The world of money has been operating on the same system for years and years: government-backed currencies being stored in large traditional banks. However, with the invention of cryptocurrency, blockchain technology is reinventing the wheel of how transactions take place. As cryptocurrency becomes increasingly popular, understanding how cryptocurrency exchanges compare to traditional banks and traditional stock exchanges is a good way to start (or strengthen) your journey as a cryptocurrency trader.
- Crypto minimizes the amount of trust required from a single entity by distributing power amongst network stakeholders, whereas banks and stock markets require trusted intermediaries. This means that banks or stock markets rely only on one single individual or entity, which doesn’t create a fair distribution of power: governments can be overthrown and financial institutions are as strong as the individual leading it. However, crypto is a mechanism of decentralized digitization, relying on developers, miners, and consumers to keep the cryptocurrency in balance.
- Cryptocurrency is purely liquid, whereas bank money has regulations on release and movement, and stocks need to be liquidated into cash before wealth can be moved. This makes crypto attractive to individuals who want to stay completely liquid and unrestricted by regulations.
- Crypto is seamlessly transferable across international lines, whereas banks and stocks are heavily regulated. When it comes to banks, we all know that if we want to transfer funds internationally, we have to accept that the organization will take a chunk of them as commission. However, this isn’t a problem with cryptocurrency exchanges.
- Some crypto is entirely anonymous, whereas banks and stock markets are identity-based. This makes crypto attractive, especially since in recent times privacy has become an increasing concern.
- Some crypto (stablecoins) are 99.9% resistant to value changes, whereas banks can crash and go out of business, and stock markets are volatile. Like any new system, cryptocurrency has many skeptics. Nevertheless, it has to be taken into account that banks and traditional stock markets have also historically been volatile and untrustworthy. Stablecoins, however, are balanced with the asset they are pegged to, making it much more resistant to extreme currency fluctuations.
While banks and traditional stock markets might decry cryptocurrency and cryptocurrency exchanges, the fact of the matter is that just because a financial institution is traditional, it does not mean it's more dependable. That's like saying that your grandparents way of sending the mail (i.e. via snail mail) is more dependable than instant messaging! Just look at this list that Britannica put together for the world’s biggest financial crises that happened atop the backs of traditional banks and stock markets.
What are stablecoins? Find out here: https://bxb.io/more/blogs/what-s-a-stablecoin-vs-altcoins-vs-security-token
So which cryptocurrencies are looking the most favorable to invest in? Check out our shortlist here: https://bxb.io/more/blogs/btc-eth-what-s-next