Over the last 15 years, cryptocurrency has not only revolutionized finance but also technology. Specifically, crypto has influenced the development of tokenization, encryption, and compatibility. Crypto technology has already been adopted by other industries - gaming and eCommerce to name a few.
One industry that has yet to integrate crypto technology fully is the public finance sector. However, financial experts are forecasting that centralized financial institutions will soon adopt crypto tech.
As Kane Pepi's Next Crypto to Explode article highlights, crypto is a fast-moving market, with new, high-speed cryptos constantly emerging as potential competition to Bitcoin and Ethereum. Investors buy into up-and-coming coins as they offer high returns - as long as they can keep up with the fast-paced market.
The market is so fast that even the public finance sector struggles to keep up with it. However, traditional finance institutions need to adopt crypto tech to stay relevant in the modern world of eCommerce, crypto gaming, and crypto casinos.
One aspect of crypto tech that we'll see financial institutions soon using is tokenization. Tokens are used to represent the ownership of an asset. They're recorded on an electronic ledger which makes them easily tradable. These tokens, which can be bought on Initial Coin Offering (ICO) platforms, can represent anything from a share in a company to a set amount of money.
Financial institutions will likely adopt this crypto technology through the tokenization of financial assets such as stocks and bonds.
We're already seeing signs of tokenization happening in prominent financial institutions. Several mainstream banks have recently experimented with tokenized deposits. This is when the amount deposited to a savings or checking account is tokenized and recorded on a blockchain network. A token that represents your deposited amount provides greater transparency and security - it also means that your assets can be traded instantly.
Crypto technology has also already influenced how central banks issue money, as proven by the advent of Central Bank Digital Currency (CBDC). As less physical money is used, the need to issue digital money becomes vital in keeping economies healthy.
CBDCs are currently used as a means of payment, but will soon also provide banking infrastructure. For example, besides representing value and serving as a form of payment, CBDCs can automate clearance and settlement actions themselves, which brings greater efficiency to banking institutions.
Eventually, money will be sent and received through a CBDC ledger. This ledger will automate several banking processes, which reduces the bank's need for certain technologies and employees. Already, we're seeing physical bank branches closing at a high rate, with 1,409 US banks closing last year. We'll likely see an increasing amount of year-on-year bank closures as more financial institutions adopt crypto technology.
A combination of CBDC technology and tokenization could also increase the seamlessness of cross-border transactions, while also providing additional security.
Rather than sending the money itself across borders, digital representations - or tokenized versions - of bank reserves can be sent to financial institutions in different countries. These digital representations are far more easily tradable than fiat currencies.
Sending money abroad comes with a variety of obstacles, including currency exchange, fraud prevention, differing time zones, and so on. This normally results in the money taking around one to five days to be processed and sent to the recipient's account.
Digital representations of value would not have to go through these obstacles. The value would be universal, and would not have to be exchanged into a different currency.
The amount and value of cross-border payments are constantly increasing year-on-year, with value expected to reach $250 trillion by 2027. With an increasing need for seamless international payments, the need for banking institutions to adopt crypto technology becomes more pressing.
How cryptocurrency technology can enhance financial services
