This article comes fromMedium, Original Author: Oliver Adami

Odaily Translator |

Odaily Translator |

One of Bitcoin's lofty goals is to let everyone become "their own bank"-although this idea will make people feel a little ridiculous when it was proposed in 2008, and Bitcoin is still free from tradition more than a decade later. The edge of finance, but the various decentralized financial services derived from it have begun to change the traditional banking business a little bit.

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Is decentralized finance (DeFi) a bank?

Decentralized finance has become a buzzword in the currency circle.

So, what exactly is decentralized finance? Generally speaking, people hope to provide a cryptocurrency that can replace traditional banking services on the blockchain, and connect to new decentralized lending, exchanges, storage and other DeFi platforms through this cryptocurrency. Some people are comfortable in the entire decentralized financial ecosystem because the system is highly substitutable and asset operations are more flexible.

But there is no doubt that decentralized finance is very different from banking, because it only mimics the functions of banks, but it cannot provide other things that banks value: security. Lorenzo Pellegrino, CEO of online payment platform Skrill, explained:

The fact that so-called "crypto banks" are not guaranteed to accept deposits or withdrawals is clearly a red flag and means that smart contracts are insolvent, and not only will they not be legally liable, but there is nothing that can cover tokens. Investor Protection Program. Therefore, if we look at the regulatory standards in reality, there are very few that can truly be called "cryptocurrency banks". However, crypto banks do exist, as the use of blockchain solutions in the financial industry is becoming more mature, and regulators are beginning to try to learn more about this revolutionary innovation.

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What is a Crypto Bank?

A crypto bank is essentially an institution that provides “banking services” and engages in transactional activities in accordance with currency-related standards, such as deposits and withdrawals, loans and borrowings, and investing in a wider range of instruments and markets. While traditional banking does the same business and has also gained legitimacy under the jurisdiction of financial regulators, crypto banks have integrated cryptocurrencies into said financial operations.

Take Bitwala, a crypto bank regulated by BaFin, whose deposits are insured by the German Deposit Guarantee Scheme up to €100,000 (about $113,000). This regulatory requirement is actually the same as that of local banks in Germany. Bitwala has also partnered with EU-regulated SolarisBank to ensure that account holders can handle Bitwala's business as if they were using a regular bank account, including getting paid, paying rent and bills, exchanging currencies, sending interbank payments, and seamlessly Store fiat and cryptocurrencies.

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convincing but futile

For some serious investors and companies, they prefer to wait until the tax authorities and regulators give clear instructions before entering the market, in order to legally use legal tender to invest in the tokens provided by Coinbase Custody. Coinbase Custody currently utilizes cold storage to provide secure custody for those investing large sums in the crypto market, while users also enjoy seamless integration with the Coinbase Pro exchange, as well as deposit insurance, available staking tools, custom reporting and third-party audits Serve.

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Rapidly growing 'bitcoin banks' around the world

Let's take another look at the Coinbase custody solution.

For US users, something was always missing from the Coinbase solution. While you could get trustworthy storage and trading services on the platform, you couldn't pay your bills from your Coinbase account, and you couldn't get a salary. Cryptocurrencies are also cumbersome to use as a means of payment if you want to buy movie tickets. For example, users first need to convert Bitcoin (BTC) into cash, then send it from Coinbase to a partner bank, and then send it from the bank to the user's own bank account. The reason why there is such an operation process is mainly because without the approval of the regulatory authority, although it is possible to exchange fiat currency into cryptocurrency (or convert cryptocurrency into fiat currency), if you want to deposit it in a bank account Here, cryptocurrencies may not fall under the definition of money.

As Lorenzo Pellegrino, CEO of online payment platform Skrill, puts it:

"While cryptocurrencies will certainly play an important role in the future development of the payment rail, we believe that cryptocurrencies should complement the current monetary system, not compete with it, and that online payment companies are likely to see the popularity of cryptocurrencies play a key role in the process.”

Tokens have properties such as scarcity, durability, divisibility, and fungibility that usually don’t bother regulators, but can create an impasse when it comes to “transferability.” But this problem is not without solutions, and some stablecoins linked to fiat currencies have begun to provide free cross-border transactions, payments and investment activities.

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"Bank" is more of a label

People always want to be able to spend "money" anytime and anywhere - even if it can be used in 90% of the places, sometimes it can't. So for crypto banks, derivatives built on tenuous partnerships, or shaky debit card solutions won’t be enough. According to a recent McKinsey report, without regulatory approval, currently processing “crypto banking” in traditional fiat currency markets often takes three to five days to settle — compared to the three-to-five-day settlement time if a transaction It takes only a few minutes for a counterparty to exchange between encrypted currency assets (that is, what we commonly call digital currency "currency transactions" that do not require a central regulator) through the blockchain.