what is a crypto bank?

What Is a Crypto Bank, and How Does It Work?

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Cryptocurrencies developed significantly despite their short lifespan, introducing robust technologies and reliable payment methods. These digital coins have become an existing transaction system and created an advanced economy, working similarly to a typical one.

Decentralised economies of cryptocurrencies created various services such as investments, custodial accounts, trading opportunities and more that contribute to the well-being of the decentralised world.

In a logical development to these events, cryptocurrency banks were founded to serve crypto communities and facilitate blockchain transactions. Here’s what you need to know about the crypto bank.

Key Takeaways

  1. Crypto banks are financial institutions that offer crypto transactions and exchanges to send and receive virtual money.
  2. Many classic banks adopted crypto services to cater to customer needs, while some crypto banks newly emerged to provide dedicated services in the decentralised economy.
  3. Traditional banks that accept crypto utilise their experience and best practices in transaction processing and security systems to facilitate safe and quick crypto transactions.
  4. Crypto-friendly banks offer the best of both worlds: traditional financial services and crypto payments in decentralised finance.

Defining the Crypto Bank

Crypto banks are financial institutions that deal with money transactions, accounts, lending, withdrawals and investments, which are typical functions of a traditional bank. However, crypto banks add decentralised financial services to their offerings, dealing with blockchain transactions, crypto investments, wallets, lending and more.

Thus, a crypto bank bridges the gap between centralised and decentralised economies. They combine crypto and fiat money services in one entity, promoting trust in cryptocurrencies and the futuristic use cases of both economies.

These financial institutions range from traditional banks that show lenient regulations to cryptocurrencies, as well as digital banks that revolutionised financial services with various online payment methods. Moreover, crypto exchanges have started reformations to launch their unique banks and focus on serving crypto investors and communities.

Between 2021 and 2022, more than 20 of the top financial institutions have invested in crypto, including big names like Goldman Sachs and Citigroup.

Fast Fact

The Development of Crypto Banks

In 2009, when Bitcoin was created as the first cryptocurrency, its white paper listed that the ultimate goal of this project was to provide every user with their personal bank. A decade later, this promise seems close to happening, with worldwide transitions towards decentralisation.

When cryptocurrencies were first introduced, traditional banks and governments opposed them and considered them a bubble that would vanish quickly. They underestimated the increasing demand for a virtual monetary system after the 2008 financial crisis.

The increasing demand and interest in Bitcoin were catalysts for the massive growth of these currencies, encouraging banks and financial institutions to revise their position of dealing with cryptocurrencies.

Several crypto market booms in 2013, 2017 and 2021 motivated governments and banks to engage in crypto transactions. El Salvador was the first country to announce BTC as a legal tender, while banks started offering dealing desks for crypto trading.

The development of crypto banks

The bandwidth of decentralised services kept increasing to involve digital money, tokens, NFTs, investments, lending and many more services that form the decentralised finance ecosystem offered by various crypto-friendly banks.

Functions of Crypto Banks

Digital banks increased the range of their services from classic currency saving accounts and investments to allowing users to buy crypto with a bank account. These banks extended their offerings to include the following.

Crypto bank services

Crypto Accounts

Just like traditional bank accounts, crypto banks allow users to open accounts and manage their digital assets through crypto wallets. Account owners can send and receive virtual money and allocate funds for various Web 3.0 investments

Crypto accounts may also include a currency exchange tool where users can exchange between different cryptocurrencies and tokens.

Crypto Investments

While traditional banks offer investment opportunities like stocks, bonds and Forex trading, crypto banks add Web 3.0 investments to their services. Users can explore crypto investing opportunities like staking, yield farming, liquidity pools and other DeFi projects.

Investment banks may charge you substantial fees for brokerage services, while crypto banks may charge less money for investing in cryptos. Decentralised investments involve fewer intermediaries, and their brokerage service includes connecting you with the Web 3.0 project you want to invest in.

Users may also invest in cryptocurrencies by simply trading virtual currencies or holding digital assets, like Bitcoin and Ethereum, for the long term and selling them when their prices increase.

Security

Traditional financial institutions utilise robust security systems to safeguard their money transactions and customers’ funds. Therefore, dealing with crypto banks gives a sense of elevated security. 

Banks harness their significant resources and capital to accommodate the most secure environment to store cryptocurrencies and transact with fiat and digital money.

In light of the increasing cyber threats on decentralised platforms, where various breaches and hacks have taken place, crypto banks implement the most advanced security features and authentication measures to ensure the safety of your assets.

Fiat-to-Crypto Exchange

Crypto banks bridge centralised banking with the decentralised ecosystem, allowing for smooth transactions and data exchange. This leads to an enhanced user experience where all functionalities are located in one application or website, where users can buy Bitcoin using Euros or buy stocks using Ethereum, for example.

Crypto Payment Gateways

Crypto gateways are integrated interfaces that facilitate payments on various websites, e-commerce stores and exchange platforms. They use APIs that initiate data exchange between servers and consoles within seconds. 

Gateways are responsible for the user interface on the checkout page, transaction speed, commission fees and supported currencies. Therefore, digital banks provide the best crypto payment gateways to enable fast and secure blockchain transactions.

Crypto Banks Vs Traditional Banks

Crypto banks strive to provide a simplified environment to store and trade cryptocurrencies while preserving elements of traditional finance.

Therefore, finding common ground between centralised and decentralised can be challenging because both sides of the spectrum have distinct fundamentals. 

Comparing traditional bank and crypto bank

Legal Compliance

Central and commercial banks seek total compliance with laws and regulations regarding financial transactions and accounts owners, running checks like AML and KYC. On the other hand, cryptos prefer a lenient approach where strict rules are not applied, giving digital coins and tokens the freedom to transact and flow.

Identity Privacy

Decentralisation aims to preserve user identity by concealing their name and personal details and only using wallet addresses as identification. Central banks tend to require user information adhering to KYC and AML practices, where users have to provide personal information and financial declarations. 

Control

Blockchain relies on decentralised ownership and distributed power of control, while central banks act as the central authority for financial transactions and accounts.

Transaction Speed

Traditional banks process payments through multiple channels and intermediaries, resulting in prolonged waiting times compared to cryptocurrencies. Blockchain transactions are processed through validating nodes, a process that is usually seamless and is done within seconds or minutes.

The contradicting essentials of these two worlds make it challenging to find the ultimate adoption for all services. Thus, crypto banks serve as a common ground for users who want to interact with centralised and decentralised economies.

Why Use a Crypto Bank?

Crypto banks provide advanced services to overcome the limitations of traditional financial institutions, such as geographic location, transaction fees, exchange rates and legal compliance.

Moreover, digital banks expand the existing services provided by traditional banks to support interoperability, improve processing speed, lower barriers to entry and more features that benefit the users.

Crypto-friendly banks allow users to explore the vast opportunities in decentralisation and Web 3.0 ecosystems through an organised and robust banking structure.

For example, imagine a person who wants to send fiat money from Argentina to Turkey using a traditional bank transfer. Multiple intermediaries and financial institutions process this transaction, including various currency exchanges, leading to increasing fees and longer processing times.

Crypto banks overcome this challenge by promoting unified digital assets that hold the same value in both countries, which can be transferred almost instantly and with a fraction of banks’ fees.

How crypto payment works

How to Transfer Crypto to Bank Account

Sending cryptocurrencies to your bank account requires that your financial provider allows you to hold digital assets such as cryptocurrencies, tokens and other blockchain means of payment.

In this scenario, you must find a reliable crypto exchange platform where you can buy and sell Bitcoin and other coins. Sign up, complete your registration, and purchase Bitcoin using credit/debit cards or other payment methods.

Then, you can send the purchased coins using the transfer option in the exchange and enter the wallet address provided by the crypto bank.

Some digital banks offer a crypto exchange tool, allowing you to directly buy cryptocurrencies and store them in your crypto bank account.

The other scenario is if you already own Bitcoin in your wallet and want to transfer it in fiat money to your bank account. In this case, you must find a reliable crypto exchange website where you can trade your coin or exchange it for fiat money.

Transfer your BTC from your crypto wallet to the exchange platform. Place a selling order BTC/EUR or BTC/USD, depending on the preferred fiat currency you would like to receive. Once the order is executed and closed and you receive the fiat money, you can choose the withdrawal option.

Withdraw your fiat money from the exchange platform, choosing bank transfers, where you enter your bank account requisites and wait for the amount to be transferred from the crypto exchange to your account.

Top Crypto-Friendly Banks

The increasing demand for a crypto custodial financial institution created a plethora of opportunities for new banks to emerge and offer concentrated decentralised services. 

Moreover, some traditional banks took serious steps to support cryptocurrencies and offer the best of both worlds. Here are some crypto-friendly banks where you can store your digital assets.

1. Revolut Bank

Revolut is a digital bank created in 2015 alongside the rise of digital currencies. This digital bank offers fiat money services through credit and debit cards and has quickly adopted decentralised platforms. Revolut is considered by many to be one of the most reliable crypto-friendly banks in Europe, where you can exchange cryptos seamlessly with fiat money.

2. FV Bank

FV Bank is a full-service Bitcoin bank operating in the US, headquartered in Puerto Rico. It offers fiat and crypto bank accounts, with a crypto-friendly business bank account where users can swiftly pay using Visa debit cards and manage their digital assets in one place.

3. JPMorgan Chase

JPMorgan Chase is one of the oldest traditional banks and one of the first adopters of decentralisation. In 2019, the bank got involved in cryptocurrencies, and today, it offers a crypto exchange where users can buy and trade cryptos besides investing in tech stocks and Web 3.0 companies.

Characteristics of Crypto Banks

Crypto-friendly banks are becoming increasingly popular, with new institutions entering the business and key players adopting advanced technology, catering to dynamic customer needs. 

crypto bank features

Therefore, while choosing the suitable bank for you, there are several crypto bank review criteria that you must consider.

Robust Security

Existing crypto banks utilise their vast experience and advanced security measures in financial services to empower crypto transfers. Therefore, significant financial institutions like JPMorgan Chase and Bank Prov can provide an easy transition to DeFi and FinTech technologies using their massive resources and know-how.

On the other hand, newly emerging crypto banks tend to focus entirely on providing the best security and authentication measures to safeguard your crypto assets, making them a solid option to store your coins and tokens.

Flexible Usage

Digital and traditional banks that accept crypto take user experience seriously and provide services that meet and exceed their expectations. Therefore, they utilise various APIs and payment gateways to extend their usage to a wide range of websites, third-party services, e-commerce stores, online businesses, etc.

FinTech Expertise

Adopting cryptocurrencies requires a deep understanding of decentralisation and blockchain practices. Therefore, if a bank accepts crypto trading and exchanging, it is a high indicator that they have knowledgeable human resources behind this work.

Nevertheless, popular traditional banks have evolved over the years and excelled at FinTech adoption, making them highly experienced when dealing with the thriving FinTech and DeFi trends.

The Future of Crypto Banks

The transition between crypto and fiat money we see today has never been this good, with new businesses emerging to provide crypto and DeFi services and traditional banks adopting the best blockchain practices.

The future seems bright for crypto banks with the expectation that more banks will show sympathy to the increasing customers’ needs in adopting crypto exchanging and trading. 

The future of crypto banks

The future of crypto banks also relies on the SEC’s decision regarding BTC spot ETF applications requested by massive investment banks in the US. 

Also, crypto exchange platforms are launching their dedicated bank to offer various decentralised services, blockchain transactions and other crypto investments. This transition can take crypto payments and trading to another level.

Advantages and Disadvantages of Crypto Banks

Only a few years have passed since banks adopted crypto services, and dedicated Web 3.0 banks emerged. Therefore, besides the various advantages these banks offer, there is a huge room for improvement.

Pros

  • A smooth user experience, similar to dealing with traditional banks, simplifies crypto transactions and exchanges.
  • The decreased gap between centralised and decentralised economies offers a smooth transition between fiat and crypto money.
  • Lower entry barriers for new crypto businesses that need insurance and operation structures.

Cons

  • The volatile nature of cryptocurrencies exposes banks’ reserves to unknown risks due to market dynamics.
  • Crypto banks may charge substantial fees for holding and managing crypto assets, besides different transaction fees.

Conclusion

Crypto-friendly banks are known for their critical experience in FinTech and financial transactions. Therefore, they are highly qualified to adopt the most advanced crypto trends and blockchain technologies. 

Financial institutions that accept cryptos offer the best of two worlds: traditional trading and transfer services with Web 3.0 investments and crypto transactions. 

FAQ

Which banks are best for crypto?

Crypto banks offer different services, and finding the best crypto bank depends on your aim. JPMorgan Chase is a well-known traditional bank in the US and Europe that adopts crypto purchase and trade, while FV Bank is a dedicated Bitcoin bank in the US.

Is crypto banking safe?

Cryptocurrencies are highly unregulated and volatile. However, traditional banks try to set lenient regulatory frameworks that allow users to trade cryptos securely.

What is the difference between a bank and a crypto bank?

Traditional banks allow accounts in fiat money, with various saving and investment services in conventional trading markets. On the other hand, crypto banks can offer traditional financial services besides offering blockchain transactions, crypto wallets and other DeFi investments. 

How do I use a crypto bank account?

You must create an account in a chosen crypto bank and verify your account according to the bank’s terms. Depending on the chosen bank and services, you may purchase cryptocurrencies and store them in your account, besides sending and receiving virtual money if the bank offers custodial wallet services.

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