To date, cryptocurrency exchanges are the main (if not the only) way for people to convert fiat currency into cryptocurrency, or vice versa, but with the rise of crypto-banks, this may change. The skills required to own and manage a crypto wallet burden many users with risk and responsibility, but crypto banks could solve this user experience problem. The biggest problem is that crypto regulations cannot agree on which asset class cryptocurrencies belong to.
The US SEC has been the most aggressive, often claiming that most cryptocurrencies, including dollar-backed stablecoins, are actually securities and must be registered and sold on regulated stock exchanges. Meanwhile, the CFTC treats cryptocurrencies as commodities until proven otherwise and has a much more lax approach. The ongoing war of regulatory uncertainty is increasing the gap between the DeFi, CeFi, and TradFi sectors, and crypto exchanges are still the only way to convert between fiat currency and cryptocurrency. To date, existing institutions are hesitant to adopt blockchain and digital assets due to ambiguity.
This is where crypto banks could come in handy. As Corner Telegraph explains, crypto banks are legally chartered banks that offer digital asset services. While banks (TradFi) are often crypto-averse, “crypto banks” offer on-chain custody, purchase, and withdrawal/deposit services, combining a bank-controlled crypto wallet with a traditional bank account. Since customer accounts are tied to a crypto wallet, crypto banks could potentially offer decentralized finance (DeFi) services to their customers, providing an advantage over TradFi banks, but the regulations are still 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, improving the end-user experience and allowing users to receive payments and stable transfers.
Blockchain is hard, but banking is easy
The biggest barrier to mass adoption of Web3, aside from privacy concerns, is the convoluted and risky user experience. Currently, all users must have an account with a crypto exchange, and they must 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 against sending crypto to the wrong address. When creating a crypto wallet, users must write a randomly generated 12-24 English word, without which they cannot recover their wallet if something happens to their device. Users also need to manage blockchain gas fees and the gas fee schedule, or risk paying too much for a simple transaction, while watching for signs of scams, hacks and phishing attempts. The liability is very high for users who want to be their own banks, and the complexity of using blockchain technology increases the risk of errors, making adoption unlikely for most people.
What a lot of people in crypto don’t understand is that most people don’t care enough about being their own bank to overcome the self-custody learning curve. Many decentralized Web3 applications (dApps) are useful and interesting, and would probably find a decent Web2 user base if accessed from a bank account or from an app connected to an account. For now, being able to buy, sell, withdraw, and deposit cryptos and stablecoins from a single bank account is a huge step forward, and that’s what crypto banks are bringing. at the table. While this doesn’t improve the self-custody experience, it does remove 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 transactions, withdrawals, and deposits alongside regulated banking services, which can significantly improve the overall user experience while providing the same security and protections. than banks. While many TradFi banks are cold or openly hostile to crypto, crypto-based banks cryptocurrency and blockchain are paving a new path for the next generation of institutions and will play a key role in the next Web3 internet revolution.
Source: Corner Telegraph