The financial war between crypto and traditional finance is a longstanding debate that shows no sign of being settled anytime soon. The traditional financial system certainly has strong points to defend, which crypto has started to take over in terms of adoption and popularity; still, the trust and stability the traditional financial system has implanted so long leave most people to trust it more than cryptocurrency. In this blog post, you will be able to weigh the two current financial systems to draw a conclusion about whether crypto is the future or not.
What is Traditional Finance?
Traditional finance, also known as TradFi, is the normal, regulated financial system that almost all of us are familiar with, which incorporates commercial banks, brokerages, insurance companies, and other centralized financial institutions. TradFi edition of the crypto refers to terms usually used in conventional finance (Fi) in order to differentiate them from decentralized finance (DeFi), which is not bound by any regulations. Instances of services involving traditional finance include money transfers, loans, bank account, and credit cards for exemplification. The are governed by the sector rules which ensure fair practices protecting investors’s assets.
Crypto, Blockchain, and Decentralized Finance (DeFi)
Today, crypto is where it is because of the cap of innovation and development that formed the foundation of the blockchain, empowering the technology that makes crypto work. The whole process of transactions is recorded on the public ledger, which everyone can access and no one of can alter, thus making transactions unaffected by transparency and security. The usability of cryptocurrencies for example is characterized by minimal interference and hence no costs and disputes are involved.
Cryptocurrency and blockchain are parts of decentralized finance, and they are used to run financial transactions.
Сrypto or Traditional Finance?
The introduction of crypto helped diversify investors’ portfolios, widening their choices from stocks, bonds, and real estate to include an asset that keeps them on their toes because of its volatility. The unpredictable nature of crypto can and has made people make huge profits and even created millionaires overnight, but there have also been plenty of coins that have completely flopped. But then again, as the saying goes, ‘In investing, what is comfortable is rarely profitable,” and according to Valuewalk, crypto is still a good investment in 2024.
Looking at the major benefits of decentralized finance over traditional finance, it can be said that the former came to address the latter’s shortcomings. An example of this is the limited trading hours of the stock market, which are beaten by the flexibility of crypto markets, which never close all year round.
Whenever crypto or traditional finance are mentioned, it is best to compare them based on their notable differences, which are accessibility and functional design. Crypto relies on a decentralized financial system that does not need a traditional banking structure to operate. This means that anyone willing can be a part of its community without being restricted by any geographical boundaries or failing to meet any financial obligations. All that is required to be a part of the decentralized financial system is a working internet connection and a device to connect.
On the other hand, traditional finance is built on a centralized structure where it has to rely on banks or similar financial institutions that are regulated and governed by the government or financial bodies. Because of these regulations, its operations are limited and normally exclude those not located within their set geographical boundaries. There are also other restrictions that are imposed on those who would want to otherwise make use of the financial services, like their financial standing and capability. If they do not meet the set financial standards, then they can never access financial services.
Traditional finance has been around for a very long time, and it has historically proven its stability, which makes it a trusted financial system by many people, even if this trust only encompasses the people privileged enough to access its services. In comparison, although it is volatile and a cause of concern for some, crypto has made it possible for many people to make and receive payments without any issues, proving that long-standing history is not a criterion to measure the trustworthiness of a service and its capability to deliver.
Just like fiat currencies can be used to buy anything you can think of and receive funds, crypto is not limited to trading and financing gaming activities. It can also be used to buy some of the most expensive things that you can think of, like cars and real estate.
What the Statistics Have to Say
Crypto may be on the denial list of financial specialists, but figures show its use has been on the rise, and eventually financial institutions are expected to witness the value of the global cryptocurrency market worth USD 11.71 billion by 2030. Consequently, the numerous ICT campaigns aimed at increasing the understanding of cryptos could be a contributing factor to the higher adoption rate of crypto. The range of people who are aware of such information is larger, due to the fact that it is attainable to the people with access to the internet. Research data demonstrates that the quantity of crypto-currency users has grown from 64% annually. At the termination of this growth, we may expect that the average number of crypto-currency users will reach 1 billion by 2030.
Cryptocurrency industry, which included projects like Ethereum and Bitcoin, saw significant growth, a part of which one can to attribute to this superior adoption. Bitcoin has been used as a payment method for many years now, and it is what comes to many people’s minds whenever crypto is mentioned.. The usage and dissemination of Ethereum and other alternative currency access tokens have also been accelerated by cryptocurrency.
The current level of digital currency adoption is the result of technologies such as Ethereum and Bitcoin that help make the crypto coin market a success. The payment method in the crypto world that has been used for quite a few years, Bitcoin, is the one that’s brought to the mind of many people when one talks of cryptocurrency. The tokens of Ethereum and others have significantly been involved in boosting the development of the world of crypto.
According to official data, comparing the trading prices of the leading traditional finance asset (gold) and the leading crypto asset (Bitcoin) for 2023 shows crypto in a more favorable manner. Gold is said to have reached its all-time high, which represented a 13.3% annual growth rate, while bitcoin saw a 158% growth rate to reach $43000, which was still below its 2021 all-time high. Comparing the profitability of these different assets makes crypto trading the better option for investors if they are willing to ignore the huge price fluctuations and volatility.
Notable Crypto Adopters
Notable financial and tech industry movers are adopting crypto and blockchain technology in their businesses. This trend is proof that crypto is a force to be reckoned with, and it is not going anywhere. In 2023, JPMorgan Chase & Co. offered its first-ever collateral settlement for clients using blockchain. IBM, another business giant, also uses blockchain technology to offer business solutions to its clients, and De Beers is using it in the supply chain. These are only a few examples, but the list is endless.
Conclusion
It is difficult to say whether crypto will replace traditional finance in the future or not, but overall, crypto has shown its potential to unsettle the current financial system with its proven benefits that are helping change the financial sector for the better. Both traditional finance and crypto have their appealing points, and at the end of the day, it boils down to personal preference and the innovative nature of one’s business, with most people preferring traditional finance’s security and stability over crypto’s volatility and regulatory uncertainty. As we never know what the future may hold, it should not come as a surprise to see both crypto and traditional finance working hand in hand to service the financial needs of individuals and institutions, each addressing different preferences and needs.
