Opinions expressed by Entrepreneur contributors are their own.
As cryptocurrency increasingly permeates our daily lives, traditional banks that don’t embrace digital coins risk staying on the sidelines. When crypto makes it to major bank apps, increased availability of digital assets will push them further to unprecedented popularity.
It costs millions and years to build dedicated crypto infrastructure. Businesses that offer white-label and custom solutions to banks will make a fortune.
Does a disruption have a future?
Over the past 60 years, nothing has disrupted traditional finance more than the advent of cryptocurrencies. Digital assets are taking over some of the functions of national central banks, including currency issuance. There’s now a whole new crypto economy with services based on the blockchain, such as lending, insurance, deposits, data analytics and money transfers.
Since the introduction of Bitcoin in 2009, the number of cryptocurrency users has grown from zero to 420 million users. The most significant growth occurred in the last 2-3 years, fueled by the latest bull run. Moreover, for today’s youth, cryptocurrency is an entire manifesto and a protest against traditional finance.
However, as the crypto winter goes on, one question remains pertinent – does the crypto market have a future? And if yes, what will become its next growth engine?
Why traditional banks will embrace crypto and drive its growth
I strongly believe that banks will sponsor the new boost of the crypto market — and drive the adoption of digital assets. Here’s why.
- The crypto space is now a thing without a reverse gear. It’s a trillion-dollar market with a strong user base that can’t be ignored. Traditional financial institutions and businesses are demonstrating an increasing interest in digital assets.
- Cryptocurrencies have brought in myriads of services that can only be used with digital tokens on your balance.
- Central banks of 64 countries are already testing digital national currencies that usher in the departure from traditional money. Sixty-six more are on their way.
The day is approaching when cryptocurrencies will become as mainstream as fiat money. To keep up with this evolution, banks will implement the infrastructure allowing their customers to buy, sell, and store digital assets.
When banks adopt digital assets, the number of crypto users may skyrocket
I don’t think banks will become anything like crypto exchanges. Due to regulatory and convenience reasons, banks will only support buying, storing, exchanging and sending a few major cryptocurrencies.
But when even a few cryptos massively appear in the bank apps, the number of cryptocurrency users might dramatically increase due to simplified access to digital assets. Buying Bitcoin, sending it to your friends, receiving a cryptocurrency payment or withdrawing income from its price growth will become easier.
We already see this happening. Huge institutions like Deutsche Bank, Raiffeisen Bank and many others are already obtaining their crypto licenses. Neobanks (Revolut) and payment platforms (PayPal) have already embraced crypto and demonstrated it was financially feasible. And this is only the beginning.
Banks need dedicated infrastructure to enable cryptocurrency features
The main difficulty in integrating crypto solutions is that the digital asset infrastructure is radically different from that of traditional banks:
- Crypto storage requires tailor-made crypto wallets. It is impossible to keep digital coins in a regular bank account.
- Cryptocurrencies are based on different blockchains, with a special technical solution for each.
- It is necessary to integrate a cryptocurrency exchange API to enable crypto swaps.
- AML standards for cryptocurrencies are very different from those that banks usually stick to.
- Issuance, hedging, charging fees, and other procedures in crypto are also different.
Large banks are likely to develop their solutions for digital assets, which is a huge challenge for medium and small institutions. The latter don’t have the money, time and expertise to build their own infrastructure – it costs millions of dollars and years to build. However, there is a solution.
Sell shovels in a gold rush!
We see a huge niche opening for B2B crypto projects, and it is to become highly competitive. Companies that provide crypto bank infrastructure through plug-ins or white labels will become just as popular as traditional banking integrators.
There will possibly be tens of thousands of partnerships of this kind. We expect that in the coming years, the crypto market will grow to 1 billion users, and the total market cap will surge to a few trillion USD thanks to, among other things, crypto adoption by traditional banks.
While label solutions for crypto banking experience a huge customer flow
Despite its immense potential, there’s still not much competition in this niche. However, given that the demand for B2B solutions is already high, banks have to stand in lines for 4-5 months now to get their crypto infrastructure.
We say this from experience: Vault, our crypto bank infrastructure provider, will enable at least 150 institutions with cryptocurrency features in the coming year. We started in 2017 based on the Choise.com ecosystem (formerly Crypterium) and provide the battle-tested infrastructure that has already processed millions of transitions for 1M+ users.
Vault allows financial institutions to embed crypto infrastructure 10X faster and 10-15X cheaper than independent development would take. Customers only pay onboarding and monthly fees and then share a percentage from using an already-made solution.
Cryptocurrencies are taking over the world at an unprecedented speed. In such circumstances, banks are only left to embrace the new kind of assets. And the faster they mobilize to integrate cryptocurrency infrastructure, the more likely they are not only to succeed but even survive in the long run.