The short answer is Yes, the concept of cryptocurrency is a threat to current banking systems. But, we are far far away from the days when the modern banking system would be replaced by crypto ATMs and transactions.
Cryptocurrency is based on the distributed ledger technology powered by blockchain. The concept of cryptocurrencies came into being 10 years ago when Satoshi Nakamoto introduced the white paper on Bitcoin: A cashless peer-to-peer network.
As of today, we do not know who Satoshi Nakamoto is, and whether the alias is a man or a woman, or a group of people is still not verified, however, we do know certain things about the man behind the revolution. One thing is however clear, he was not a fan of the banks, which hold a monopoly over our own money.
We pay taxes for keeping our money in banks since there is no safe place to keep the physical form of fiats other than banks. The banks fine us if we don’t maintain a minimum balance, the same bank might lose all our money by giving it to big corporates and we cannot do anything about it since they are the powerful ones.
These factors made Satoshi create a cashless financial system now known as cryptocurrencies, which can be easily held in a software wallet without you having to pay any taxes over it, it’s safe secure and no one else holds a monopoly over your own money.
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How Cryptocurrency is a Threat to Banking?
If you have used the services of a bank you know how troublesome and slow it is, In order to withdraw a large amount or even transfer a large amount, you need to fill a ton of forms, provide a ton of personal information and after all this, the bank would charge you a significant chunk of money to transfer that.
Cryptocurrency solves every problem listed above, you do not have to store whatever amount of crypto you hold in a centralized bank, neither do you have to tell anyone about the amount you hold. You can transfer any amount of crypto to whom so ever you wish to given they are interested in the transfer and it happens in a matter of few seconds. You pay pennies in transaction fee when compared to central banks.
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What Makes Cryptocurrency Fast and Private
Cryptocurrencies are powered by Blockchain technology and work on the concept of the distributed ledger. The task of verifying the transactions, completing the transaction and every other aspect fall on the shoulders of peers on the network.
Each transaction is encrypted with cryptography, which cannot be altered or changed as the output function would change completely and the transaction will be invalid. The peers solve the cryptic message using computational power and the process of transaction verification is called mining.
Each Block on the cryptocurrency network can save a certain number of transactions, as the number of transactions increases, the block gets filled. Once one block is completed all the transactions on it need to be verified before one can move to the next block.
For verifying each block, peers on the network receive a certain pre-fixed award known as Block Reward. In this way without the need of a centralized authority, the cryptocurrency network is maintained and run by the peers.
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Why it Might Take Ages Before Cryptocurrency Replaces Traditional Banks
The answer is monopoly and power, cryptocurrencies and the technology behind is relatively new. Countries and governments are still cautious about it and banning its use in a real-world financial system in most of the countries.
Plus, the internet age is famous for sensationalizing everything beyond its potential. Satoshi’s vision was to create a cashless peer-to-peer network and not hundreds of cashless network fighting against each other.
Bitcoin was an open-source project so that anyone with enough technical knowledge can make the network stronger and better every day, but people being short-sighted only focused on the monetary aspect and started creating hundreds of new tokens and cryptocurrencies.
Most of these newly formed cryptos are nothing more than a ‘security’ and it has dented the progress and acceptance of the cryptocurrencies to a vast extent. People should rather focus on bettering the current technology than bringing new product every other day.
ICOs are already being flagged by most governments as potential scams since it is just like modern-day crowdfunding. South Korea one of the crypto hubs of the world has already put a stay on it after a 3-month long investigation, and ICOs are going to die a slow death soon.
If we really want to end the monopoly of centralized banks, we should rather focus on improving and implementing the technology rather and move beyond short term monetary gains of the crypto trade market.
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