As investors and regulators collaborate more closely with blockchain enterprises, crypto banks are becoming a reality; when the fiat and crypto economies merge, significant changes will occur. If you are also going to start your crypto bank, you should not merely automate old processes through pilot programs. Instead, you should undertake comprehensive reengineering initiatives across all processes and ask the essential question: what could Crypto-Tech do if it were reinvented?
Cryptocurrency is becoming popular. According to a survey by Morning Consult, around 20% of Americans will possess cryptocurrency by the end of 2021, and this figure appears to be rising.
However, crypto is also permeating the mainstream culture. The incoming mayor of New York City converted his first paycheck to Ethereum using Coinbase. During the Super Bowl, a record number of crypto firms sponsored advertisements. And investors have taken note, investing heavily in the industry.
For people who have avoided investing in cryptocurrencies because it sounded too complicated, crypto banking provides an entry point. Crypto banking offers a more friendly approach to earning and increasing your crypto assets through high return accounts, credit cards, and other means.
Things to Consider While Starting a Crypto Bank
1. Promote or hire a leader
Employ or promote a true leader from within the organization and give them the title “Blockchain Technology” This individual should have extensive experience in banking operations and knowledge in reengineering business processes using blockchain technology. Hard to locate that person? To employ a bitcoin banking platform developer, connect with the best Development Company for such a platform. Let him serve as your market representative, not as an analyst in your research unit or a person in charge of innovation.
This individual will be responsible for eliminating roadblocks within your crypto baking organisation, education, best practices, and project and managing several implementations. This arduous task entails locating and eliminating obsolete operations instead of mindlessly automating what you are already doing.
2. Create a cryptocurrency portfolio without spending your own money
signing up for products that give cryptocurrency incentives is one method to build a cryptocurrency portfolio. Cryptocurrency deposit accounts allow you to earn returns on fiat currency — such as U.S. dollars (USD) — represented in cryptocurrency. These returns are often more significant than those of a conventional savings account. At the time of this writing, Outlet Finance offers APYs as high as 9% on their USD accounts.
A significant advantage of using a USD account is that FDIC insurance may be available to protect your assets (though not always). However, returns have different protection. Instead, platforms that offer coverage rely on private insurance plans that may cover only a percentage of the value of your deposit, if at all.
Crypto credit cards can be used to develop a cryptocurrency portfolio without purchasing digital assets. These cards offer crypto rewards at rates comparable to standard credit cards for every swipe. At the time of this writing, the SoFi (Social Finance Inc) Credit Card offers 2% in crypto rewards on all purchases, but the Upgrade Bitcoin offers 1.5% reward points in Bitcoin.
Remember that the FDIC classifies cryptocurrency investments as securities. This means that your cryptocurrency rewards are subject to capital gains taxes.
3. Mine cryptocurrency
How about engaging in some mining activities? Purchase a couple of additional computers and mine bitcoin or other cryptocurrencies to gain experience in the cryptocurrency market.
4. Train Your Staff
10% of your organization’s best employees should attend training on bitcoin platforms, tools, and technology. Permit them to study the crypto blockchain and its many overlay technologies, including innovative contract development, crypto marketplace or wallet advancement, token development, and more.
5. Spend Your Cryptocurrency or Increase your Holdings
Once you have amassed a crypto portfolio, you may use more crypto banking solutions to access those funds. Numerous CeFi services permit you to exchange crypto assets for another cryptocurrency or fiat currency.
However, if you routinely trade into USD, you should explore a crypto debit card. These convert your cryptocurrency to USD each time you swipe, allowing you to spend it as if it were cash. (However, note that each swipe results in a taxable event.)
A crypto-backed loan may be the best option for people who wish to hold for future gains or avoid capital gains taxes. These loans are comparable to securities-backed loans because crypto lenders require additional collateral if a margin call occurs. If the price declines sufficiently, the lender may liquidate the collateral.
6. Don’t Just Observe Others
Rather than simply observing others, invest in establishing your blockchain firm. Operating as a technology startup is fundamentally different from operating as a bank. Yes, it is a matter of culture, and a financial platform does not have a revolutionary culture, nor does the term innovation apply to it in the same way. A dynamic startup is more hungry and ambitious than a bank weighed down by red tape.
6. Invest in a Crypto Exchange Platform
The bitcoin trading platform will inevitably merge with the banking ecosystem. The delay is because most crypto exchanges have already created the core technology, but the most significant challenge has been how new customers fund their wallets and link them to their bank accounts. If you combine online banking and bitcoin trading, you reduce the risk associated with onboarding new consumers.
7. Re-invent Trading and Capital Markets
Remove the delays and involvement of third parties. Delays increase costs. Real-time eliminates inefficiency. Eliminate unnecessary actions during the establishment and clearing phases.
8. Offer Remittance Services
Provide free or low-cost services for international money remittances. Remove costs for wire transfers. That is a difficult task, and I’m confident you won’t complete it. However, if you use bitcoin instead of SWIFT, your transfer fees can be reduced by orders of magnitude.
9. Establish a Cryptocurrency Working Group
Create an internal crypto task force comprised of people from each functional group and allow them to hold weekly meetings to share insights, projects, and other information.
10. Think About the Risks Before Starting a Crypto Bank
Crypto banking may facilitate entry-level cryptocurrency investment. However, there are significant risks associated with the use of these accounts that are not often apparent to the typical customer.
CeFi systems offer fewer safeguards than traditional banks and even fintech companies, despite their resemblance to banking apps. Except for certain USD deposit bank accounts, crypto banking accounts are not insured by the FDIC or SIPC.
Despite the fact that many platforms advertise employing private insurance to protect their holdings, these policies often only cover a percentage of the platform’s existing assets. For instance, the well-known custodian Gemini provides insurance for its $200 million assets. In addition, crypto insurance often does not cover platform insolvency or bankruptcy. For example, when Cred filed for bankruptcy in 2020, consumers lost up to $140 million, which they may never recover.
Check out: 3 Best Ways To Store Crypto Currencies
Some CeFi platforms, such as Unchained Capital, attempt to circumvent this danger by providing multisig wallets. Multisig wallets permit you to take custody of the wallet with the exchanger and the custodian, with access to the funds requiring two of the three keys. However, not even they are bulletproof. In 2017, a weakness in the Parity wallet allowed hackers to briefly access the funds with a single key, allowing them to steal $32 million in crypto assets.
The shifting regulatory environment also poses a threat to cryptocurrency account holders. In March 2022, Crypto.com demanded that borrowers in a few European nations repay their crypto loans within one week. A February 2022 settlement between the SEC and BlockFi led to BlockFi suspending its yield accounts for U.S. consumers and several other companies doing the same to avoid trouble with regulators.
Crypto banking provides an easy approach to begin investing in cryptocurrencies. However, it is a risky investment that frequently forces you to relinquish management to a firm with inadequate protection. Invest only funds that you are willing to lose, and conduct your research before signing up.
To Sum Up
If you need more technical knowledge to create crypto-friendly business banks, you can always seek advice from an expert. There are many companies providing solutions for digital asset banking platform development business with the knowledge, experience, and skill to create a cryptocurrency banking platform.
We can help you build a digital asset banking platform in just three weeks. In contrast, our blockchain experts may create custom crypto banks from scratch based on your business requirements.