value to their users.
