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The Rise of Self-Banking with Crypto

Recent events have shown the fragility of the traditional banking system and the benefits of self-banking with crypto.

Scott Osman
Scott Osman
March 13, 2023
The Rise of Self-Banking with Crypto

Recent events have shown the fragility of the traditional banking system, with Silicon Valley, Signature, and Silvergate banks collapsing. This has left many businesses and individuals wondering how they can protect their finances from such risks. Fortunately, there is a solution emerging: self-banking with decentralized payments using cryptocurrencies.

Why did SVB collapse?

Silicon Valley Bank (SVB), which was known as the preferred bank for the tech sector, collapsed after investing heavily in long-dated US government bonds. The bank's services were in high demand during the pandemic years, as many tech companies used it to hold the cash they used for payroll and other business expenses, leading to an influx of deposits. However, when the Federal Reserve started to hike interest rates rapidly to combat inflation, SVB's bond portfolio started to lose significant value.

As economic conditions soured over the last year, with tech companies particularly affected, many of the bank's customers began drawing on their deposits. SVB didn't have enough cash on hand, and so it started selling some of its bonds at steep losses, spooking investors and customers. It took just 48 hours between the time it disclosed that it had sold the assets and its collapse.

Why is cryptocurrency better?

Compared to traditional banks, cryptocurrencies have some clear advantages. First, there are no bank runs in the crypto world, as there is no central institution that can be overwhelmed by panicked customers. Second, there are no bailouts in the crypto world, as there is no government that can step in and rescue failing institutions. Third, there is no insolvency in the crypto world, as there is no debt-based system that can spiral out of control. All of these factors make cryptocurrencies more resilient and trustworthy than traditional banks.

No bank runs

One of the most significant advantages of cryptocurrencies is that they are not subject to bank runs. In traditional banking, a bank run occurs when many customers try to withdraw their money at the same time, causing the bank to run out of cash and possibly collapse. With cryptocurrencies, there is no physical cash to withdraw, and no central authority that can be overwhelmed by panicked customers.

No insolvency

Another advantage of cryptocurrencies is that they are not subject to insolvency. In traditional banking, a bank can become insolvent when its liabilities exceed its assets, and it cannot meet its obligations to its customers. This can have severe consequences for the customers, who may lose their deposits or face long delays in getting their money back. With cryptocurrencies, there is no debt-based system that can spiral out of control, and no central authority that can fail to honor its obligations.

No bailouts

Finally, cryptocurrencies are not subject to bailouts. In traditional banking, when a bank fails, the government may step in and bail it out with taxpayer money. This can create moral hazard, as banks may take excessive risks, knowing that they will be rescued if they fail. With cryptocurrencies, there is no government that can bail out failing institutions, and no centralized authority that can exert undue influence on the system.

Rise of self-banking

With the advent of cryptocurrencies, it is now possible for businesses and individuals to become their own bank. By using crypto wallets and decentralized platforms, they can store, send, and receive money directly, without the need for a third-party intermediary. This is a powerful concept, as it means that they are in control of their own finances and not subject to the risks of traditional banks.

How volatility can be managed

One of the main criticisms of cryptocurrencies is their volatility. Prices can fluctuate wildly in short periods of time, making it difficult to use them as a stable store of value. However, there are already solutions emerging to mitigate this issue. Stablecoins, which are cryptocurrencies pegged to the value of a fiat currency or a commodity, can provide a more stable alternative. Decentralized exchanges and liquidity pools can also provide more liquidity and stability to the crypto market.

Radom reduces volatility risks for businesses

Radom offers effective solutions to mitigate volatility in cryptocurrency transactions. For instance, businesses that use Radom to accept payments in cryptocurrencies can set their prices in fiat currency and receive cryptocurrency as payment. This means that in case the cryptocurrency loses its value in US dollar terms, the business would still receive the same amount they set in fiat currency at the point of sale, relative to the price of the cryptocurrency. Additionally, accepting cryptocurrency as a form of payment could prove to be advantageous for businesses, as the price of those assets may generate greater returns in the long run in the event they appreciate in value.

Centralisation equals contagion

The recent collapse of some banks highlights a deeper problem with the traditional banking system: centralization equals contagion. When a large bank fails, it can create a domino effect that can spread throughout the entire financial system, affecting other banks, businesses, and individuals. This is because traditional banks are interconnected and rely on each other for liquidity and stability. By contrast, cryptocurrencies are decentralized and do not rely on any central authority for their operation. This means that they are less susceptible to systemic risk and contagion.

Self-bank with Crypto, Self-process with Radom

Now is the time to consider self-banking and crypto payments as a viable alternative to traditional banking. The recent collapse of some banks has highlighted the limits of the current system, and the crypto revolution is gaining momentum. By becoming your own bank, you can take control of your own finances and benefit from the advantages of cryptocurrencies. While there are still challenges to overcome, such as regulatory uncertainty and volatility, Radom provides a solution, and the future looks bright for the crypto ecosystem.

Radom is here to walk your business through every step of becoming a fully self-managed entity with your assets under your control.

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