The banking industry is one of the most profitable sectors globally, with billions invested every year. The worldwide spending on financial institutions was spotted at $8.2 trillion in 2015. Moreover, it is predicted to grow to around $8.7 trillion by 2020, a steady climb from the 2010s estimated value of $7.3 trillion.
However, some issues have been troubling the industry and the public for many years, such as low-interest rates on savings, fees on transactions and account maintenance, vulnerability to identity theft, borderless usage and accessibility to funds, and lack of transparency in financial institutions. If you want to invest in nft , then you can visit here.
Seven ways in which bitcoin has disrupted the banking industry:
Bitcoin’s first and most prevalent feature is its decentralized nature. This means that no central governing body, like a bank or government, controls and monitors funds and transactions (Nakamoto, 2008). Instead of using a third party to process money transfers, Bitcoin uses a blockchain — a digital ledger of transactions.
2) Fractional Reserves
A fractional reserve banking system allows banks to keep only a tiny percentage of their customers’ money in their reserves but then lend out the rest to earn a profit from the interest it generates.
This money then goes into circulation and is used as credit or financing for other lending institutions, consumers, and so on (Nakamoto, 2008). But because banks have increasingly been issuing loans at a higher rate than they have been keeping in their reserves, this has created a system of money that is far more than the actual value available for trade
Banks make their profits by charging fees to their customers. Because these fees are often hidden in terms and conditions or buried in the fine print, many people continue to pay them without realizing what they’re paying. In the US, the Consumer Financial Protection Bureau (CFPB) has found that “almost half of all checking account customers were paying $100 or more in monthly fees”.
4) The Volcker Rule
This act was created to keep the banking industry in check and prevent making risky bets with its depositors’ money (Tsukayama & Dash, 2015).
5) Transaction Fee
The absence of transaction fees makes sending money much cheaper than traditional banking systems. For example, in January 2016, there were “about 350,000 transactions per day on the bitcoin blockchain,” which resulted in “an average of 1.2 cents per transaction”.
Bitcoin is entirely decentralized because no one individual or entity controls it. While banks are centralized by design, bitcoin’s decentralization is built into its foundation.
This means that all transactions are public and transparent, without anyone being able to restrict or revoke them. Additionally, forums, trades, and servers are decentralized through software and hardware.
7) Cash for Bitcoins
Because traditional banks cannot provide their customers with all of their cash needs in the form of bitcoins, this opens up an alternative market for “working-class people who do not have bank accounts or credit cards” (Nakamoto, 2008).
Five reasons why bitcoin has affected the banking industry:
1) Access to Banking
Bitcoin has brought banking services to people worldwide who previously did not have access to it. This is because bitcoin can be accessed without regard to location or economic status (Nakamoto, 2008). It thus gives every individual “financial freedom” (Lee, 2015).
2) Less Fraudulent Transactions
Bitcoin has reduced fraud and hacking by eliminating the possibility of double-spending. In addition, because every transaction is written into a blockchain, bitcoin trading, it’s tough to alter them or “hack” them as they are encrypted (Lee, 2015).
3) Removal from the Network
For any transaction to go through on a blockchain network, all computers in that network must verify it. This means that the sender of the payment does not have to worry about their money being taken by another individual or entity, as there is no way that they can remove it from the network without permission (Lee, 2015).
4) No Transaction Fees
Again, because bitcoin has removed the need for a third party with its decentralized structure, it does away with transaction fees. In the example of January 2016 mentioned above, “the average fee for using an out-of-network ATM was 1.2 cents per transaction” (Lee, 2015).
All transactions are transparent on a blockchain network because they are public and can be verified by anyone. This is in stark contrast to traditional banking, where the customer must disclose personal information for a transaction to go through.
This has increased the demand for bitcoins because individuals are no longer restricted to traditional banking institutions.
A Development of Exchange Volume Distribution Between Bitcoin and Other Payment Networks. These changes have affected everything from how users interact to how the securities markets are structured.