Cryptocurrency has been around for the last 15 years and shows no signs of going anywhere, as it offers an attractive alternative to traditional tender.
While people still rely on banks to spend their fiat money, uses for crypto currency are growing all the time, increasing its value and reducing the reliance on cash to purchase goods.
Crypto trading platforms and banks: what are the similarities?
Crypto conversion platforms, such as XRPayNet, enable investors to spend their crypto conveniently, making cryptocurrencies easier to spend, whether in stores, online or by card.
Therefore, they are starting to operate in a similar way to banks, keeping the asset secure and making it accessible for the account holder to spend when they wish to.
Both crypto trading platforms and banks are mediums of exchange, enabling investors to hold their finances in an account that they can draw on.
Some bank accounts will be used for daily transactions while others that are used for savings will experience less activity. The latter are likely to be more similar to crypto accounts, with holders adding to their crypto through successful trades or increases in value.
While fiat money and crypto are very different, with crypto being encrypted digital representations, they both represent market value.
Therefore, if the market value of the USD increases, people with this currency will see the worth of their assets rise. Similarly, if the value of bitcoin grows, crypto users with this currency will see an increase in the net worth of their assets.
Crypto trading platforms and banks: what are the differences?
Though there are a few similarities between cryptocurrencies and fiat money, there are many differences.
Banks are government controlled
The main one is that fiat money is issued by the government, and is not backed by a physical asset like gold or silver. Crypto is also not a tangible object and its value can change depending on whether people buy it.
However, crypto is not government-registered and allows for peer-to-peer transactions, whereas banks are strictly controlled by the government.
The Financial Conduct Authority explains: “Whereas central banks – like the Bank of England – issue and oversee the money we use daily, cryptos are developed and run by groups, individuals or companies.”
Crypto investors can send and receive payments to anyone in the world, not relying on banks to verify transactions. When cryptocurrency funds are transferred, this is stored in a public ledger called blockchain, protected by advanced coding.
Crypto is run on blockchain
Cryptocurrency, unlike legal tender, is built on blockchain technology, which records all the transactions by currency holders. This makes the storing of assets extremely secure and transparent.
Conversely, Financial services are highly susceptible to cyberattacks, and the International Monetary Fund recognises that “cyber threats to the financial system are growing”.
If a major cyber incident did occur to banks, the Financial Stability Board warned this could “seriously disrupt financial systems, including critical financial stability implications”.
While a cyberattack of this scale would still impact everyone, no matter where they stored their assets, investors will, at least, be assured that their life savings have not all been wiped out if they invested in cryptocurrencies as well as traditional assets.
As crypto trading platforms are more secure, they are less vulnerable to cyber attacks in the future, keeping some assets safe for investors who do not want to lose everything they have earned.
Blockchain technology, as well as being safer, also increases efficiency and reduces costs, as banks charge fees for their services, whereas there is no additional expense to use blockchain.
Banks’ savings rates
Anyone with money in traditional bank accounts will know that they have not been able to earn a lot of money on their assets due to savings rates.
Currently in the UK, the Bank of England base rate is 5.25 per cent, which is the highest it has been since 2008. While this means savings rates might be greater than they have been recently, this also has a knock-on effect for mortgage fees and other loans.
Therefore, people with just fiat money might still be spending more on borrowing than they are accruing with their cash.
On the other hand, crypto currencies are not linked to the government’s base rates. Therefore, they are not impacted by the country’s ecopolitical climate, and investors can continue to see their asset’s value increase, no matter how high or low the base rate is.
At times when the inflation rates are higher than interest rates, those with all their assets in fiat money might find their cash loses value. However, if they diversified their portfolio and had some in crypto, they could still earn as these assets are not contingent on the inflation rates.
International transactions
As fiat money is controlled by governments, currencies typically change from country to country. Therefore, whenever you move around the world, you will have to exchange your money into the local currency. This can result in a loss of cash on the exchange rate and it is also an inconvenience, particularly for those who travel a lot.
However, a XRPayNet crypto card enables travellers to use their cryptocurrency when abroad, turning the crypto into the legal tender of the country they are in. This means they can withdraw money from an ATM and pay for goods on their card, using their cryptocurrency.
This makes international transactions that much easier, as they do not have to worry about taking money out prior to heading abroad, steep exchange rates, or their card getting rejected when they are trying to buy something.
It also helps people who frequently have to make international payments, as the expenditure does not need to go through intermediary banks to be verified.
This saves money on bank fees, as well as makes the process a lot quicker and more efficient. It can also result in substantial savings and an improvement in international financial relationships.
Rewards and discounts
The value of fiat currency is that it can be used to pay for goods. However, as well as being able to do this with crypto, having a crypto card can also earn the user rewards and gain discounts from international brands.
This can save lots of money for the investor, while promoting the brand at the same time. This symbiotic relationship means both gain from reward systems often available on crypto debit cards.