Over the past decade, the emergence and rise of cryptocurrencies have marked one of the most significant developments and shifts within the financial sector. Bitcoin, ethereum and countless altcoins have captivated the attention of investors and regulators.

This digital-currency revolution has raised questions about the future of traditional banking systems, with many people wondering whether cryptocurrencies could take over the roles that banks have played for centuries.

For me, the crypto environment is an area I am working to understand better. It is quite different from a traditional banking framework, and exploring the functionality and differences between the conventional banking system and this new arena of crypto, along with its terminology, has been a learning experience.

Here are some of the things I have learnt:

What is the difference between traditional banking and cryptocurrency?

Traditional banking systems are rooted in long-established institutions such as banks, credit unions, and savings and loan associations. These institutions are heavily regulated and provide financial services, including bank accounts, loans, mortgages, and investment management. They operate on a fractional reserve system, where banks keep a portion of deposits in reserve and lend out the remainder, effectively creating money.

In contrast, cryptocurrencies are decentralised digital currencies that use blockchain technology — an immutable and transparent ledger that records all transactions across a network of computers.

Cryptocurrencies’ primary appeal lies in their ability to facilitate peer-to-peer transactions without relying on intermediaries like banks, resulting in reduced transaction costs and increased efficiency (Egilsson, 2024).

How are traditional banking and cryptocurrency regulated?

Traditional banking systems operate under stringent regulatory frameworks imposed by government entities to ensure consumer protection, transparency, and systemic stability. These regulations cover areas such as minimum reserve requirements, consumer lending practices, and anti-money-laundering measures.

By comparison, the cryptocurrency market is less regulated. While some countries have begun imposing regulations on cryptocurrencies, the sector largely lacks the comprehensive oversight seen in traditional banking. This lack of regulation can pose risks, including fraud, market volatility, and limited consumer protection. However, it can be argued that this environment allows for greater innovation and freedom in financial transactions (Pazzanese, 2021).

Accessibility and inclusiveness – do both offer the same availability?

Traditional banking systems can often be exclusionary. Many people, particularly in developing countries, lack access to banking services due to geographic barriers or stringent identification requirements. This has contributed to the global phenomenon of the “unbanked” population, who are unable to access basic financial services due to the limitations of traditional banking infrastructure.

On the other hand, cryptocurrency can be seen as a more inclusive alternative. Anyone, regardless of nationality or location, can create a cryptocurrency wallet and participate in the crypto ecosystem. This high level of accessibility has the potential to empower individuals and businesses that previously had limited or no access to financial services.

How do fees and transaction times differ?

Transactions in traditional banking can take several days to clear, especially for international wires. This delay occurs because intermediary institutions must verify and settle payments. Additionally, banks charge various service fees, such as those for wire transfers, currency conversions, and monthly account maintenance, which can add up over time.

In contrast, cryptocurrency transactions are often processed almost instantaneously, regardless of geographic location. Blockchains operate 24/7, without holidays, making them more efficient for international payments. Cryptocurrency transaction fees can also be lower than traditional banking fees, although these fees can rise significantly during periods of high network congestion.

Security and fraud – how is money protected?

Traditional banks have established a foundation of trust over centuries. Customers feel secure placing their assets in these institutions due to their long track record and regulatory oversight. This trust is critical to the stability of the banking system.

Conversely, cryptocurrencies have faced challenges in building trust, partly due to their association with speculative investments and criminal activities, such as money laundering and ransomware. While the growing popularity of digital assets is leading to broader acceptance, scepticism remains, particularly among those unfamiliar with blockchain technology.

The reality is, cryptocurrency has emerged as a transformative force in the global financial landscape, and its staying power is becoming increasingly evident. One primary reason for its permanence is the underlying blockchain technology, which offers unparalleled security, transparency and efficiency. This decentralised infrastructure reduces reliance on traditional financial institutions, enabling peer-to-peer transactions and fostering financial inclusion for millions worldwide.

Furthermore, with the rise of digital economies and technological advancements, cryptocurrencies are becoming integral to various sectors, including finance, gaming, and supply-chain management.

Many businesses now accept crypto as a valid form of payment, reflecting its growing acceptance in mainstream commerce. Additionally, the proliferation of decentralised finance applications is revolutionising traditional financial services by providing alternative lending, borrowing, and investment opportunities without intermediaries (Aquilina, 2024).

Regulatory frameworks are also evolving as governments worldwide recognise the potential of cryptocurrencies and blockchain technology. More nations are establishing guidelines to facilitate safe and efficient crypto usage, providing legitimacy that bolsters consumer confidence.

Ultimately, as more people become aware of the benefits of crypto – such as its potential to hedge against inflation and economic instability – its adoption is likely to continue growing.

Together, these factors underscore that cryptocurrency is not just a passing trend but a fundamental shift in how we perceive and interact with money, solidifying its presence for the long haul.

References

Aquilina, M. Decentralised Finance (DeFi): A Functional Approach. Journal of Financial Regulation. Available from: https://academic.oup.com/jfr/article-abstract/10/1/1/7511072?redirectedFrom=fulltext [Accessed 15 January 2025].

Egilsson, J. Your Crypto Wallet As Your Bank: Realising Bitcoin’s Original Vision. Forbes. Available from: https://www.forbes.com/sites/jonegilsson/2024/12/28/your-crypto-wallet-as-your-bank-realizing-bitcoins-original-vision/ [Accessed 15 January 2025].

Pazzanese, C. Regulators Put Cryptocurrency in Crosshairs. The Harvard Gazette. Available from: https://news.harvard.edu/gazette/story/2021/09/regulating-the-unregulated-cryptocurrency-market/ [Accessed 14 January 2025].

• Carla Seely has 24 years of experience in the international financial services, wealth management and insurance industries. During her career, she has obtained several investment licenses through the Canadian Securities Institute. She holds the ACSI certification through the Chartered Institute for Securities and Investments (UK), the QAFP designation through FP Canada, and the AINS designation through The Institutes. She also holds a master’s degree in business and management