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Cryptocurrency and the Banking Industry


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Cryptocurrency and the Banking Industry

Central Banks and the Crypto Currencies

The banking industry is majorly categorized into two; central and commercial banks. The major difference between the central and commercial banks is that commercial banks have ties with clients. On the other hand, central banks have trade relations with commercial banks. The association between commercial and central banks is based on banknotes. The central bank supervises and creates money based on banknotes. This is credited to the commercial banks, and in turn, it is transferred to the client. Banking systems are centralized by the central bank, determining the price of currency and its circulation within the economy. The 21st century has marked the rise of technology and digital platforms (Hyrynsalmi, Hyrynsalmi & Kimppa, 2020). These credits the digital migration where the banks and financial systems are moving towards digital forms of currency. Countries like Sweden and China are among the first countries to develop digital currencies regulated by the central. Although it is a new concept, this sub-section of the financial system faces major challenges from cryptocurrencies as they are gaining popularity among people.

How is Cryptocurrency Disruptive

The inception of Cryptocurrencies, especially blockchain technology, was met with skepticism from the banking sector. It is important to recognize their disruptive nature. Cryptocurrencies eliminate the roles of central banks and develop their interactions through a ledger system. This functionality reduces the importance of banks shifting market dominance. As of 2014 to 2018, the value of cryptocurrencies has increased by more than 60 percent, dominating a huge percentage of the market (Lee et al., 2019). In a matter of time, governments, banks, and economies will have to either adopt cryptocurrencies or design new systems that would eliminate or reduce the use of intermediaries in the financial sector. Additionally, the covid-19 impact on the economy develops a necessity for cashless money. It will be a subject of interest to the banking systems to create and distribute digital currencies since it is gaining popularity.

Improvements made by Cryptocurrencies

The internet of things (IoT) is much applied and present in the modern world, ranging from smart devices to smart automotive. The IoT is centered on huge, distributed, and real-time data that can control the world around us. It gives the user with more flexibility and control over their data. However, this has been a challenge owing to the failure of the security of the technology. Cryptocurrencies built on ledger technology give the Internet of things better security, authentication of devices, confidentiality, and integrity of communication. Additionally, the generation of cryptocurrencies is based on quantum technology. The introduction of digital currencies through the blockchain allows cyber currencies to revolutionize quantum random number generation (QRNG). The quantum technology generates noise with a high frequency of randomness, helping to secure data. Therefore, the introduction of cryptocurrencies has helped revolutionize internet platforms’ security by securing user data.

Drivers of Cryptocurrencies

A decade since the dawn of cryptocurrencies, the value of these digital currencies has surpassed USD 0.25 trillion, making it the sixth-largest currency in circulation. According to the study by Angel & McCabe (2015), the average trading of cryptocurrencies has been recorded to have surpassed one percent of trading in foreign exchange. Bitcoins being the most applied technology in circulation, more than 60 percent growth has been recorded from 2013. Cryptocurrencies are widely adopted and increasingly applied in the economy. The drivers of cryptocurrencies have widely been viewed as an application of radical innovation and entrepreneurial adoption in financial solutions. The rise of Cryptocurrencies offers the user a chance to develop a working opportunity. The adoption of cryptocurrencies is gaining momentum as it allows the clients to generate profits by trading the currencies. This attribute attracts a huge market to consume the crypto services. To discuss the historical adoption and preference of cryptocurrencies Hyrynsalmi et al., (2020) discusses socio-economic and institutional factors that affect cryptocurrencies.  Since the currency does not rely on a centralized organ, more people can use the digital currency since it offers them a standardized form of security. Institutions of money laundering and other fraud activities have been known to apply cryptocurrency to avoid federal scrutiny.

Competition to Cyber Currencies

The value of cryptocurrency is based on its availability and circulation. Thus, its availability in the market is limited by the presence of alternative coins. For instance, the availability of different cyber currencies limits the supply and circulation of a single coin. The different coins have to share the same market. Additionally, as one coin gains popularity and value in the market, it limits low-income consumers from accessing it. As such, competition of cryptocurrencies is limited within the growth and popularity of other coins. Additionally, Lee et al., (2019) mentions that the inception of cyber currencies is based on decentralization and digitizing the same currency. Therefore, the fight over paper currency is based on illusions of control and physical attributes. Fry & Cheah (2016) speculates that with increased digitization of paper currency, blockchains will face stiff competition. In as much as cyber currencies offer security to the user, it does not guarantee its availability in the market. Different coins have been known to fail, affecting people’s investment. On the other hand, the digitization of paper currency can increase the transaction rates, reduce the role of middlemen and increase the attractiveness of the cryptocurrency.

Challenges Facing the Banking Industry to be a Key Player in the Market

The efficiency of the payment systems, the banking infrastructure require different levels of paperwork that slows down the payment structure. It remains a challenge for banking industries to develop faster systems of accruing payments to clients. In comparison to digital currencies, data is stored in a blockchain ledger, granting it speed and efficiency. Increased competition from other financial technology is diversifying annual revenue earned by banks. Additionally, a cultural shift from traditional banking to artificial intelligence-powered systems. Technology is engrained in the social culture demanding the bank systems to adapt to the electronic world. In the digital world, there is no room for manual processes and systems.

The future for and Reach of Cryptocurrencies

As bitcoins attract a growing market, it has experienced an increase in its value. In the year 2021, the value of bitcoin has increased by over tenfold over three months. Shortly after, the value of the currency has been noticed to drop by more than 50 percent. The rise and plunge of cryptocurrencies have sparked a debate over the future of cryptocurrencies. The crypto media is increased by the called evangelist claiming that the future of currency is digital. Unlike physical currency and gold, the use and relevance of cryptocurrency are limited to its transactions. The value of cryptocurrencies is limited to a bubble-like collapse. Additionally, the decentralization of cryptocurrency and its anonymity has attracted many illegal activities and money laundering. This attracts the attention of powerful regulatory bodies such as homeland security and the FBI. The future of cryptocurrency relies on its transactions, alternative coins, and the regulation of the currency. As such, the much avoided centralized body will have to be incorporated into cyber currency. The cyber-currency will stimulate the financial sector to adopt a digitized platform with less regulation based on its technical development.

Ethical, Social or Other Concerns Related to this Technology

The main challenge and ethical concern over cryptocurrency is the validation and integrity of the coin. Following Kantian ethics, it discusses the value of a currency in society, while cryptocurrency is both an investment and an alternative to paper currency. It also attracts a growing number of illegal activities. At the same time, people benefit from crypto services, its lack of deregulations powers other illegal activities in society such as procurement of weapons, money laundering, and human trafficking. The coin helps to fund and secure illegal businesses shedding them from government scrutiny and other institutions. Additionally, the value of the cryptocurrencies can be evaluated based on their premises of securing a good life for the local person. To this accord, a currency in an ethical society has to enable the people to secure their livelihood, purchase goods and services, and do other things they enjoy (Scharding, 2019). As such, a major concern of the cryptocurrency is marked over its instability. It would make some individuals double rich in a few days or make the same person poor over its collapse. At the same time, the introduction of alternative and unregulated currencies affects the value and essence of currency in society. Alternative coins affect the financial economy by having different countries based on geographic locations about the value of a currency. The application and sustenance of cyber currencies will ultimately need regulation if it is to be applied in the market.


Angel, J. J., & McCabe, D. (2015). The ethics of payments: Paper, plastic, or Bitcoin?. Journal of Business Ethics132(3), 603-611.

Fry, J., & Cheah, E. T. (2016). Negative bubbles and shocks in cryptocurrency markets. International Review of Financial Analysis47, 343-352.

Hyrynsalmi, S., Hyrynsalmi, S. M., & Kimppa, K. K. (2020, August). Blockchain ethics: A systematic literature review of blockchain research. In International Conference on Well-Being in the Information Society (pp. 145-155). Springer, Cham.

Lee, S., Yoon, C., Kang, H., Kim, Y., Kim, Y., Han, D., … & Shin, S. (2019, February). Cybercriminal Minds: An investigative study of cryptocurrency abuses in the Dark Web. In NDSS.

Scharding, T. (2019). National currency, world currency, cryptocurrency: A Fichtean approach to the Ethics of Bitcoin. Business and Society Review124(2), 219-238.

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