With the global cryptocurrency market now worth more than $3 trillion, this is something which cannot be overlooked, thereby capturing the interest of investors, traders, financial service firms alike. But currently, with the RBI and government highlighting macroeconomic and financial stability concerns and want some form of regulation for cryptocurrencies, it still poses a challenge for its wide acceptance. Further such currencies are difficult to spend like one would do with regular money. 

However, in recent times new platforms and services are being introduced for better managing of such digital coins in day-to-day finances of people. Let us now understand about cryptocurrency banking, its benefits and at the same time what barriers it can have.

What is Cryptocurrency Banking?

This term can be sometime misleading, as these currencies are not yet regulated by any central authority. Moreover, the firms and exchange companies that provide such services aren’t banks, but they only provide ways to people to manage their cryptocurrency balances, by allowing them to hold it in digital wallets and spend it like traditional money.

What are the benefits of Cryptocurrency Banking?

The primary benefit that is envisaged is the use of it in issuing cryptocurrency debit cards. This will allow consumers to use their digital coin balance like any other money for daily expenses, purchases or withdraw it as cash rather than just keeping it for the purpose of investment. 

Prior to this, cryptocurrency could only be spent where it was directly accepted by retailers or sell it in exchange for dollars. Now, fintech firms are partnering with financial institutions and/or debit card issuers to issue such cards, using their partner’s regulatory structure to convert digital coins into an acceptable legal tender (say INR) and allowing retailers/vendors to accept it in exchange for their goods/services. This will allow digital currencies to be accepted wherever regular debit cards are accepted.

This in future can be further extended in the form of prepaid cards, that can be loaded with cryptocurrency for making online/offline purchases from merchants.

Barriers/risks in accepting Cryptocurrency Banking

The biggest barrier to spend and lend in cryptocurrency is how volatile it is. The same is valid in case of investing in it. The financial institutions rely on traditional currency for lending, spending for daily purchases, etc. because of the stability in its value, but the same is not possible with digital coins, currently in a manner that is safe and secure.

Moreover, while spending digital currency, one should be aware of the risk that its value can change after its spent, since the transactions are based on the real time value of the digital coin. 

Another barrier is that the regulators are still evaluating its credibility and validity, as there are no laws/regulations currently in place for them. They are decentralized and are not backed by any asset. Their value gets determined through demand and supply.

How will the future of money evolve?

With the regulatory bodies/government cognizant of the fact that this is an emerging technology, it will require them to keep a close watch and take proactive steps in the future. As this issue is span across geographical boundaries, it will further require global partnerships and collective strategies. 

The combination of cryptocurrency, CBDCs, stable coins and other digital payments could eventually lead to the “demise of [physical] cash”. However, one technology alone will not overtake it. 

Though the future of money is cashless, a dependence on these digital payments will not lead to an efficient system. And eventually all this will affect not only money, but also the economy and society.