Digital banking is another term that is given to the increased popularity and development of online banking services. Digital banking has been developed and implemented by institutions worldwide in an effort to address some of the major shortcomings of traditional banking systems, such as a lack of customer service, lack of convenience for customers and poor access to certain financial services. Furthermore, the uptick in digital banking has given rise to a different type of banking, namely, cryptocurrency banking which has, in turn, increased the adoption of cryptocurrencies as a form of payment.
The earliest implementation of digital banking was longer ago than many people may initially realize, with the advent of digital banking services such as ATMs for cash and bank cards being issued in the 1950s-1960s. By the 1990s, online banking had slingshotted to major popularity in the developed world due to the rise of the internet.
Why is Digital Banking On The Rise?
One of the ways in which digital banking has changed the banking sector is by increasing the level of convenience to the customer. In fact, 43% of people have stated that they believe convenience and having effective online services go hand in hand. In the United States, customers have ranked which institutions are the best at promoting access to digital services, and they were ranked according to the below image.
In the United Kingdom, there has been a noticeable rise in the number of and the success of “challenger banks”. These are banks that have no physical branches and all interactions with customers are handled digitally, some have 24/7 telephone customer service. The main reasons for these changes are that people in the United Kingdom are looking for quicker, more convenient banking options.
Savings on Infrastructure and Business Costs
One way in which the move towards digitization can positively affect the businesses in the banking sector is the potential for such a move to promote cost-savings as a result of making operational procedures more streamlined. This also allows banking providers to utilize the funds freed up from cost savings to provide better services to customers, such as by reducing fees for customers.
Digitization can also benefit both the business and the customer due to the fact that it allows for simplification of the onboarding process. A real example of where this has been implemented can be seen from US-based Mariner Bank, who have implemented SaaS from Digital Onboarding, to allow their staff to spend less time filling in forms and therefore spend more time on personally serving customers who require assistance.
How Does Digital Banking Relate to Cryptocurrencies?
Cryptocurrencies have cut a disruptive and controversial figure in the world of finance, since their rise to popularity in 2017, and due to the fact that they are digital assets, they are beginning to form an interesting relationship to the current digital banking landscape.
One of the reasons for the slight change of heart in relation to cryptocurrencies has been the gradual relaxing of cryptocurrency regulations in certain states. Previously, bans on cryptocurrency activities were common, which prevented the symbiotic growth between digital banking and cryptocurrencies.
Some of the behemoths of the financial sector are starting to embrace cryptocurrencies and recognize the value that they could bring to their organization. JP Morgan, for example, has created its own digital currency, with the primary objective of decreasing the amount of time it takes for money to be transferred between two parties. Furthermore, the banking giant claims that it will allow them to facilitate transfers over different blockchains, with the company claiming they have always seen the potential in digital currencies.
Digital banking has helped to spawn a new type of bank, the cryptocurrency bank. Whilst a cryptocurrency bank may sound complicated, they are in fact simply institutions that fulfill the same functions as a normal digital bank would, however, there is one key difference. True to their name, these types of banks include cryptocurrency-related services as a part of their repertoire for their customers.
There has even been a huge rise in the number of cryptocurrency ATMs available to customers for use.
How Will This Change Impact Cryptocurrency Banking?
The rise of digital banking has and will continue to have a positive effect on the viability and the utility of cryptocurrency banking, despite the fact that we are still quite far away from mainstream adoption.
In 2020, 153 Million unique Bitcoin wallet addresses are in circulation, with the number of active wallets being around 550,000. Whereas in February 2019, there were 32 Million Bitcoin wallet addresses, which poses an increase of 121 Million wallets since then.
Cryptocurrency banking does also faces intense challenges for the future. In its current state, the cryptocurrency banking system is slightly ill-fitted for purpose, although progress is always being made. Threats from the traditional banking sector and the continuing volatility of the regulatory landscape relating to cryptocurrencies present significant hurdles to widespread adoption. It is strongly believed that cryptocurrency banking can fill one major gap in the traditional and digital banking spheres, which are international money transfers. Transferring money between countries via blockchain massively reduces the associated costs of the transfer and allows for the money to be sent much more quickly than is possible with traditional banks. Both businesses and individuals sending money to their home country for their families stand to benefit greatly from this, as globalization increases the number of international money transfers.
The options for buying Bitcoin and other cryptocurrencies seem to increase on a daily basis. There are digital brokers, peer-to-peer marketplaces and a quickly growing amount of cryptocurrency ATMs.
According to Coin ATM Radar, there are now over 6330 cryptocurrency ATMs globally, spanning 72 different countries. Bitcoin and cryptocurrency trading continues to see a state of flux through 2019 with wild trading volume and price swings.
That seems quite extraordinary considering the growth of Bitcoin still flatters to deceive. With such a stunning growth of cryptocurrency ATMs, surely people must be using them, and if so, who?
The way in which ATMs are used appears to vary from location to location. In wealthier countries users almost solely use them as a means of buying crypto while economic turmoil results in a helpful way to cash out funds.
Despite this growth, the facilities are still few and far between for most people. In many innovative cities, you’re still likely to find people using them as a novelty ‘trying it out’ rather than for regular exchanges. Malls and shopping centers have also been installing ATMs in the hope to attract the wealthy, rather than a focus on selling Bitcoin.
America leads the way with over 4300 of 6300 worldwide locations, some way ahead of any other countries. Canada offers around 750 while the UK even fewer at about 300.
Reasons for visiting a cryptocurrency ATM vary from place to place explains Matias Goldenhörn to Coindesk.
“In the U.S., clients predominantly use machines to buy bitcoin. In Colombia for example, it’s the other way around, people use the ATM to withdraw cash.”
With inflation rates skyrocketing in both Venezuela and Argentina in recent years, locals are quickly seeing the value of decentralized currency free from government manipulation.
Potential issues with Crypto ATMs
In theory, Cryptocurrency ATMs are quite simple, you put money in and receive coins to your wallet. Or vice versa.
Unfortunately, users have found a number of problems with this method of buying Bitcoin, particularly due to an assortment of scams.
Discussions on Reddit flag up issues with modern ATMs. It seems that integral regulation is turning many people off using these growing numbers of physical exchanges. Once a place for anonymity, a demand of many users, now cryptocurrency ATMs must conduct due diligence on transactions. These regulations are helpful for authorities in stopping illicit activities such as money laundering. Identification and even fingerprints are often required to make a transaction.
As you can imagine, all sorts of scams exist to try and swindle people out of their cryptocurrency. Some are clever, others all too simple. ATMs are a particular focus for criminals as users tend to be uneducated in the world of cryptocurrency, particularly if they are just ‘trying it out’.
Two scams, in particular, have become common, the first is unsuspecting people being tricked into believing they owe money or have missed a bill. Victims are then instructed to use a Bitcoin ATM to quickly pay their debt, sending money to the fraudsters cryptocurrency wallet. Scammers pose as companies looking to settle bills quickly.
In Canada, an even more simple technique has been used with a simple ‘out of order sign’ directing users to deposit funds to the printed QR code instead of their own wallet due to a software upgrade.
Elsewhere, discussions on Reddit flag up some other issues with modern ATMs. It seems that regulation is turning many people off using these growing numbers of physical exchanges. Once a place for anonymity, a demand of many users, now cryptocurrency ATMs must conduct due diligence on transactions. Identification and even fingerprints are often required to make a transaction, destroying any previous anonymity.
The taxman is especially vigilant of compliance as these facilities fall under the same Know Your Customer and Anti-Money Laundering rules as online exchanges.
ATMs have become a particular problem, as anyone, anywhere, can put cash in and get Bitcoin out which creates massive potential for illicit activity.
“If you can walk in, put cash in and get Bitcoin out, obviously we’re interested potentially in the person using the kiosk and what the source of funds is.” discusses IRS Criminal Investigation Chief John Fort.
Using a cryptocurrency ATM safely
It is important to understand how you receive coins from an ATM. It happens in two ways, either you receive them directly to your mobile wallet or printed on a paper wallet directly from the ATM.
As discussed with the scams above, there are some important factors to be vigilant when buying cryptocurrency.
The number 1 rule – only ever send funds to your personal wallet/QR code. If asked to scan another QR code outside of your wallet (e.g. a note stuck to a machine or to pay a bill) it is a scam. There is no reason to ever send coins to a 3rd party wallet or pay a bill, no reputable organization forces customers to pay bills via a cryptocurrency ATM.
If you are processing a large transaction you’ll be required to input your ID, telephone and even fingerprints to verify your identity. Double-check the provider of the service is legitimate, even ask the shop or mall for more information before submitting sensitive data.
Cryptocurrency ATMs make it really quite convenient to buy or sell cryptocurrency. As we’ve discussed in South America, they could be vital to the continued growth of digital assets. Not only can you buy coins using cash but users can also cash out their coins on the go. Of course, where money exists scammers and criminals will look to benefit, so if you are using cryptocurrency ATMs then you should take just as much care as you would with a traditional bank.
As the world has experienced a technological boom that has changed the way we do the majority of the things in our lives, it is only natural that in this modern era, the way we transfer life’s most useful commodity, money would also change.
Despite this, even now, transferring money between locations can be difficult, especially if you are transferring money between countries. A number of different factors contribute to this, especially lack of technological infrastructure, the remoteness of your location and restrictive legislation and procedures. The rapid rise of cryptocurrencies since the major boom in 2017 has propelled virtual currencies into the limelight as a potential solution to the problems that normally arise as a result of transferring money digitally in our current system. Due to the fact that cryptocurrencies are still in their infancy, there is much debate about the validity of such speculation.
Why Where You Live Matters For Money Transfers
Location plays a huge role in the quality and the costs involved in transferring money between countries.
One of the reasons for this is because money transfer fees vary greatly from provider to provider; in a country where there are a lot of different banks and services to choose from, the customer has the freedom to find the cheapest rates, whereas in less developed areas the choice of provider is going to be much more limited, relegating customers to a select few options that may not be providing them with a good deal.
Your location will also have an impact on the convenience of services available to customers. This is because of the fact that in certain countries, a large number of people do not have bank accounts, in fact in Senegal only 181 people have a bank account per thousand.
This means that they will need to physically collect money that has been sent to them. In more remote locations, this can be a major inconvenience to customers due to the travel involved.
Do Cryptocurrencies Aid in Money Transfers?
The main problems that plague the money transfer industry are the regulations, the overwhelming number of “middle-men” and high commission fees. For example, fees have been so prominent that in 2017, migrants had sent $450 Billion back to their home country, with $32 Billion being claimed by providers as transaction fees.
This has severely hampered people’s access to the global financial system, with 40% of people saying that they have no access at all, primarily due to the expenses involved.
One of the ways in which experts suggest cryptocurrencies could improve the money transfer market for customers is by cutting down the costs of transferring money.
The cost of remittance on a cryptocurrency transaction can be either hundreds or thousands of times cheaper for customers, making it easier and more cost-effective for people to transfer money. Despite all of the public support for cryptocurrencies in this aspect, there are still very influential members of the community that believe that the effect of cryptocurrencies on the transfer of money is going to be minimal, at least in the short-term.
One of the main problems touted by experts is that foreign exchange rates will be incredibly volatile due to the nature of cryptocurrencies, meaning the value of a transaction can fluctuate massively, even whilst it is in progress. This represents the potential for customers to lose money. Furthermore, another issue that is commonly explored is that there are some that believe that the process of transferring money through cryptocurrencies creates friction for the customer, especially in a market such as money transfer where the ease of the customer’s experience is a huge USP.
The issues stem from the process of converting fiat money to cryptocurrencies, transferring to the recipient’s wallet and then converting the funds back into fiat currency.
Is There An Ideal Solution?
For cryptocurrencies to successfully become the driver for global financial change that some experts believe it can be, there are a number of issues that businesses will need to find solutions to.
One possible solution to the problem of erratic cryptocurrency values reducing the value of a transaction would be to send the money through the form of stablecoins. There are still some concerns over stablecoins that de-value beyond their pegging, although this is not nearly as pronounced as it is in regular cryptocurrencies. The issue of improving the general ease of the user experience is a more complex matter. Solving this problem would require a lot of leg-work and collaboration between customers and coin providers.
To make the process as quick and easy as possible would require some form of infrastructure which would allow for the automatic conversion and deposit of cryptocurrencies into fiat currency.
Even if this was brought into practice, the benefit would not be entirely clear in LEDCs whereby many people do not have bank accounts. To get around this, a cryptocurrency provider may need to specifically create a service dedicated to allowing customers to exchange their cryptocurrencies for fiat currency in branches across the world, which is a very unlikely prospect. As it stands, nobody has found the winning combination to fully integrate cryptocurrency into money transfer services, however, with the infantile nature of the market, you may be pleasantly surprised to see businesses and customers break the barriers in coming years.
During the very early stages of cryptocurrency popularity in 2016, there were only 8 million different cryptocurrency wallets created. Since cryptocurrencies have become more popular, this number has jumped to 40 million in mid-2019, which is a fivefold increase over a three year period. As cryptocurrencies continue to work their way into the public’s consciousness, the number of cryptocurrency wallets that have been created will naturally exponentially, potentially at an even higher rate than is currently being seen. As the number of cryptocurrency users requiring wallet services has increased, so have the number of wallet providers across the world. Naturally, with so many options available, it can be hard to understand which wallet is the best one to suit your needs as a user. Below, you can find ways to choose the best crypto wallet that suits your individual needs.
You can download and use desktop wallets on your computer, no matter which operating system you use. In terms of security, they are relatively safe as the wallet can only be accessed on your computer, although as your computer is likely to be connected to the internet, there is always a chance that your private keys may be stolen. It is true that when using a desktop wallet, your seed keys may be kept in a non-encrypted format, which can leave you at risk. This occurred in 2017 when users of Jaxx wallet experienced losses of $400,000 due to this issue.
Online wallets are run on a cloud-based system, which makes them incredibly convenient to use as you will be able to access this type of wallet from almost any location, so long as you have an internet connection. Despite this, storing your private keys online in a centralized manner makes your holdings a lot more vulnerable to attack from malicious actors. Online wallets are normally used by a number of cryptocurrency exchanges and thus cryptocurrency exchanges are regularly being hacked, with as little as eight seriously notable hacks occurring in 2019.
Mobile wallets are incredibly similar to desktop wallets, although as the name would suggest, they are built to work on your mobile phone. With mobile devices being a huge part of the modern world, it isn’t surprising that mobile wallets are some of the most convenient on the market at this time. They are also known for having high-quality user-interfaces. Another benefit of mobile wallets is that your keys are directly onto your device, although with some mobile platforms having questionable security, mobile wallets can be prone to glaring security issues. Some mobile wallets even store keys on a cloud system, leaving them even more open to attacks. A 2017 report by Californian security company High-Tech Bridge demonstrated this lack of security with crypto mobile apps, stating that among 30 different cryptocurrency apps with over 100,000 downloads, “93 percent contain at least three medium-risk vulnerabilities and 90 percent contain at least two high-risk issues”.
Hardware wallets are the premium option for individuals that are looking to hold their cryptocurrencies in the long-term, with their enhanced security features. As opposed to software wallets, a hardware wallet will store your private keys on a physical device. A large number of these wallets are designed to keep your cryptos safe, even on a computer that has been infected.
A downside of hardware wallets comes in the form of their prices.
Paper wallets are a type of physical wallet that allows you to store your keys in print format, usually in the form of a QR code. Despite your initial thoughts, paper wallets are an incredibly secure method of storing your cryptocurrencies as to spend your cryptos, you will need to transfer the funds to a software wallet. One of the main, obvious drawbacks of paper wallets is the fact that they can be destroyed, stolen or lost very easily if they are not stored appropriately, which will lead to the overall loss of your holdings.
The majority of cryptocurrency wallets don’t require you to spend any money to use them, although it should be noted that certain wallets such as hardware wallets will require you to make a small investment to purchase them. If you intend to keep a hold of your cryptocurrency for a long period of time, then it is recommended that you invest in a hardware wallet. An example of lower-end pricing for hardware wallets can be found with the Ledger Nano S at $59 and the Trezor One costing as much as $78.
Making sure that nobody can steal your cryptocurrency holdings is one of the most important factors to consider when selecting your cryptocurrency wallet. When you are analyzing different options for your cryptocurrency wallet, you should research their security features and their reputation. To ensure the highest possible level of security for your holdings, you should consider a hardware wallet. Some additional tips to help keep your holdings secure can be found here.
Ease of Access
If ease of access is most important to you, mobile and online wallets are the most suited to your needs. You can get access to them from any location, no matter what device you happen to be using at the time.
Is the Wallet Multicurrency?
If you are going to be storing a number of different cryptocurrencies, then making sure that your choice of wallet can support this is critical. Typically, when you are looking for a wallet like this, you should check user-reviews to ensure that they have a good reputation. If you are looking to store only one coin, check the coin’s website to see if there is a dedicated wallet already. Hardware wallets generally tend to support more cryptocurrencies than other types of wallets.
Cryptocurrencies have become a major talking point since they first pierced popular culture in 2017. Going from a relatively unknown, unstable market the current total worth of Bitcoin alone, as of June 2019 reached $41 Billion. This isn’t counting all of the other cryptocurrencies that are currently active in the industry at this time, combining those to the initial figure would give a large amount of value. From this value, nations who are quick to get behind the growing buzz of cryptocurrencies will be able to profit, through business tax, the jobs the cryptocurrencies will generate and much more. Some nations are already thinking about this and are exploring ways in which they can profit from the cryptocurrency boom.
How Blockchain Has Aided the Boom in Malta’s Economy
There has been much optimism about the economic growth of the small Mediterranean island in recent times, with growth in 2018 settling at 6.2%. This has been further compounded by the release of the European Commission’s annual growth forecasts for 2019, where Malta has appeared at the top of the list, with a growth expectancy of 5.2%. Ireland is the runner up in this aspect with a predicted growth of 4.1%.
One of the reasons for this explosion in economic growth can be attributed to the warm reception of cryptocurrencies in the country. Even other countries known for embracing technological advancements have fallen behind Malta in this aspect. A big part of the reason for this is due to the passing of ideal legislation surrounding blockchain and cryptocurrencies by the country’s Prime Minister, Joseph Muscat. This embrace of blockchain technology has allowed Malta to lure a number of well-known, sizable cryptocurrency operations onto the country’s shores. For example, BitBay, Zebpay, and Binance have all relocated from their native countries to Malta, so that they can enjoy a more comfortable regulatory environment.
How Blockchain is Permeating Education in Malta
Of course, all of these business ventures in Malta are going to need employees. In local news, Malta Today has quoted the European Commission’s report, stating that the new job opportunities provided by blockchain firms have been a key contributing factor in the nation’s economic resurgence. Interestingly, there has also been a movement towards initiatives to improve the growing blockchain market in Malta. Led by Oxford University researcher Joshua Broggi, the institution is going to be named Woolf University and will be aimed at offering a wide variety of courses, both on and off-campus. The idea is to offer tuition to people across the world by offering them a series of personalized tutorials that can be flexibly suited to the student. Interestingly, the university will be run entirely on blockchain technology, to avoid incurring expensive administrative costs through the automation of administrative processes. Furthermore, the security provided by blockchain technology will ensure that the university’s systems and degrees earned through them will be incredibly secure against attackers. These degrees can also be validated using blockchain technology. Students and staff at the university will sign-in through the use of smart contracts, that will confirm items to the institution, such as attendance and the completion of any assignments by students. Students will also be able to pay their tutors through the blockchain, whilst the university will provide students with micro-credits that can be directly applied to their degree. Broggi is planning to open five different sites for Woolf University, however, he has stated that due to the welcoming nature of Malta to blockchain technology, it was an obvious first choice. As one would expect, Broggi initially planned to raise funds for the university through an ICO, however, he eventually managed to find enough private finance so that he could avoid making a public offering. Woolf University has already garnered the attention of a number of professors from well-established, elite universities, such as Oxford, Cambridge, George Mason University, Kings College London, Leipzig University and Kyoto University. It should come as no surprise that the running of such an institution would also make a contribution to the Maltese economy by creating jobs for lecturers and generating more revenue on the island itself through tuition fees and student living.
The Future Outlook for Blockchain in Malta
Malta is rapidly earning the nickname of “Blockchain Island” due to its more reasonable approach to legislation surrounding blockchain and cryptocurrencies. The island nation is a great example of the potential for countries to make strides in their national economy by being more open-minded with the development of new financial technology and avoiding the usual trap that a lot of countries fall into, where they regulate the market so heavily that it is almost impossible for it to grow.
The figures from the European Commission support this line of thinking and if the development of cryptocurrencies and blockchain goes further in Malta, it won’t be a surprise to see even more companies relocating to the Mediterranean, to avoid overbearing regulation.
Given the prevalence of bank accounts in the modern world, and the necessity of having one in first world countries, it would be easy to assume that there are only a small number of people on the planet without a bank account. This assertion would be incorrect, in fact, a large number of people do not have a bank account at all. Considering the huge buzz centered around cryptocurrencies, it is also surprising to see that there are a large number of inactive accounts within the cryptocurrency space.
Inactive Bank Accounts
In 2018, the World Bank released information pertaining to the current climate for global financial inclusion. The provided figures give an unprecedented look into the subject. The data from the World Bank showed that despite the fact that 67% of the world’s population had a bank account in 2017, up from 61% in 2014, growth may be slower than we think. Of the increase in that three year period, 80% of those new accounts are currently inactive. Meaning that they have had no ingoing or outgoing transactions for over a year. When you only apply active accounts to the percentages, the share of people with a bank account increased from 52% to 53%, which is a much smaller improvement. The survey from the World Bank included answers from 150,000 participants.
The number of inactive accounts is of concern to financial institutions because if a user doesn’t consistently utilize their account, they will not be able to attain the benefits that the account provides, furthermore, those accounts also provide minuscule value to the issuers of the accounts. Only inactive accounts with large balances will be able to generate value for the bank and the customer.
Out of all of the different countries surveyed, it was found that the countries with the largest populations, China and India were also the countries with the most financially excluded people. The survey also gave the participants the opportunity to explain their reasons for not having a bank account. The figures show that the main reasons for exclusion are a lack of access to money, the cost of using the services, access to services and a lack of trust in financial institutions. With the World Bank only having one more year left until the deadline for their Universal Finance Access by 2020, they will need to think about the realistic deadline for UFA and how the steps they are going to take to achieve this goal. The World Bank has pledged to aid the inclusion of 1 Billion people, Visa, Mastercard, and GSMA have pledged a collective 1.5 Billion people, along with other institutions also making pledges.
Inactive Crypto Accounts
It is obviously going to take a lot longer for cryptocurrencies to see universal use across the world than it is for bank accounts, however, that does not mean that cryptocurrencies are doing badly with the accounts that they have now. In fact, Bloomberg, using information gained by market research firm Flipside Crypto has stated that an unprecedented number of previously inactive Bitcoin wallets have become active again. Delving further into the figures shows that the number of Bitcoin wallets that have been inactive for a period of 1-6 months had dropped by 40% between March and April 2019. This caused a surge in the price of Bitcoin at the time and was indicative of people warming up to the idea of buying Bitcoin again. One of the biggest concerns with inactive cryptocurrency accounts within the market is those of large cryptocurrency Whales. These are individuals with huge cryptocurrency holdings, with the transfer of said holdings being able to directly influence the market price of Bitcoin. For example, there are currently concerns about a dormant Bitcoin Whale, holding 80,000 Bitcoins. This is worth over $700 Million and if this Whale decides to cash in on their holdings, it could cause a market crash, according to analysts at Whale Alert. People in the market are valid in their concerns about previously inactive Whales, as it was found in December 2018 that $1.5 Billion worth of Bitcoin was transferred from previously dormant cryptocurrency wallets, with a concerning number of these transactions being from the top-20 Bitcoin wallets. For example, one such wallet has been dormant since 2013 and moved over 60,000 Bitcoin, worth $245 Million to an unknown address. The concerns stem from the fact that Whales are also known to crash the market price after selling, so they can purchase more cryptocurrencies at a lower price, holding until they can flood the market again. In fact, the top 3 cryptocurrency wallets that have been dormant for 5 or more years have a collective total of over 150,000 Bitcoins, which is a mind-boggling amount. Outside of the top three, there are a number of users with holdings of over 10,000 Bitcoins. This is a large amount of value stored within inactive wallets. One of the biggest questions that normally surrounds these inactive wallets is the reason for the wallet being inactive in the first place. Due to the high level of anonymity behind cryptocurrencies, we rarely ever learn the reasons for this inactivity, although the most commonly given reasons are, the loss of private keys, the incapacitation of the wallet holder, the holder is continuing to hold for a future sale, or the owner forgot about their holdings. Only time will tell as to whether or not these dormant accounts will “wake up” in the future and sell their holdings, although the marketplace is aware of the potential consequences of such an event occurring.