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If you told someone ten years ago that non-bank entities could take over from banks, people could easily dispute your opinion. If he were asked the same question about public roles, the no would be even more emphatic.
But times change quickly. The dawn of blockchain in 2009 resulted in one of the most breakthrough innovations recent times. In the beginning, the only blockchain companies developed were those that launched cryptocurrencies or crypto exchange platforms. The launch of Ethereum and decentralized finance created a second blockchain revolution, and blockchain companies are offering more services.
Fast forward to the present; several companies are using blockchain technology to offer all banking services on a digital platform. Some companies even go further to provide public services, a role initially controlled by state-owned companies. Read on to find out what the roles of banking and the public sector are.
Important banking roles
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It is important to note a fact regarding the roles of banks and public institutions. Private companies cannot fulfill all of their roles. Most of the positions held are in the finance section.
For example, no one can expect a private company to hire, train and pay a country’s military like governments do. These companies also cannot reduce inflation by buying government securities in such quantities as to reduce the circulation of currency as banks do. Below are several roles initially offered by banks and public institutions that other private companies now offer;
Currency creation by government and banks
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Before cryptocurrencies existed, government policies and bank stocks created currencies. The central bank can reduce its benchmark lending rate, which leads to lower bank lending rates. The demand for loans increases, increasing the money supply. Such a process is called a expansionary monetary policy. When politics occurs on a huge scale, we talk about quantitative easing.
The central bank can also buy bank securities using newly printed currency, thus increasing the money available to banks for loans. The process is known as open market operations.
The banking system also creates money in the economy. When banks lend money, they increase the number of bank deposits by the amount loaned and the interest rate charged. The amount of money created can exceed government targets through a process called the multiplier effect.
How the roles of banks are blurring
After cryptocurrencies came into play, blockchain companies created digital currencies. The process of crypto mining or staking to verify a transaction increases the coin’s supply through the mining or staking reward.
Blockchain companies that offer cryptocurrencies such as Bitcoin, Ethereum, and 9300 other altcoins provide a platform for parking this role. Their consensus protocols determine whether the creation of money is through mining or staking.
Transfers of funds abroad by banks and financial services companies
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For a long time, the only way to transfer funds across borders was through banks or financial services companies. One of the main players in the latter is Western Union.
These trusted third-party financial service providers have offered to host transfers at very high fees. Many people, especially the poor in developing countries, have found such burdens unsustainable. It was only after the emergence of other options that it became clear that the fees were hurting the volume of funds transferred.
The dawn of cryptocurrencies
Much cheaper money transfer across borders is now possible thanks to two crucial groups of companies, crypto exchanges and crypto-wallets.
Crypto exchanges are the platforms that allow the exchange of cryptos with other cryptos or fiat money. For a crypto exchange like Coinbase, one can send cryptos at low cost as part of on-chain transfers or at no cost using off-chain methods. The off-chain option is slower, however.
For crypto wallets, the transfer is free. However, both the sender and the receiver must have the wallet for a transfer to take place. When the sender shares their private keys with the recipient, an exchange is made possible by allowing the recipient to access the parts.
Savings and loans and other services offered by banks
One of the main roles of banks is to accept deposits from customers by opening accounts for them and authorizing loan services. Both individuals and businesses can access the two main financial services. They benefit from safe storage of funds and receive capital to meet expenses at a charge called interest on loans.
The securities guarantee the issuance of loans to safeguard the interests of the bank. The failure of a borrower to repay his loan leads to the taking by the banks of a collateral guarantee to cover the overdue amount.
How Blockchain Projects Took Over
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Several blockchain projects offer banking services to their customers, much like a commercial bank would. The projects are diverse, and in various fields some offer basic savings and loans while others go much further.
New generation innovative crypto banks are balancing services between traditional financial system, blockchain and mobile banking services like Mineplex Banking. Users can buy and mine tokens and manage their crypto savings while growing their businesses without restrictions. Additionally, the merging of good old banking services with new developments like blockchain puts financial institutions like Mineplex in a good position to serve more people around the world.
The Revolution is here
Private companies taking over roles of companies and organizations initially seen as unwavering are a sign of change. Blockchain-based companies can now offer banking and public sector roles in finance.
Yet the world is barely scratching the surface of the blockchain. As technology continues to mature, the world could experience a revolution where new technologies respond to key services.