To date, cryptocurrency exchanges are the primary (if not the only) way for people to convert fiat currency into cryptocurrency, or vice versa, but with the rise of cryptobanks, this may change. The skills required to own and manage a crypto wallet overload many users with risk and responsibility, but crypto banks can solve this user experience problem. The biggest problem is that crypto regulators cannot agree on which asset class cryptocurrencies belong to.
The United States SEC has been the most aggressive, often arguing that most cryptocurrencies, including dollar-backed stablecoins, are actually securities and must be registered and sold on regulated securities exchanges. Meanwhile, the CFTC treats cryptocurrencies as lasting until proven otherwise and takes a far more lax approach. The ongoing war of regulatory uncertainty widens the gap between the DeFi, CeFi and TradFi sectors, and crypto exchanges remain the only way to convert between fiat currency and cryptocurrency. To date, existing institutions are hesitant to adopt blockchain and digital assets due to the ambiguity.
This is where crypto banks can come in handy. As CoinTelegraph explains, crypto banks are legally chartered banks that offer digital asset services. While (TradFi) banks are often hostile to crypto, ‘crypto banks’ offer cryptocurrency custody, on-chain purchases and withdrawals/deposits, combining a bank-controlled crypto wallet with a traditional bank account. Because customer accounts are linked to a crypto wallet, crypto banks can potentially offer Decentralized Finance (DeFi) services for their customers, giving them an advantage over TradFi banks, but the regulations remain unclear. The ability to use blockchain assets in a banking app alongside off-chain fiat currencies would bypass the need for a crypto exchange account, improve the end-user experience and allow users to receive stablecoin payments and transfers.
Blockchain is hard, but banking is easy
The biggest obstacle to mass adoption of Web3, apart from privacy concerns, is the convoluted and risky user experience. Currently, all users must own an account with a crypto exchange and know how to navigate the app to buy/sell crypto. Withdrawing or transferring crypto ‘on-chain’ in any context is risky, as there is no protection for sending crypto to the wrong address. When creating a crypto wallet, users must write down a randomly generated 12-24 English word “seed phrase”, without which they cannot recover the wallet if something happens to their device. Users must also manage blockchain gas fees and timing of gas fees, or risk paying too much for a simple transaction, as well as watch out for signs of fraud, hacking and phishing attempts. The responsibility is very high for users who want to be their own banks, and the complexity of using blockchain technology increases the risk of error, making adoption unlikely for most people.
What many in crypto don’t understand is that most people don’t care about being their own bank enough to overcome the self-custodial learning curve. Many Web3 decentralized applications (dApps) are useful and interesting, and would probably find a decent Web2 user base if they were accessible from a bank account, or from an app connected to one. For now, the ability to buy, sell, withdraw and deposit crypto and stablecoins from a single bank account is a big step forward, and that’s what crypto banks bring to the table. While it doesn’t improve the self-storage experience, it removes crypto exchanges from the picture, greatly reducing the complexity of sending money from a bank account to a personal crypto wallet, or vice versa.
A crypto bank is a legally chartered bank that offers cryptocurrency trading, withdrawals and deposits along with regulated banking services, which can significantly improve the overall user experience while offering the same security and protection that banks offer. While many TradFi banks are cold or openly hostile to crypto, crypto banks are building on cryptocurrency and blockchain is paving a new path for the next generation of institutions, and will play a key role in the upcoming Web3 internet revolution.
Source: CoinTelegraph
