Crypto banks are the various banking and investment applications and online portals that allow users to securely and efficiently exchange, buy, sell, or store cryptocurrencies. Crypto banks are different from crypto wallets as they come with prepaid debit cards, federally insured bank accounts, and wallets.
Examples of crypto banks include Crypto.com, Coinbase, Blockfi, and CEX.IO. This is a period when many industries are undergoing monumental changes driven by blockchain and cryptocurrencies. The growing significance of cryptocurrencies has also increased crypto transactions in terms of number and value and an explosion of DeFi platforms that facilitate holding, buying, and selling digital currencies.
These platforms allow users to perform crypto transactions without going through a third-party agent. However, while these platforms are windows to tap into the benefits of Decentralized Finance, they also have several challenges like under-regulation and security of users’ assets. Below is a detailed overview of the pros and cons of using crypto banks to hold, exchange, buy, or sell digital currencies.
Pros
User-friendly
Crypto banks are user-friendly compared to wallets and peer-to-peer transactions, which have complex features. Users of crypto banks can log into their accounts through the website or mobile application from where they view their account balances and make transactions.
Reliable
Compared to wallets, crypto banks are very reliable in enabling transactions across multiple platforms. Moreover, they usually have large trading volumes, which ensures a good liquidity supply. Generally, crypto banks allow users to have more control over their funds to spend at their comfort.
Security
Crypto bank users can transfer assets to anyone without revealing their details. The transactions are done in a blockchain ecosystem that is safe and secure. All transactions in crypto banks are confidential, and users can only disclose information they are only comfortable sharing with the recipients.
Earn Interest Rates
Assets stored in crypto banks earn interest, and the balance keeps growing throughout the year. Thus, they are like savings accounts for the traditional finance industry, allowing users to generate different digital currencies where the assets sit idle.
Cons
Hacking risk
Crypto banks are operated by companies that hold large amounts of assets from users. These platforms, therefore, usually hold large sums of digital currencies, which make them high targets for hackers. Many platforms have indeed been hacked in the past, and millions of dollars of users’ assets stolen.
Complexity
Users of crypto banks have to remember passwords and private keys to their crypto wallets where their assets are kept. Forgetting or misplacing these keys and passwords may lead to permanent loss of the user’s assets. You, therefore, need to learn and familiarize yourself with the platforms and the processes.
Liquidity struggles
Some crypto banks may struggle with having enough liquidity due to large trading volumes. With low liquidity, crypto holders can struggle to get buyers and sellers to exchange their assets.
Lack of fiat payments
Crypto banks do not allow users to exchange fiat currency with cryptocurrencies, limiting their reach, especially among users who do not own digital currencies.
With the cryptocurrency industry still growing, we can expect more crypto banks to crop us as users seek alternative and innovative ways to hold, buy, sell, or exchange their digital assets.