While initially many were many skeptical about digital assets competing with traditional, cryptocurrencies have become increasingly common. The trend started with a few big names in the cryptocurrency world, but new currencies are being introduced each and every year. However, the sudden appearance and popularity of new currencies have far-reaching consequences, starting with banks and ending with customers like yourself. Understanding where cryptocurrencies came from and how they interact with modern banking is essential if you’re looking to keep your money safe and sound in the coming years.
What are Cryptocurrencies?
You’ve likely heard the term “cryptocurrency” being thrown around now and again, but what does it really mean? Simply put, cryptocurrency is a type of currency that exists entirely online. It does not have an actual physical form, but exists in a blockchain on a server, which stores data regarding transactions in blocks without personal identifying factors. They are not backed by a bank or other traditional lending institutions, and transactions are highly encrypted to keep personal information private, regardless of the transaction being made. Even so, they cannot be used for every purchase online. More often than not, they are bought as a form of investment rather than as a means to secure purchases from online shops.
The world of cryptocurrency made its first big debut with Bitcoin, which is credited as the first successful currency of this type. It was described as a peer-to-peer electronic cash system, promising to decentralize and cut out any sort of middle man entirely. As Bitcoin rose in popularity, other cryptocurrencies came into the market as well, giving potential investors access to more options each and every year.
How Did Cryptocurrencies Become Popular?
While safety and security with online transactions was a definite selling point, it was investment possibilities that drew attention from the masses. For those who were unable to take advantage of traditional banking products, easy access to online cryptocurrencies gave another way for this group of people to invest. There are several benefits of investing in cryptocurrency, including:
- Avoiding fees
- Easy access to a wide range of investment opportunities
- Direct control over investments
Because of these benefits, Bitcoin and the other cryptocurrencies rose from skepticism in 2009 to being a sought-after resource less than a decade later.
What are the Downsides to Cryptocurrency?
Cryptocurrencies might seem like a beneficial opportunity, but they are not without their drawbacks. Some of the big disadvantages to consider include:
- Cybersecurity
- Lack of regulation and supervision
- Volatile value
- Lack of inherent value
- Infrastructure stability problems due to fast growth
How Does Cryptocurrency Compare to Traditional Investing?
As cryptocurrency investing gains popularity, more people are apt to choose the option that is more convenient. Therefore, many who might otherwise invest in a more traditional way have turned to cryptocurrencies instead. This means less business for banks and investment firms, which in itself has far-reaching consequences.
However, because the value of cryptocurrencies isn’t backed by anything, investments can be highly unpredictable. That’s one of the reasons why these currencies cannot take the place of a local bank. While they provide an investment opportunity, they can’t offer stability, which is what you need when it comes to your cash. Furthermore, this currency can’t secure mortgages, loans, or other services you’ll need throughout life. This is why continuing to work with your local bank is important, even if cryptocurrency strikes your interest.
How Does This Affect Banking Customers?
While cryptocurrencies are new and exciting, they simply cannot meet the demands of consumers. Cryptocurrencies cannot be used to secure a mortgage, a car loan, or any of the other financial needs you may have. For these forms of financial support, working with your local bank is imperative.
Keeping your cash in a bank allows you to have easy access to funds whenever you need it, and it won’t be tied up in a currency investment that could drop in value at any given time. While it might mean the minor inconvenience of driving to your branch now and again, you’ll experience easier access to the services you need, along with better security for your hard-earned cash.
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In short, while cryptocurrencies are more convenient than traditional banking and investing options, they are simply not as secure as using your local bank. When you use your bank, you can rest assured that your cash will retain its worth and that the practices surrounding how your money is invested are highly regulated by federal law. All in all, if safety and security are what you’re looking for, finding a local bank branch is the best route.
Getting caught up in the latest and greatest currencies, financing, and investing opportunities is easy, but making smart decisions about your future takes careful planning. There’s no better place to start than by gathering information and working with experienced professionals, who have the know-how and expertise to steer you in the right direction.
Learn more about Blackhawk Bank by contacting us today.
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