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How Blockchain-Based Firms Are Taking Over Banking and Public Sector Roles

Private firms taking up roles of firms and bodies initially seen as unshakeable is a sign of change. Blockchain-based firms can now offer banking and public sector roles.

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If you told anyone ten years ago, non-bank entities could take over the role of banks, people could easily dispute your opinion. If asked the same about public roles, the no would be even more definite. 

But times change fast. The dawn of blockchain in 2009 brought about one of the most disruptive innovations of recent times. At first, the only blockchain firms developed were those launching cryptocurrencies or crypto exchange platforms. The launch of Ethereum and Decentralized Finance created a second blockchain revolution, and with blockchain firms offering more services.

Fast forward to the present; several firms utilize blockchain technology to offer all banking services on a digital platform. Some firms even go further to provide public services, a role initially controlled by government firms. Read on to find out what banking and public sector roles are. 

Important Banking Roles

Related: The Contribution of Banks in the Growth & Development of Entrepreneurship

It is important to note a fact regarding the roles of banks and public institutions. Private firms can't perform all of their roles. Many of the functions taken up are in the finance section.

For example, no one can expect a private firm to hire, train, and pay a nation's army as governments do. Neither can such firms reduce inflation by purchasing government securities in such quantities that they reduce the circulation of a currency like banks do. Below are several roles initially offered by banks and public institutions that other private companies now provide;

Creation of Currencies by the Government and Banks

Related: The future of cryptocurrencies? 60% of central banks already work on their own digital currencies

Before cryptocurrencies came into existence, government policies and bank actions created currencies. The central bank can reduce its benchmark lending rate, which causes a drop in banking lending rates. Demand for loans surges, increasing the money supply. Such a process is called an expansionary monetary policy. When the policy occurs on an immense scale, it is referred to as quantitative easing

The central bank can also buy bank securities using newly printed money, increasing the money available to banks for lending. The process is known as open market operations. 

The banking system also creates money within the economy. When banks lend money, they expand the number of bank deposits by the figure lent, and the interest rate charged. The amount of money created may go beyond the government's targets thanks to a process called the multiplier effect.

How Banks' Roles Are Fading Away

After cryptocurrencies came into play, blockchain firms created digital currencies. The process of mining or staking crypto to verify a transaction increases the coin's supply via the mining or staking reward.

Blockchain firms that offer cryptocurrencies such as Bitcoin, Ethereum, and 9300 other altcoins provide a platform for parking this role. Their consensus protocols are what determine if currency creation is through mining or staking.

Overseas Funds Transfers by Banks and Financial Services Companies

Related: How Blockchain Startups Transform Banking and Payments Industry

For a long time, the only way one could transfer remittances between borders was through banks or financial services firms. One of the largest players in the latter is Western Union. 

Such trusted third-party financial services providers offered to host the transfers at very high fees. Many people, especially the poor from developing nations, found such charges unsustainable. Only after other options emerged did it become apparent that the fees hurt the volume of funds transferred 

The Dawn of Cryptocurrencies

A much cheaper transfer of funds across borders is now possible thanks to two crucial groups of firms, crypto exchanges and crypto-wallets

Crypto exchanges are the platforms that allow the exchange of cryptos with other cryptos or fiat money. For a crypto exchange like Coinbase, one can send cryptos at a low fee under on-chain transfers or no fee using off-chain methods. The off-chain option is, however, slower.

For crypto wallets, the transfer is free. However, both the sender and the recipient need to have the wallet for a transfer to occur. When the sender shares their private keys to the recipient, an exchange is made possible by allowing the recipient to access the coins.

Saving and Lending and Other Services Offered by Banks

One of the primary roles of banks is accepting customer deposits by opening accounts for them and allowing lending services. People and businesses can access the two key financial services. They enjoy safe storage of funds as well as receive capital to meet expenditures at a fee called interest on loans.

Securities back the issuing of loans to safeguard the interests of the bank. A borrower's defaulting on loan payments results in one's collateral security taken by the banks to cover the defaulted amount.

How Blockchain Projects Have Taken The Role Over

Related: How Blockchain Is Revolutionizing Business-Communication Networks

Several blockchain projects offer banking services to their clients, as would a commercial bank. The projects are diverse, and in various fields, some provide basic saving and lending while others go much further.

Innovative next-generation crypto banks balance services between the traditional finance system, blockchain, and mobile banking like Mineplex Banking. Users can buy and mine tokens and manage their crypto savings while building up their ventures without restrictions. Moreover, merging the good old banking services with new developments like the blockchain places financial institutions such as Mineplex in a good position to serve more people globally.

The Revolution is Here

Private firms taking up roles of firms and bodies initially seen as unshakeable is a sign of change. Blockchain-based firms can now offer banking and public sector roles in finance.

Yet, the world is barely scratching the surface of blockchain. As the technology continues to mature, the world could experience a revolution where new technologies cater for key services.

Tanveer Zafar

Written By

Entrepreneur Leadership Network Contributor

Tanveer Zafar is an experienced writer. Zafar is passionate about covering topics on productivity, creativity, entrepreneurship, blockchain, work, lifestyle and technology.