Cryptocurrencies are tangible assets that are developed and used digitally on a computer system. There is a need for a blockchain technology called Blockchain. Blockchain is a distributed database that operates under strict rules and to which data can be added.
Cryptocurrencies are uncovered through mining activities on this open ledger. Blockchain technology is a technology that is used not only for cryptocurrencies, but in addition to financial services, also in public administration, in the music, health or industrial sectors.
While blockchain technology creates the basic need for cryptocurrencies to exist, blockchain technology serves the world in many areas even in the absence of cryptocurrencies. In this sense, just as cryptocurrencies have a positive or negative impact on physical banks, blockchain technology has very different positive impacts depending on our main topic.
The existence of cryptocurrencies and their widespread use create some problems in banking or new service areas for banking. The blockchain technology used in the infrastructure is now helping banks in many places to offer more advantageous and higher quality services.
Impact of blockchain technology in the banking sector
Banks benefit from a closed infrastructure by using their own ledgers during their operations. However, the emerging blockchain technology supports the elimination of intermediaries and an unlimited and transparent money market that everyone can easily access. While all industries worldwide had to keep up with blockchain technology, which had developed rapidly a few years ago, the banking sector was also affected by this technology.
The development of blockchain technology has shown the potential for change in the banking sector. With blockchain technology, transactions can be completed faster, costs are lower, and capital is more accessible. While blockchain technology maximizes data security with its decentralized structure, it facilitates regulatory compliance and facilitates banking in many places.
Blockchain technology offers many different benefits to both the banking and financial sectors. Blockchain constantly leads to innovation and change. Innovations and changes contribute to the creation of new financial services. One of the main positive effects of blockchain technology for banking is that it increases the level of security. While blockchain architecture eliminates sources of error, it also reduces the need for an intermediary to store data to a very low level.
Blockchain technology has a transparent structure and provides a single source of accurate information to all users on the network. It facilitates collaboration and willingness of users to transact with banks through open ledgers guaranteed by transparency. Smart contracts and business processes required for the banking sector can automatically be significantly simplified in programmable blockchain technology.
Blockchain technology is also a great privacy technology and therefore cryptocurrencies are accessed securely within this network. As is known, cryptocurrencies are extracted from the blockchain through mining activities and each cryptocurrency belongs to its owner with a specific password. It ensures that only the requested information can be shared with each other and customers. While the blockchain network performs many functions together, it is interoperable and offers high performance.
Blockchain effects in the new banking system
As the era of digital transformation advances in the new banking system, blockchain technology offers many advantages. For example, while in the past there were very lengthy money transfer processes in the current banking system; blockchain technology now makes it possible to send money quickly and unlimitedly 24 hours a day.
Investors and entrepreneurs looking to raise money can now complete transactions in less time. For example, ICO campaigns prepared for new cryptocurrency projects and blockchain projects offer democratic fundraising processes.
In traditional banking, banks had to incur a great deal of time, cost and effort to carry out transactions through the purchase and sale of company shares, bills of exchange, bonds, raw materials, foreign currencies, money or derivative assets.
Nowadays, blockchain technology makes it possible for all conceivable assets to easily receive a digital structure, i.e. become a crypto. Financial assets can be bought and sold digitally through online intermediaries and efforts are being made to further advance this process. The innovations that are possible on blockchain will in the future be about transforming real estate, works of art or consumer goods into a digital asset.
Today, banks are striving to transform even the traditional credit and debit system through DeFi technology, the so-called decentralized finance. This accessible financial system uses blockchain technology to create opportunities such as crypto borrowing and fundraising. As they contribute to international trade, imports and exports, opportunities arise for more reliable agreements and greater security and banking usage.
Impact of cryptocurrencies on banks
Of course, the most important detail that blockchain technology has brought to the world is all cryptocurrencies, especially Bitcoin. Many different currencies or tokens such as Bitcoin, Ethereum or Tether, used as digital money, are now becoming both investment instruments and increasingly accepted purchasing instruments worldwide. While blockchain is the source of cryptocurrencies, it also offers many benefits for banks. Cryptocurrencies can sometimes be an advantage and sometimes a problem for banks.
From a traditional banking perspective: When people talked about money in the past, financial transactions were always carried out through banks. Banks were considered the hub of money flow in all transactions such as import and export, both domestic and international trade. The absolute source of money in the countries was the central bank. Cryptocurrencies have changed this general logic in the world and managed to introduce a new monetary system with their decentralized structure.
Cryptocurrency transactions do not require any tools such as a bank or payment processor. Cryptocurrency transfers can be carried out 24/7 at a very low cost. Nowadays, only a bank transfer or EFT is required to buy, sell and invest on cryptocurrency exchanges. Based on this detail, many banks today have launched crypto platform transactions on their mobile platforms and internet branches to enable cryptocurrency transactions.
Among the advantages that banks offer when conducting cryptocurrency transactions is the ability to quickly transfer funds to cryptocurrency exchanges in Turkey and around the world. Banks invest in cryptocurrencies within their own systems and structures and accumulate these digital assets in their portfolios. Since banks know that the cryptocurrency investments you make as an individual are future-oriented, this future is guaranteed in advance.
One of the negative impacts for bankers is that people are now using crypto investment instruments instead of the investment instruments offered by banks. Because in the past, the bank made profits from your gold, foreign exchange or stock purchases and sales in your bank accounts.
But now you can only earn this profit through occasional deposits and withdrawals on cryptocurrency exchanges. Furthermore, the development of blockchain and cryptocurrency technologies could lead the entire financial sector worldwide to move in this direction in the future. Today’s standard banking needs to change fundamentally.
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