With a global market capitalization of $2,340,000,000,000, virtual currencies might just be the end of conventional banking. Bitcoin makes up half of the $2.34T market capitalization for cryptocurrencies. Cryptocurrency made its debut in January 2009, and since then the digital currency has taken its space financially in society.Therefore, some people have even seen its system as a get-rich-scheme, using peer-2-peer transactions to amass a large volume of the coin for profit when the share price increases. The fact that crypto currency has already been out for more than a decade it’s right to wonder: What now for the banking sector?
This year many American companies started factoring cryptocurrency into their payment for goods and services. One of the first set of companies to do this was Tesla motors. Along with Paypal, Amazon, Microsoft, Overstock, and Twitch. Although, as much as it may interest us to know about the greener side of this currency, we must also know that it has a lot of volatility attached to it. After an unprecedented boom in 2017, the prices of Bitcoin fell by about 65% from January 6 to February 6.
The volatile nature of cryptocurrency probably doesn’t make it fit enough for countries to rely on for now. But with the level of transactions being done daily around the world excluding financial bodies, it is very possible that Virtual currency might be the end of conventional banking. The coin was made to exclude third parties i.e. banks or other financial bodies from transactions. So if there ever comes a time when people prefer to do transactions over the clouds, then it would be a mission accomplished for this one-time strange virtual asset we get to know more about everyday.
What Is Cryptocurrency
Cryptocurrency is a virtual currency that operates via blockchain technology. A blockchain technology is a system used in protecting cryptocurrencies & makes it very difficult or almost impossible to alter, hack, or cheat the system. Cryptocurrencies permit and secure payments online, which are denominated in terms of virtual “tokens”. These are represented by ledger entries internal to the system. “Crypto” refers to the cryptographic techniques that safeguard these entries, such as elliptic curve encryption, public-private key pairs and hashing functions. Bitcoins and other alternative coins were made with this technology, therefore it makes it hard to counterfeit or double spend.
A main feature of this currency is that they are not issued by any central bank or authority. This makes crypto autonomous, and relying on the concept of demand and supply. Demand and supply simply means when a lot of people are buying the currency, the price increases and when a lot of people are selling, the price drops.
This is logical; imagine you are at the shopping mall where nobody is buying a particular product. If you seem interested in buying the product, the mall would be more than glad to sell it to you at a discounted price just to get rid of that product before it begins to depreciate. This is how the movement of Cryptocurrencies are altered.
Factors Affecting Crypto Values
The other factors that could affect cryptocurrency stability are geopolitical events and statements made by the government that Bitcoin is probably going to be regulated or abolished. This was the case in Nigeria on the 5th of February, 2021. At that time, the federal government wrote a letter to notify banks and other financial institutions in Nigeria, that the country would no longer permit the buying and selling of cryptocurrency on its shores.
The CBN also stated that its banks and financial institutions should identify individuals or entities that indulge in cryptocurrency exchanges so their accounts can be closed. News like this can destabilise people trading in that currency. A lot of people started to panic-sell in hopes of counting their losses before there is nothing to count.
However, this only meant that brokers or financial bodies who normally operated in Nigeria buying and selling Crypto currencies could no longer function as direct buyers and sellers but could still enlist coins for people to now trade on peer-2-peer transactions. Peer-to-peer transactions simply means trading with someone else with an intention to buy or sell. Before the ban, Nigerians could trade on peer-2-peer and also trade with brokers like Paxful, Binance, Luno, etc.
Types Of Cryptocurrency
The first cryptocurrency was Bitcoin, which is still the king of virtual assets. At the time of writing, Bitcoin’s market capitalization amounts to $1.60B, which is half of the total global market capitalization for all cryptocurrencies. Since the inception of Bitcoin, alternate coins, better called altcoins, started to spring up. Now we have thousands of altcoins satisfying various functions. Some of these altcoins are clones of Bitcoin serving other purposes, while others were built from scratch. An individual called “Satoshi Nakatomo” with no identification for this name publicly or a picture attached to it launched Bitcoin. For all we know it might have been a group of people with one name.
Whoever it is, the information is locked somewhere, probably never to see the light of day. Other types of cryptocurrencies include Litecoin, Ethereum, Cardano, Dogecoin, and Namecoin.
Why Crypto currency might Be The End Of Banking
It is no longer news that we don’t need third financial parties for transactions anymore. Virtual currencies made that possible through the success of Bitcoins and other altcoins. Many are of the opinion that the volatility of the cryptocurrency as seen in previous years, would keep it at this level of acceptability, and would never become legal tender.
Well, the Managing Director of the International Monetary Fund has a different opinion and says cryptocurrency has as much of a future as the Internet itself. It could displace central banks, conventional banking, and even challenge the monopoly of national income. All these have already begun to happen, which puts the world of conventional banking in quite a state.
The currency was made on a decentralized system, therefore eliminating central banks and conventional banks from their transactions, and if more and more people begin to put their trust in the system, it is believed the currency would maintain some level of stability. A lot of reasons bring us to these conclusions on crypto and conventional banking.
1) It’s a Decentralised System
As stated a few times on this piece, Crypto currency was designed to function without third parties, eliminating banks and other financial institutions. Trading conventionally attracts charges and is evidently slower than transacting using wallet-wallet. Cryptocurrency on the other hand takes very little or no fees for large amounts of money. No matter the amount, it reflects as soon as it is sent. It has been tested and it is trusted.
2) It is secure
In modern crypto currency systems, a user’s account or “wallet” has both a public and a private key. Only the user of the account knows the private key which is used to approve transactions. Although, the blockchain technology enables crypto currency through the use of cryptography to halt any attempt to duplicate, counterfeit or double spend the currency. What most users need to be aware of is that the password used for your account must be kept safe at all times; the applications advise you to write it somewhere. Failure to remember your password or recover it may mean loss of account and everything in it.
Crypto currencies don’t just serve as a means of saving but also as a means of creating wealth. That is why the system has given birth to its own type of dealers called Cryptocurrency Traders. Crypto Traders specialize in the buying and selling of the asset.
The trick is to buy the dip and sell the rip. That is to buy the coin when it is very cheap and sell when the price has increased. This accrues a lot of profit for crypto traders as the volatility sometimes play in their favour. Speculating the market well would mean gain for some and loss for others. In that light cryptocurrency is an investment package but not a ponzi scheme; you don’t put in 1 million and get 2 million, no. You invest a certain amount of money, speculate well enough, and sell off to buy again. It’s the law of demand and supply.
Cryptocurrency is a safe system for transacting and acquiring cryptocurrency, which at the moment works hand in hand with FIAT currencies. But will crypto ever become a national currency or be accepted as a legal means of trade? A lot of reasons make it possible for virtual currencies to be the end of conventional banking. Because, the former is at its peak and I don’t think anything or anyone can stand in its way.