Crypto Banks vs. Traditional Banks: A Comparative Analysis

Crypto banks are the hype of the day, attracting the attention of forward-looking investors and businesspeople. So, what are the reasons to consider crypto bank development seriously in 2024? What are the key distinctions between crypto banks and regular banking products you should keep in mind? Here is a brief yet informative breakdown of the key differences and similarities.

Traditional Banks

Here are the main features distinguishing traditional banks as we all know them:

• All transactions are overseen and validated by banks.
• The money supply is regulated by central banks and can be adjusted to the amount of debt.
• Cross-border payments are costly and slow, taking up to one week.
• All users of banking services have to complete a rigorous KYC/AML procedure.

Crypto Banks

Crypto banks have changed many rules in the banking game by introducing the following features:

• Transactions take place on a peer-to-peer (P2P) basis without intermediary oversight.
• Money supply is determined by smart algorithms, not banks.
• Cross-border payments are completed within a couple of minutes.
• KYC/AML is not required in many cases, though access to full banking functionality may be available only with KYC/AML verification.
• The costs of transfers are close to zero, with most blockchains (except for Ethereum) charging a fixed sum for transactions of any volume.

The most important distinction between crypto banks and a rich variety of traditional banks (currently enlarged with numerous digital banks and FinTech products) is their underlying technology. While regular banks — digital and non-digital — use conventional software solutions, crypto banks operate on the basis of blockchain (DLT technology). The DLT is the key to crypto banks’ enhanced privacy, transparency, and low fees, which are made possible by excluding the central banking authority’s oversight.

Awareness of Risks Is Key

As you can see, cryptocurrencies are fully compatible with the banking concept and can be effectively used for various financial purposes in the banking sector. Yet, the crypto industry is still in the making, so it is loosely regulated in most jurisdictions. This lack of consistent regulation and legal coverage paves the way for many scams and fraudulent schemes in the crypto world, making end-users the primary victims of theft and manipulation. Therefore, you should use the services of reliable crypto banks with a solid reputation and stick to stablecoins with proven value and low volatility.

More on the crypto banking landscape is available in our comprehensive crypto bank research report, summarizing the state of the industry in 2023 and beyond. If you’re interested in crypto banking as a business owner, investor, or user, you may also find many valuable insights in our YouTube video about the differences between these two types of banks.