What is decentralized banking?
Cryptobanks are decentralized platforms that provide the usual services that centralized banks provide, primarily lending services and credit scoring, but essentially cuts out all of the middlemen that a centralized bank uses.
The technology behind credit cards and online payments has driven revenue, business performance, and customer ease-of-access. Just as early industry disruptors such as PayPal transformed the digital system of their time, the modern-day “Crypto-banks” are redefining the current banking operations.
Decentralized crypto banking is making fully integrated crypto-based banking services and payments accessible to every-day users, crypto enthusiasts, or entrepreneurs alike.In this blog, we will discuss how a decentralized crypto banking system can improve the conventional banking process.
Easy Borrowing and Lending Process
Decentralized crypto banking eliminates the involvement of intermediaries, thereby resulting in reduced counterparty risk and making borrowing and lending affordable, faster, and secure.
Decentralized borrowing and lending have the following advantages over the traditional credit system:
a) Collateralization of digital assets
b) Instant transaction settlement
c) Potential standardization in the future
d) No credit checks
Fraud and Cyber Crime Reduction
Built on blockchain technology, the decentralized crypto bank has the potential to reduce fraud in the financial world. Generally, most of the banking platforms around the globe are built on a centralized database. It makes them more vulnerable to cyber-attacks because once hackers breach the database, they have full access to it.
On the other hand, decentralized crypto banking is built on blockchain where all the transactions are distributed on a ledger- where each block contains a timestamp and hold batches of individual transactions with a link of a previous block. This mitigates the risk of cybercrime and makes the platform secure.
Easy KYC (Know Your Customer)
As per the recent report, the financial institutes across the globe spend $60 million to $500 million per year to keep up with the KYC to comply with diligence regulations every year.
The decentralized banking platform eliminates the need for user KYC each time they visit a financial institution to access financial services. Blockchain would allow independent verification of one customer by one company to be accessed by other companies so the KYC process wouldn’t have to start over and over again.
Remove Intermediaries with Smart Contract
A smart contract is a special algorithm that automates contracts like the deal-making process. Such contracts allow users to sell properties, exchange shares, documents, proprietary, or money. One of the most important features of a smart contract is that you won’t need to use any third-party services such as notaries, agents, brokers, and more to make a transaction.
Less Reliance on Cash
Decentralized crypto bank helps in cost reduction. Widespread use of blockchain technology, together with updates of compliance regulations, will enable crypto banks to substitute their own regulated, blockchain-based currencies for notes and coins.
Decentralized Banking Use Cases
In this section, we are going to look into some of the popular DeFi use cases, namely:
- Borrowing and Lending.
- Monetary banking services.
- Decentralized marketplaces.
To Sum Up
It is quite clear that the decentralized crypto banking platform has brought revolutionary changes to the financial sector.
Strengthened by a team of finance and technical experts, we provide complete solutions – from guiding on compliance to acquiring a bank license to providing a white label banking ecosystem packed with all essential banking functions, including bank accounts, credit/debit cards, payments, trading, lending, and user onboarding.