What Is Crypto Banking?

A blockchain-based banking system has massive advantages if compared to the traditional bank.

Growing up as a young lad, I have always wondered why people need to have a bank account. In some cases, people would even need several bank accounts just to execute transactions that could easily be managed effectively by both parties.

However, due to the necessity of conformity to the financial practice laid down by the government, to oversee individual and corporate transactions, legislations were made to limit the freedom of the people’s financial transactions.

What is a Bank?

A bank can be said to be a financial institution licensed to receive deposits and make loans available to clients upon request. Some banks may also provide to a great extent some financial services such as financial advice, wealth management, currency exchange, and safe deposit boxes to their clients. 

These banks also provide some level of credit services for individual and business concerns. The bank is also responsible for lending the funds that are deposited at the bank for short-term cash to others and standing as guarantors for long-term financial responsibilities such as car loans, credit cards, mortgages, and other debt portfolios.

The banks are created to basically make profits from their customers as they approach them for any of the services they render, something which has portrayed them as manipulative and subservient to their customers.

However, these financial services from the banks are taking a new dimension as the advent of blockchain technology and cryptocurrency is gradually transforming traditional banking into a digital form.

Is it possible to have a crypto bank?

Firstly, cryptocurrencies are digital currencies created by mathematical algorithms to serve as a medium of exchange between users without the need for an intermediary, unlike the traditional bank system where the bank stands as an intermediary for all transactions.

Blockchain technologies and cryptocurrencies are gradually replicating all the services implemented by traditional banks. Some of these services include but are not limited to the following:

  1. Staking: It is a process whereby users are expected to lock their funds in a dedicated crypto wallet to get passive returns for participating in the maintenance of operations on a Proof-of-Stake or PoS-based blockchain network. This is also synonymous with how banks collect customers’ funds to improve their financial base and provide loans to businesses while they give returns on investments of their funds.
  1. Token farming: token farming is basically a process in which crypto holders have to deposit their assets in form of other cryptocurrencies for procuring rewards on the same deposits. 

    This farming process could help crypto holders in earning fixed or variable rates based on the governance decision of the required projects also in form of interest through crypto investments in the DeFi space.

    This is also similar to the traditional banking sector in financial management. However, in traditional banks, customers are expected to pay back their loans with interest
  1. Liquidity pool provision: The provision of liquidity pools can help drive a marketplace that subsequently enables users within the system to exchange, borrow or lend tokens in a decentralized manner. 

    Such that after you add your funds to the liquidity pool, the individual can take on the identity of a liquidity provider to the platform or system. Users usually would get the reward from the liquidity provision from fees originating from underlying DeFi platforms for the assets you have locked within the system. 

Understanding the concept of crypto banking is the best thing that can happen to anyone who intends to invest in the crypto space as the opportunities inherent in such platforms are indeed enormous and profiting in nature.

However, it is expected that anyone who intends to venture into such would be required to carry out due diligence about such decentralized crypto platforms in order not to fall victims of a potential scamming platform that could pose as a DeFi platform with huge false promises.

The Klever team would continue to encourage our teeming followers and intending ones as well to spend some time to equip themselves with educational content that can shed light on how the processes work in the DeFi space. 

It is a Klever thing to do

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Disclaimer: This article is for informational purposes only. The information does not constitute an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Klever.Finance does not provide financial, tax, legal, or accounting advice. There is no responsibility on the part of the company or the author for any loss or damage arising from or related to the use of or reliance on any content, goods or services mentioned in this article.

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