Crypto. Bitcoin. Ethereum. Blockchain. Decentralized currencies. All of these buzzwords can fit under the umbrella of cryptocurrency.
The vast majority of cryptocurrencies are decentralized systems built on blockchain technology via a distributed ledger enforced by legions of computers worldwide. The biggest and most famous cryptos are Bitcoin and Ethereum. Juggernaut companies like Tesla, the trillion-dollar electric vehicle and technology company, held nearly $2 billion in Bitcoin at the end of 2021. Miami Mayor Francis Suarez unveiled the Miami Bull, a $250,000+ robotic version of the famous Bull of Wall Street, representing Miami’s desire to be the crypto capital of the United States. He tweeted in January 2021, “the City of Miami believes in #Bitcoin and I’m working day and night to turn Miami into a hub for crypto innovation.”
Trillion-dollar companies and major cities tend to do their homework before taking such big stances on trends. Seemingly, this trend has serious staying power and the appropriate supporters to maintain it over the foreseeable future.
The benefits of cryptocurrency are many. We’ll focus on four of them: speed, key demographic appeal, security and transaction permanence. Banks and credit unions, partnered with well-suited strategic partners, can benefit from this now full-on mainstream trend, even though it was once believed to be a passing fad.
Speed and Efficiency
In today’s fiber-optic, gigabit, millisecond speed digital world, wire transfers that can take days due to various protocols seem incredibly inefficient. Most banks and credit unions settle bank-to-bank transactions within three to five business days. A domestic wire transfer typically takes 24 hours or more. When it comes to cryptocurrency, transactions can be completed in minutes. As soon as the network confirms the transaction, it’s then immediately settled, and the funds are available.
Public blockchains, like Bitcoin and Ether don’t require third-party verification because it’s done nearly instantaneously via the decentralized network of countless computers verifying and re-verifying the digital ledger in real-time. Nearly all the European Payments Council members, 90% to be exact, believe that “blockchain technology will profoundly transform the [financial] sector” by 2025. And “trillions of dollars are lost” due to an archaic system of sluggish payments and hidden fees, according to a study by Global Transitions Proceedings.
Further insights include:
- The average Bitcoin transaction takes about 10 minutes to settle.
- In 2014, the confirmed Bitcoin transactions per day was just over 50,000.
- In February 2021, the confirmed Bitcoin transactions per day was 300,000, an increase of sixfold.
The major differences between cryptocurrency and bank transactions:
- Bank transactions are regulated by applicable governments.
- Bank transactions often have middleman services, like intermediary banks with international wire transfers.
- Bank transactions are identified by account numbers.
- Cryptocurrency transactions are currently not backed by any government and are decentralized.
- Cryptocurrency transactions are peer-to-peer, enabling more direct and much faster transactions.
- Cryptocurrency transactions are only connected to the transaction ID on the blockchain.
Implementing some of these speed and efficiency cryptocurrency attributes can greatly benefit your bank or credit union. Consider working with a strategic partner to help speed up your systems as well as your user satisfaction.
Rapid Adoption and Key Demographics
According to a report by Forrester Consulting, “The Total Economic Impact of Accepting Bitcoin Using BitPay:”
- Up to 40% of crypto-paying users are new to the merchant.
- The crypto payers spend twice the amount of their credit card counterparts.
- Crypto is less expensive than credit cards.
- And, there are no fraud-related chargebacks, at the time of this writing.
Bitcoin is nearing critical mass. About 27 million Americans own cryptocurrency, with the lion’s share of 44.5% owning Bitcoin specifically. Despite the robust rise of Bitcoin adoption since 2009, the percentage of American Bitcoin ownership is still under 10%, according to Nasdaq. However, like many other technologies, like the internet of the 1990s, or the 2007 iPhone, the adoption rate grows organically and gradually from 8% to 10%. Then, around that level, it often explodes to the upside, ushering in mass adoption. Cryptocurrency is clearly showing signs of nearing that breakout level of even more widespread adoption and utility.
According to a Capitalize survey, 56% of Gen Zers and 54% of millennials plan to or are already including cryptocurrency as part of their retirement plans. Additionally, according to a survey by Bankrate:
- 49% of American millennials are somewhat or very comfortable with investing in cryptocurrency.
- 7% of American Gen Xers are very comfortable with investing in cryptocurrency.
- 4% of American Baby Boomers are very comfortable with investing in cryptocurrency.
The simple math makes it pretty clear. Millennials have outnumbered Boomers since 2020 as the largest adult population. Add to that, millennials are very comfortable with cryptocurrency investing and the use of blockchain, meaning that you have a ripe demographic seeking sought-after crypto solutions.
Real-Time Security and Risk Mitigation
The need for enduring cybersecurity is so great that it has become a competitive differentiator for banks and credit unions. A Forbes report states, “Credit unions and banks are prime targets for ransomware attacks because of the sheer amount of information they store about their customers.” It added that the banking sector saw a 30% rise in ransomware attacks in the first half of 2021 versus 2020. The report goes on to say:
- According to the IBM Cost of a Data Breach Report, the average price tag of a data breach was $5.72 million per occurrence.
- Reported ransomware payments in the U.S. topped $590 million in the first half of 2021 versus $416 million in 2020.
- 96% of financial institution data breaches were financially motivated.
- Federal Reserve Chief Jerome Powell ranks cyberattacks as the No. 1 top threat to the global financial system.
Cryptocurrency transactions work, as you might have guessed, a little differently. Skilled hackers or networks can hack centralized points like bank web portals and mobile banking apps. Cryptocurrencies are decentralized, so instead of relying on a single point or a handful of server farms, the information is distributed to a vast network of computers all over the world. In other words, there isn’t one point to concentrate an attack on.
Transaction Permanence
Removing human bias can also be an added benefit of cryptocurrency transactions. The completed transactions will never go away once they are on the network and can’t be changed. This makes cryptocurrency data sharing and relying on that much more convenient. Not to mention it all happens in a fraction of a second. Contrast that with the often intensive process of traditional matching and syncing using standard accounting ledgers, which can be subject to human influence or error.
Cryptocurrency In Banking
In this post-pandemic world, moving at the new digital adoption speed, cybersecurity is truly a must-have core competency. The total benefits of cryptocurrency are still yet to be counted. Still, the benefits can vastly outweigh the risks for your bank or credit union, and it’s time to start supporting crypto.
Looking for even more ways to ramp up your digital banking offerings? Work with Lumin Digital, your strategic partner capable of delivering a customized digital platform based on your organization’s needs.
Marty Aquino has been a passionate writer on venture capital, technology, forecasting, risk mitigation, wealth and entrepreneurial topics since 2009. He is the founder of Carbonwolf Energy, a venture-capital firm specializing in world-changing and status-quo-defying technologies and people.
Sources:
CNBC – Tesla says it held nearly $2 billion worth of bitcoin at the end of 2021
Forbes – Guns, Gains And God: Four Days In Miami With Crypto’s Most Faithful Fans
FastCompany – Miami is still trying to figure out what it means to be a crypto capital
Forrester – Forrester Study Shows Accepting Crypto Attracts New Customers & Boosts AOV
Global Transitions Proceedings – “Comparative study on cryptocurrency transaction and banking transaction”
Nasdaq – Crypto Mass Adoption: A Matter of When, Not If
Capitalize – Are Younger Generations Redefining Retirement? [Survey]
Bankrate – Survey: Nearly half of millennials comfortable owning cryptocurrencies
Pew Research Center – Millennials overtake Baby Boomers as America’s largest generation
Forbes – For Financial Institutions, Cyberthreats Loom Large
Forbes – The Real Problem With Centralized Banks And Why Crypto Is Inevitable
Morning Consult – Here’s Why Customers Switch Their Primary Bank
