Is Crypto A Threat To The Financial System?
Updated: Jun 22
Now that I have your attention, let's begin with the story without wasting any time.
Banks play an irreversible role in our current financial system. Banks take care of everything from funding businesses with capital to protecting the funds of their customers. They are also essential to the capital formation of a country. Bank loans facilitate commerce. Manufacturers borrow from banks the money needed for the purchase of raw materials and to meet other requirements such as working capital. This generates employment. Banks also help people and organizations in times of need by providing them will credit. This makes them impossible to replace.
Unfortunately, a huge number of crypto-enthusiasts are not able to see objectively and understand this reality. They believe that decentralized currencies alone can make major banking institutions obsolete. Which is impossible. Central Banks Work To:
Avoid economic depression
Sustain a steady economic growth with a low rate of inflation
A modern economy cannot exist without banks.
But then why are decentralized Organizations gaining prominence?
It's because central banks have failed to do their job many times. Not to mention some of the obviously corrupt ones in underdeveloped countries, that use their power only for personal financial interests. Countries with exceptionally incompetent and corrupt central banks push people towards decentralized cryptocurrencies. People lose trust in their national currency; crypto begins to look very appealing, as it’s not controlled by their corrupt government. People started using it as a store of value. Hyperinflation in Venezuela is the most famous example of how a cryptocurrency can be very useful.
Hyperinflation is not a threat to cryptocurrencies as they have a finite supply, and can even thrive during times of uncertainty or hyper-inflation.
We might see a day when decentralized crypto with good governance may control the financial system across the globe, but until that point, central banks are still needed. In my opinion, we are moving towards a world where the centralized system will become compatible with the De-Fi ecosystem.