Will Crypto replace traditional banking?

The speed at which cryptocurrencies and blockchain tech has emerged and changed society has those that utilise them buzzing over their immense potential. When discussing the possibilities blockchains offer and the ways they can transform society, the question of whether cryptocurrencies will replace traditional banking is bound to come up. 

But, even with crypto’s seismic impact, even in its relative infancy, is it feasible that the likes of Bitcoin and Ethereum can ever replace fiat currencies?

In this article, Matjaž Škorjanc, former CTO of NiceHash gives his views on whether crypto will replace traditional banking.

How Traditional Banking Works 

The primary role of a country’s central bank is to oversee a country’s monetary system. This entails several important responsibilities, chief among them being a country’s monetary policy. Two of the main tools the central bank has for achieving this is controlling the money supply and setting interest rates. 

The central bank, prints, or mints, legal tender, aka, fiat currencies, and enlists chartered and/or commercial banks to distribute it through their economy. The central bank also relies on this network of banks to improve liquidity by taking in saving deposits and giving out loans to individuals and businesses.

Setting interest rates, meanwhile, is important for controlling inflation, currency stability, and employment rates. Currency stability also has a considerable effect on an economy including imports and exports.

The Problem with Traditional Banks

The main issue with the traditional banking structure is that solely places trust in a single, centralised entity, i.e., the central bank. Subsequently, the bank has all the decision-making power over a nation’s currency. Unfortunately, there are numerous examples where ineffective monetary policy resulted in significant damage to the economy, namely the Great Depression and the Great Recession.

Also, on a global scale, the traditional banking is inefficient and outdated when it comes to making international transactions. “As a result, people are forced to wait days or sometimes weeks to complete international bank transfers – in addition to unreasonably high transaction fees,” adds Matjaž Škorjanc

Crypto vs Banking: The Benefits of Cryptocurrencies

It’s widely believed that cryptocurrencies can replace traditional banks because they solve a few flaws in the current banking system. 

Most importantly, cryptocurrencies alleviate the burden on a centralised authority to distribute fiat currency throughout the banking system. Instead, nodes within the blockchain network, mine new crypto, as well as process transactions between users. Similarly, as opposed to monetary policy and a network of banks, the algorithm controlling the cryptocurrency’s supply determines its liquidity. Alternatively, in many cases, the cryptocurrency’s supply will be influenced by the decisions of a DAO (decentralised autonomous authority). 

It’s interesting to theorise about “What if” the adoption of a cryptocurrency could have prevented hyperinflation in Zimbabwe in 2000 or – going back much further – the Weimer republic in Germany in the 20s!”, jokes Matjaž Škorjanc.

Another benefit offered by cryptocurrencies is the increased security aspect. Each coin or token is secured by cryptographic protocols, making them impossible to double spend. This will reduce instances of fraud and counterfeiting within the banking system. 

The Drawbacks of Crypto

For all of the benefits of cryptocurrencies, they still have several drawbacks compared to traditional banking. 

  • Volatility 

Cryptocurrencies like Bitcoin and Ethereum are notoriously volatile, which is why they’re such popular investment assets. However, this volatility is problematic for savings accounts, as it will yield inconsistent interest payments. While this is fine for those in the DeFi (decentralised finance) space, it won’t suit the average person who deposits their savings in a traditional bank.

  • Transaction Speed

Current blockchain infrastructure can only handle a limited number of transactions for example. Bitcoin, for instance, can famously only handle 7 tps (transactions per second). In comparison, Visa can process around 1,700 tps, while Mastercard claims to handle approximately 5,000 tps. “Fortunately, this is changing with the development of technology designed to reduce congestion, like sidechains,” explains Matjaž, but there’s still a lot of ground to cover.

  • Learning Curve

Cryptocurrencies require time for the majority of people to wrap their head around – if they manage to at all. It can also take practice and trial and error to get to grips with wallets, exchanges, keys, etc. For people uncomfortable with technology, especially for something as sensitive and important as money, this presents a considerable challenge. 

  • Trust

Let’s face the facts: the average person has little to no idea how the financial system works. But they do understand how the money in their bank accounts and pockets work and that’s good enough for them. It’s likely to take the general public a long time to develop that same trust in crypto.

  • Regulation 

While the traditional financial system is highly regulated (in theory at least…), cryptocurrencies suffer from a distinct lack of regulation. Describing the crypto space as the “Wild West” is so commonplace, it’s a cliché. 

Is It Possible for Crypto to Replace Traditional Banks? 

In short, it is indeed possible for cryptocurrencies to replace the traditional banking system – but whether they actually will be another matter. “Crypto is a long way off from the mainstream adoption it needs for society to truly consider it a viable alternative to traditional banking”, says Matjaž Škorjanc

Then there’s the small matter of governments, central banks, and corporations relinquishing their power of the financial system. What’s far more likely is the increased assimilation of blockchain tech and cryptocurrencies into their processes. Crypto.com’s Visa card is a prime example of this trend. 

Matjaž Škorjanc is co-founder and former CTO of NiceHash. He helped establish the company in 2014 after seeing a space in the crypto mining market for a user-friendly free hashpower exchange. He does not hold any shares nor active position in the company. Matjaž is a thought leader in blockchain tech, operating systems, mining software and networks. 

Matjaž Škorjanc’s dedication and considerable expertise helped make NiceHash a global leader in the crypto mining market, with over 2.5 million users. 


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