What Are Crypto Banks and How Do They Work?
Nikolai Kuznetsov's original article for cointelegraph.com reduced by 45%
Bitcoin once promised that it would help realize the lofty goal of making individuals "Their own bank." To understand the many services that banks truly provide is also to realize how preposterous this claim was in 2008, when Bitcoin's white paper made it. More than a decade later, the grandfather cryptocurrency is still on the peripheries of traditional finance, yet the decentralized industry that it has spawned can indeed replicate many financial services on the blockchain, all of which were formerly exclusively in the realm of banks. Make no mistake: DeFi is not banking, as it only mimics banking functions and is still unable to provide the other thing banks are valued for - i.e., security.
What's a crypto bank?Crypto banks are banking institutions that engage in the standard range of money-related activities like deposits and withdrawals, savings, lending and borrowing, and investing in a wider range of instruments and markets. In places with progressive policymakers such as Germany, businesses and institutions holding fiat money and fiat-money-based assets can easily participate in the decentralized economy through a crypto bank. These kinds of crypto banks, such as Bitwala and Spot9, are essentially the skeleton of what will one day be a bridge between the segregated fiat and crypto economies, which is only now beginning to emerge.
This is because, without regulatory approval, fiat can be turned into crypto, but fiat and crypto do not belong to the same definition of money as it pertains to banks.
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