What is Crypto Banking? Is it the Future of Finance?

Written by Bradon MatthewsUpdated: 29th Sep 2021
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If you’ve ever made any significant money amount of money, you’ve almost certainly used a bank.

Keeping track of mass amounts of cash is burdensome and dangerous, and banking provides convenient storage and returns on savings.

For a long time, banking has been pretty one-note. You have your choice of banks, but they are more or less all operating the same way.

But with the digital age comes innovation, and banking is no exception. Enter crypto banking.

What is crypto banking, though? Is it safe? Is it set to overtake traditional banking any time soon?

Let’s explore these questions so you can decide if crypto banking is the right move for you.

What is Crypto Banking?

Before we explain crypto banking, we have to understand what “crypto” refers to.

Cryptocurrency is a term for digital currencies. Unlike traditional money, cryptocurrencies aren’t backed by a banking authority. Rather, they are backed by computer codes.

While there is an enormous number of cryptocurrencies available, a very limited number actually garner any attention. Bitcoin, a cryptocurrency you’ve probably heard mentioned, is one such example.

Typically, people engage with cryptocurrencies by trading, treating them similar to stocks.

Back to crypto banking.

Crypto banking is fairly new. Basically, crypto banking involves holding a balance in cryptocurrency through a financial firm.

Some firms allow you to make payments with your cryptocurrency, though this feature is not ubiquitous.

Some firms also offer crypto savings accounts.

>> More: Best Bitcoin Debit Cards

How Does Crypto Banking Work?

On the ground level, crypto banking is pretty straightforward.

To start, you buy cryptocurrency. This can be done using a debit card, just like any other purchase.

From there, the firm holds onto the cryptocurrency for you. Just like a regular bank, your money sits tight in an account.

In addition to buying more, you can sell your cryptocurrency whenever you’d like. Most firms will provide insight into how much your crypto is worth at any given time.

Because cryptocurrency isn’t widely accepted yet, you can’t pay for things with crypto directly.

Firms that allow you to pay for things via crypto do so through a prepaid debit card. Essentially, your crypto is sold for local currency, which then gets loaded onto the card so you can pay for things.

Crypto savings operate similarly to traditional savings accounts. The firm borrows your cryptocurrency for loans then provides you with returns on those loans.

>> More: Best Crypto Exchanges

How Do I Start Crypto Banking?

To start crypto banking, you need to get your hands on some cryptocurrency. This typically requires a crypto wallet.

Crypto remains stored in a blockchain, which is why you need a crypto wallet.

Crypto wallets don’t actually store your cryptocurrency itself. Instead, they store the passwords that grant you access to your cryptocurrency.

Most firms you’ll use to purchase cryptocurrency will provide you with a free crypto wallet.

Once your wallet is set up, you simply purchase crypto through the company or firm you’ve chosen. This is by far the simplest way to get started, as it simply converts your dollars to crypto.

After you have access to the cryptocurrency through your crypto wallet, you can transfer the cryptocurrency into a crypto bank for safe holding.

Notable Cryptocurrency Exchanges Offering Banking Services

With crypto banking’s growing popularity, you have several options to choose from. Let’s take a look at a few of the top choices.

#1. BlockFi

BlockFi is a cryptocurrency custodial company.

Opening an account with BlockFi is simple and easy. There is no minimum deposit required and no monthly fees.

Additionally, BlockFi allows you to take out a loan to purchase cryptocurrency should you desire to do so.

This means that you can capitalize on increasing values within cryptocurrency even if you don’t have the money immediately.

Interest rates on these loans can be as low as 4.5% APY. Taking out a loan is risky, but it’s a nice option to have.

BlockFi is one of the few companies that offer a crypto savings account. Users can earn up to 7.5% APY on their savings balance just by holding onto it.

BlockFi is also working on rolling out a Visa credit card. This card will reward unlimited 1.5% cashback and allow you to pay off the balance via your cryptocurrency.

BlockFi does charge a withdrawal fee which varies by cryptocurrency. While annoying, this is pretty standard.

>> More: BlockFi Review

#2. Gemini

Geminiis another company that offers crypto banking, trading, and a credit card.

Like BlockFi, Gemini is free to set up and requires no minimum account balance.

Gemini charges purchasing fees which vary depending on the cryptocurrency you purchase. They also charge tiered transaction fees when you trade cryptocurrencies, varying depending on the amount traded.

One of the major upsides of Gemini is that, like BlockFi, you can transfer your crypto from a trading to a savings account.

Gemini provides access to 33 different cryptocurrencies at the moment.

With Gemini, your APY depends on which currency you hold. The rates range from 2.05% to 7.4%.

One final perk, Gemini allows you access to both a hot wallet and a cold wallet. The hot wallet is the online wallet that functions as you would typically expect a crypto wallet to function.

The cold wallet is unique in that it is stored offline, providing an additional layer of protection for your cryptocurrency.

>> More: Gemini Review

#3. Coinbase

Coinbase is the largest existing cryptocurrency trading platform.

With Coinbase, you can purchase and trade 56 different cryptocurrencies, including their own USDCoin, a stable cryptocurrency that is directly linked with the value of the US dollar.

There is a minimum purchase of $2 for every transaction, and there is a tiered fee for transactions ranging from $.99 to $2.99, depending on size.

Coinbase offers a savings account and debit card as well.

Like Gemini, Coinbase’s APY rates vary depending on the currency. That being, they will soon offer 4% APY on USDCoin.

Because USDCoin is stable, this provides a great opportunity to the more risk-averse crypto investor. This may be the way to go if you’re looking for a bit more certainty.

>> More: Coinbase Review

#4. Cash App

Cash App is perhaps the most simplistic of the companies on this list. This is largely due to the fact that Cash App’s functions go beyond crypto, meaning there is plenty of connectivity already integrated.

Users can purchase several of the biggest cryptocurrencies on the market. That being, the more obscure ones won’t be on the table should you choose to go with Cash App.

Cash App’s trading fees vary depending on the market. Typically, they wind up between 1.75% and 2%. This is fairly steep compared to other companies.

One of the big knocks against Cash App doesn’t offer a savings account for your crypto. Still, if you’re main focus is the ease of use, Cash App might be a foot in the door for you to start investing in crypto.

#5. Crypto.com

Crypto.com is a platform dedicated to all things crypto. They offer trading and banking for your cryptocurrency.

Crypto.com has a few things going for it. You can earn up to 12% APY on your savings, depending on the currency and the market, for starters. That is significantly more than any other company on this list.

In addition, Crypto.com offers a Visa card that can provide up to 8% cashback on purchases.

It is tiered in its rewards linked to how much you stake in CRO, Crypto.com’s signature currency.

One knock against Crypto.com, you earn less on your savings if you don’t hold it for at least 3 months.

During that time, you may miss out on trading opportunities. With something as volatile as cryptocurrency, this can be a big deal.

Crypto Banking: What Financial Products Are Currently On The Market?

Let’s take a closer look at the various products you might find tied to crypto banking.

Crypto Interest Accounts

As we’ve discussed, multiple companies and firms now offer crypto interest accounts. These accounts function much as traditional savings accounts do.

When you put your cryptocurrency into an interest account, the company or firm borrows it to make loans. You then receive some of the interest they make on those loans.

If you’re going to be holding cryptocurrency, you should absolutely consider finding a company that offers interest accounts.

Crypto Credit Cards

Many companies offer crypto credit cards. These cards are basically normal credit cards, with a few exceptions.

When it comes time to pay off your balance, you can do so via your crypto accounts. This still involves selling off your crypto for local currency, but it is a convenient way to utilize your cryptocurrency.

Additionally, many of these cards offer rewards on crypto-related purchases. If you’re going to be investing and trading in crypto a lot, this might be a good thing to consider.

Crypto-Backed Loans

Many companies and firms are now offering crypto-backed loans.

These loans allow you to purchase more crypto during key moments. The cryptocurrency market is highly volatile, meaning you have to strike quickly.

These crypto-backed loans can allow you to do just that. They are inherently quite risky, though, so be cautious.

A Guide to Crypto Banking: Things to Consider

Is Crypto Protected by the FDIC?

Because cryptocurrencies are decentralized, they are not insured by the FDIC.

That being, many firms, and companies offer their own insurance. Regardless, it’s important to understand that crypto does have a lot more risk than traditional currency.

Is Cryptocurrency the Future of Finance?

Whether cryptocurrency is the future of finance remains to be seen. Its success depends on public buy-in.

Should more people decide to invest in crypto, its infrastructure will likely expand. It could very well replace traditional currencies and trading options. That being, this is far from a certainty.

Should You Still Bank with a Traditional Bank?

While crypto banking is a highly exciting new development, you should absolutely still bank with a traditional bank. Crypto banking doesn’t have near the same level of stability or safety.

Cryptocurrencies Are Risky

Putting all your money into crypto banking is far too risky to be advisable. Cryptocurrencies can spike and plummet in value in a very short time period. You don’t want to get stuck with all your money in a bad investment.

Regulation Is Still On the Horizon

Additionally, regulating financial authorities are still working out the regulations around cryptocurrency and crypto banking.

In the interim, there is a lot of uncertainty. Placing your bets entirely on crypto might sound great, but it’s extremely risky to do so before it is properly regulated.

Bottom Line: What Is Crypto Banking?

Crypto banking is very similar to traditional banking.

Once you have cryptocurrency, you simply put your money into an account, just as you would with any bank.

The main difference is that you can’t pay for things with that money directly. Instead, it must be sold off for traditional currencies in order for you to use it.

This means crypto banking also shares elements with investing, as your savings can increase in value.

That being, they can decrease just as easily. For this reason, it is important not to get overly romantic about crypto banking.

If it interests you, crypto banking can be a great financial move, with the opportunity for significant returns.

Just make sure it is a small part of your overall financial plan. Crypto banking is a supplement to, not a replacement for, traditional banking.

Bradon Matthews
Bradon Matthews

Bradon Mathews is a personal finance writer & product analyst with a breadth of experience. He enjoys analyzing market information and trends to help you make sense of the complex and ever-changing world of finance. His passion is providing practical advice so you can feel more confident managing your money. Bradon attended Colorado State University where he studied Philosophy.