The Ongoing Battle For Wealth Control
The banking system we have today developed as a necessary institution for money to work. Without them, we would all have to carry large amounts of cash in our pockets or bury them in our backyards. This would make spending money very inefficient. With the rise of a cashless economy, socially inclined internet, digital currencies, and the emerging metaverse, it is evident that we are evolving to a whole new version of the Internet, with a huge impact on the financial sector.
It’s true, banks have been efficient under the fiat system. However, this efficiency is reluctant to accommodate the rising economy of the internet powered by cryptocurrencies. Just like in the traditional banking system, cryptocurrencies are digital monies that require a secure location for storage and ease of use. You would need to have a crypto wallet to own cryptocurrencies.
Let’s discuss Crypto Wallets and how they differ from Bank Accounts.
What Are Crypto Wallets? A crypto wallet is a digital location that keeps a record of the crypto you own. If you are looking to own any cryptocurrency, you need a crypto wallet with which to store it. Blockchain technology has changed the way money is exchanged all over the world. By cutting out the role of middlemen in facilitating transactions, money can be transferred, exchanged, or borrowed from your crypto wallet without the use of a bank. It is this revolutionary feature that has given rise to the concept of Decentralized Finance (DeFi). DeFi consists of several applications which make it possible to carry out traditional financial services via the blockchain.
With the security of crypto wallets, you can be your own bank, and manage your money without institutional or geographical barriers.
Features of a Crypto Wallet
Simply put, a crypto wallet is embedded with 2 major properties — a public address and a private key.
A public address is an alphanumeric number that functions like a bank account number. You need to send the public address to receive deposits into your wallet.
A private key is like a PIN that grants access to the wallet, and must not be shared with a third party.
Because crypto wallets are secure services, they enable you to own, send and receive cryptocurrency or even lock up your crypto assets for investment purposes. They do this by saving your private keys which are the passwords that give you access to your cryptocurrencies.
There are three types of crypto wallets:
Hosted — A third party keeps your crypto for you.
Self-custody — You are in complete control of your crypto.
Hardware wallets — Like self custody except your crypto is kept on a physical device.
Crypto Wallets Offer More
Certain features delineate crypto wallets from banks and these differences will determine if crypto wallets can eventually replace banks. As many DeFi solutions continue to penetrate the financial market aiming for an inclusive economy, the eCommerce landscape is getting ready to be dominated by crypto payments.
Storing your wealth in the bank offers savings interest among other things. However, the rates are much lower compared to what many crypto holders earn.
The amount of interest you can earn by saving crypto is dependent on factors such as
The DeFi platform you choose,
The Period of investment
The cryptocurrency you use.
DeFi interest rates are generally higher than traditional bank interest rates with many trusted platforms offering between 8% to 40% on savings. The best rates that traditional banks offer are a far cry from this. When saving in crypto, however, it is best to conduct adequate research on how the company makes provision for its high-interest rates. Oftentimes, this is done by lending out money and you should be comfortable with their lending strategy if this is the case.
2. Security Another particular way that crypto wallets differ from traditional banks is that for the most part, you are responsible for securing your funds. The blockchain technology that underpins cryptocurrency ensures the highest level of data security. Transactions are encrypted and their storage is immutable — providing high resistance to malicious hacks. Each crypto wallet has a private key that secures the funds in it. While banks take responsibility for ensuring the safety of funds against fraud or theft and are usually insured, crypto wallets do not offer a similar level of protection. Although some crypto wallets now come with measurable insurance coverage for your funds. The responsibility for ensuring the safety of private keys is entirely in your hands. “With great power comes great responsibility”.
3. Control There is a limit to how the government can control funds in your crypto wallet. The government has the authority to seize personal assets including the funds you hold in a bank. In the event of a bail-out as well your funds may be utilized without your consent. This is different for crypto. Depending on the type of crypto wallet you use, the ability of the government to control your crypto funds is highly unlikely. Although policies can be set up to regulate the use of cryptocurrencies and crypto-related activities, the decentralised nature of a blockchain and the proliferation of peer-to-peer- crypto platforms make it near impossible for crypto to be controlled or shut down by the government.
4. Ease of Use Cryptocurrencies are becoming quite popular for offshore transactions. They are not affected by intercontinental trade policies and can be used for a huge volume of transactions with faster remittance periods and cheaper transaction fees. While crypto wallets provide you with near-unlimited control of your assets, there is still a limit to how they can be used. Blockchain technology is fairly nascent. Along with scepticism about its stability and lack of regulation, there are only a limited number of merchants that have adopted it for daily business transactions. Banks on the other hand are part of an integrated system that can be used almost anywhere in the world through providers such as Visa and Mastercard.
Will crypto wallets ever replace banks? Despite the unfriendly policies being adopted across several countries, the spread of cryptocurrency has not faltered in its stride. The year 2021 saw a huge leap in the global crypto market capitalisation that hit $3 trillion. The adoption rate is increasing gradually with the popularity of NFTs. Large corporations and retail giants such as Wikipedia, Twitter, KFC, Microsoft, and VISA have joined the list of companies who accept cryptocurrencies. El Salvador became the first country to declare bitcoin a legal tender and several African countries are beginning to use blockchain technology to tackle social-economic problems. The present reality of crypto and the bank shows a path tending towards partnership rather than a take-over. Due to the limited merchant outlets for crypto transactions, a large portion of the world’s population still relies on bank accounts. Transitioning to a world where crypto dominates may require that crypto wallets offer more accessibility and security. Crypto wallets and exchanges should create more user-friendly platforms especially to cater for the underbanked, and the unbanked. Crypto literacy should also be a priority to demystify the myths and fears surrounding crypto.
Final Thoughts Blockchain technology and cryptocurrencies have enormous potential in the emerging digital economy. This is why VIBRA is taking up the challenge to equip Africans with crypto knowledge through the VIBRA Academy initiative, and also offer the easiest and safest app for trading cryptocurrencies. VIBRA is an all-in-one crypto investment app that has made crypto simple for Africans. With a platform designed to cater to both newbies and crypto experts, VIBRA offers an easy way for Africans to learn, earn, and make crypto trades within a community of experts, and effortlessly go from zero to crypto master.