Role of a central bank in cryptocurrency trading

Responses to the development of blockchain technology have been seen around the globe, particularly from Central Banks in various jurisdictions. Many of them feel uncomfortable with the way that cryptocurrencies are upending the financial sector. Popular cryptocurrencies like BTC and Ethereum have already had an impact on how the banking industry operates in many regions around the globe.

Anybody from everywhere may transfer and receive digital coins thanks to blockchain technology that underpins cryptocurrency without the need to navigate the several obstacles financial institutions in the conventional banking sector put in place. On the other hand, if you are looking for a secure platform that comes with the best technologies, then the bitcoin evolution will be your best option. 

Certain central banks continue to oppose the use of cryptocurrencies and continue to be adamant about it being done in their countries, which results in restrictions on cryptocurrencies. Although some nations adopt anti-crypto policies to deter consumers, others adjust to the new normal. Consequently, they create rules to accomplish this. 

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Reasons why cryptocurrency enthusiasts are against central banks

1. The monopoly of central banks

Before the emergence of cryptocurrency, people lacked options. To send or receive funds, or make use of other banking services, they mainly depended on conventional banking systems. Today, things are different. Right now, there is a tonne of fintech businesses providing digital solutions to consumers all over the world via peer-to-peer networks that let you conduct financial transactions in actuality without having to deal with the various obstacles present in the conventional banking network.

1. Huge transaction fees

The charges of transactions realized as clients use their banking services are one of the main sources of income for conventional financial organizations like banks. Nowadays, customers are aware of low trading costs while using blockchain networks which have imposed a huge threat to the existence of conventional banking.

1. Existence of intermediaries

Investors can now complete their tasks without tussling with middlemen associated with the financial sector thanks to blockchain networks. Hence, they have the liberty to investigate all available financial options. Traders can now perform transactions using blockchain at faster speeds and hassle-free.

1. Resistance due to instability

Due to cryptocurrency’s decentralized structure, instability, and KYC issues, many institutions are wary of it. Because of this, many governments continue to view the idea as a risk to the conventional banking system and are acting proactively to limit its capabilities. Whereas the Nigerian government forbids institutions from assisting cryptocurrency transactions made by their citizens, the Chinese government continues to outlaw cryptocurrency activity.

Stablecoins vs. Cryptocurrency

The prominence of all cryptocurrencies increased significantly because of the spectacular growth in Bitcoin’s fame. Yet many prospective buyers and Bitcoin customers could not get over utilizing unbacked money. It encouraged the creation of stablecoins, which are centralized and recognized by central banks. 

These stablecoins are the only coin that has the capability and authority to become a fiat currency. Since stablecoins are fully backed by reserves, therefore, nationals of different countries may purchase them without the risk of depreciation. During Bull markets, stablecoins tend to provide interest at much higher rates than their counterparts.

Central Bank Digital Currency (CBDC) – States across the globe are testing this new kind of money. A CBDC’s ability to possibly leverage new payment technologies, often a blockchain, to boost payment effectiveness and reduce costs is what makes it unique from other currencies. A CBDC is frequently like a cross between Bitcoin and fiat money released by the government. The resultant CBDC monster incorporates traits from each. 

Conclusion

It seems to sense that some banks are apprehensive of cryptocurrencies. Knowing that too much liberty can be misused. We certainly understand that numerous individuals are avoiding moving in this direction due to concerns about stability and security. Bad people will always use technology for evil purposes, and cryptocurrencies are no exception. Banks must embrace new strategies and cease denying themselves the many advantages associated with deploying blockchain technology. Although cryptocurrency is not a threat to banks, a successful alliance may be developed that would guarantee accuracy and efficiency.

Many nations view a CBDC as an additional currency rather than one that will take over the current financial system.

Cover photo by Arisa Chattasa on Unsplash 

DISCLAIMER: This article is sponsored and does not substitute for professional advice or help. Any action you take upon the information presented in this article is strictly at your own risk and responsibility.