A Complete Guide to Crypto Banking


Banking started as far back as 2000 BCE with rich merchants offering loans in the form of grains to farmers and local traders. During the 11th and 12th centuries, bankers would operate as tellers setting up wooden benches alongside the ports to facilitate metallic coin exchange in Italy. Today, banking services are accessible just a few clicks away from smartphones.

However, the banking system is still predominantly under the monopoly of the state and largely centralized. But the arrival of blockchain and DeFi can inspire a big change and give birth to a banking renaissance in the form of crypto banks.

What is a Crypto Bank?

A crypto bank is a financial organization that allows the masses to buy, sell, exchange, and store their cryptocurrencies. A crypto cank can provide all the financial services just like the traditional banks but they substitute paper money with digital assets. The users can also apply for cryptocurrency loans from a crypto bank or earn interest on their cryptocurrency reserves.

It is worth noting that crypto banks can either be centralized or decentralized entities. In comparison to the earlier days of cryptocurrencies, digital banks are becoming integrated and accepted by traditional financial organizations and government regulators.

What is a DeFi Bank?

Decentralized Finance or DeFi has become of the most popular terms on social media and sophisticated circles these days. Decentralization stands for a financial system where the assets and financial property of the people are handled without the presence of any centralized supervisors. Blockchain is the core technology that has given rise to the concept of DeFi.

Many people do not trust the government with their personal information or financial dealings. Therefore, such people switch to cryptocurrencies that allow them to keep their financial history private. DeFi banks are a replacement or upgrade to traditional banking. DeFi programs can emulate all the financial functions of a traditional bank with some added benefits and drawbacks. Skrill CEO, Lorenzo Pellegrino claimed that:

How does a Crypto Bank Work?

A crypto bank can offer all or some of the functions that a typical traditional and regulated bank offers. However, the crypto bank uses a blockchain as a building unit and deploys smart contracts to perform financial functions automatically. The programmers who create a crypto bank using smart contracts to carry out the traditional banking functions such as tellers with the help of smart contracts can trigger a response when certain conditions are fulfilled by the users.

DeFi banks are owned and governed by the community of its users. The users can vote for making important decisions and do not have to comply with the financial regulations enforced by the state to use such platforms.

How to Set Up a Crypto Bank Account?

With each passing day, cryptocurrencies are becoming more popular among the masses. Many people want to set up a crypto bank account to create an additional passive income stream. However, when it comes to learning about blockchain most people back away because the subject seems too complicated to comprehend. Here are some of the easy steps that will guide the reader to open up a crypto bank account and get it running with relative ease:


Many people assume that converting their savings into cryptocurrencies is going to turn them into millionaires in a week or a few years. The reality is that making money is never as easy as it seems and the most successful people put their time and effort into learning everything about the new project before they dive into it head first. The same rule also applies to crypto banking. The users should take their time in learning about basic financial functions, and local regulations, evaluate their financial position and collect useful and reliable data before moving to the next step.

Digital Wallet

Every cryptocurrency investor must have a digital wallet account that will allow them to hold and trade cryptocurrencies. It is important to read the reviews about the digital wallet service provider and understand how the privacy settings on the digital wallet work properly. There are many cases where people end up losing all their cryptocurrency reserves because they lost their private keys. Conducting a financial and technical audit or reading about it online will help the users to select a digital wallet service provider that is not a scam or face the threat of hack attacks.

Selecting Cryptocurrencies

The next step in crypto banking is to select suitable cryptocurrencies for purchasing. The users can purchase by connecting their bank accounts with the digital currency wallet or using online payment platforms such as PayPal, Google Pay, or Credit Card. The users can also opt to create their crypto accounts with dedicated crypto banks such as SoFi.

However, such banks can ban their users from withdrawing their cryptocurrency reserves for a specified duration or require the users to sell their cryptocurrencies to make a profit. It is important to understand the different types of cryptocurrencies and learn about how to conduct a basic technical analysis to ascertain which digital assets are best for purchase and making a profit. Purchasing random currencies is not the best way to ensure a profit.

Market Analysis

Market analysis constitutes the period when the users have purchased their first set of cryptocurrencies. Market analysis will help the crypto bank account holders to find out the best timings for selling their cryptocurrency reserves to make the most profit. It will also guide them about the latest development happening at the financial, regulatory, political, and local levels that can affect the prices of their cryptocurrency holdings directly or indirectly. The account holders should also select a suitable trading strategy for increasing their profits.

Portfolio Management

Portfolio management is the next big step for a crypto bank account holder. Investors should start small and try to manage a conservative amount and types of cryptocurrencies in their portfolios. The account holders with some experience at their disposal can expand their horizons and add more verities of cryptocurrencies to their portfolios. It is ideal to hire the services of a professional broker to manage your cryptocurrency account and keep learning and gaining experience. There are many platforms like Robinhood and others that allow their account holders to create mirror trading accounts or consult with an expert for a small fee.

What is a Crypto Interest Account?

Traditional banks allow their consumers to open a savings account that allows the banked masses to earn a set percentage of interest income every year. It is called APY or annual percentage yield. The crypto banks also allow their users to earn yield income in exchange for their committed cryptocurrency reserves. Crypto exchange platforms like Gemini and Crypto.com offer different versions of crypto interest accounts. It is worth noting that typically crypto banks offer a higher percentage of interest return in comparison to traditional banks.

However, the users need to beware of scammers and fraudulent businesses that promise ridiculous returns to the cryptocurrency holders to trick and steal from them. The average interest rate for centralized banks is around 0 while the interest yields offered by crypto banks can be in double digits. The difference occurs on account of the massive risks that the cryptocurrency investors are taking considering the speculation, market risks, and price volatility of the digital assets.

Advantages of Crypto Banking

There are many advantages of crypto banking and these benefits are the main reason that so many traditional financial institutions have started to place big bets on the cryptocurrency market. Here are some of the most important advantages that crypto banks offer their consumers:

Financial Autonomy

Financial autonomy is one of the main driving forces behind cryptocurrencies that allow consumers to convert all their savings into the digital asset market and products. There is a general idea among the masses that the government institutions such as banks do not have their best interest at heart. The people are under the fear of being under surveillance by federal agencies and feel that they do not have any control over their finances on account of the harmful policies and harsh monetary decisions made by the elected officials. Under such circumstances, people took to cryptocurrencies as a way to reclaim their power and gain some control over their financial autonomy. 

Data Privacy

Data privacy has become the biggest concern among the masses. The people are not happy with big tech companies and government organizations using and extracting their data without their consent or consideration. People have worries that all their online activities are present online and can be used as a weapon to threaten their daily lives.

Meanwhile, marketing agencies collect financial data from the people and use them to devise elaborate marketing schemes that affect people on a psychological level. Therefore, a lot of people want to see cryptocurrencies as the next big financial enterprise that can grant their better data privacy and security.


All the transactions on a blockchain are more secure in comparison to the data that is present on the banking applications or the main banking servers. In the past, it was a common occurrence for private banks to crash and go bankrupt during periods of economic constraints, recession, and inflation. However, with the arrival of bank insurance organizations, the traditional banks became more secure. At the same time, cryptocurrency account holders claim that digital currencies offer them a financial safety net that can save them from fiat devaluation and unprecedented inflation hikes.  


Blockchains and crypto banks simply seem like the much anticipated evolutionary step for banking, financial, and economic development. The arrival of interest and smartphones changed the perception and living standard of people by leaps and bounds. Many experts believe that cryptocurrencies also have the potential to bring about similar or bigger changes in the future.

Investment Benefits

Bitcoin the first ever cryptocurrency was introduced as an alternative to fiat currencies and paperback. However, over time the investors started to take interest in Bitcoin on account of its massive appreciation that earned it titles like a store of value, hedge against inflation, and digital gold. Today, the cryptocurrency market is used as a means to extend financial literacy and investment options to a greater frequency of the world population.

Ease of Access

There are still many countries in the world where access to financial services and private banking is out of reach for the majority of the population. Crypto banking can ensure that in such places the masses can gain access to financial services and banking privileges with a help of a smartphone and an internet connection. Crypto banks grant the users ease of access to trading, investing, and borrowing, with relative ease and removing the hurdles posed by traditional banking networks that can circumvent political constraints.


Decentralization has become one of the most defining features of crypto banking. The newcomer in the cryptocurrency market may assume that while they are conducting transactions using cryptocurrencies, it is impossible to track them. However, it is worth noting that decentralization is not as effective and straightforward as it may seem at first glance.

It takes a lot of work for an individual to keep their crypto dealings untraceable. The developers are still working on creating a truly decentralized blockchain. Nevertheless, the privacy provided by crypto banks is better in comparison to traditional banks.


Since cryptocurrencies have gained notoriety as an investment option over the years. Many traditional financial companies and bigwigs are using crypto banking services as a portfolio diversifier. At present, the crypto market is not fully independent from the stock market. However, there is a notion that eventually cryptocurrency market will become a standalone entity and it will become more profitable for the investors as an alternative to traditional investment options such as stocks, bonds, real estate, and commodities.

Limitations of Crypto Banks

The traditional banking system took centuries to reach its current position. However, the crypto banking network has been around for a little over a decade. The blockchain and DeFi sector is still considered to be present in its nascent phase and it is constantly developing and improving. The basic framework of crypto banks is not free from some limitations mentioned:

Price Volatility

Crypto banks are still vulnerable to economic distress and financial instability. The prices of cryptocurrencies constantly meander and oscillate making it difficult for investors to correctly predict the perfect time to purchase or dissolve their positions. In case, a crypto bank sustains losses on account of a drop in demand, price crash, or bear market, it can revoke the withdrawal access for its consumers. It means that the consumers are locked out of their cryptocurrency reserves without any warning and can end up suffering losses.

Governance Issues

Crypto banks suffer from governance issues constantly. Most of the functions are carried out by automated programs such as smart contracts. However, a financial network still needs to make important decisions such as deciding the interest rates, amount of collateral, and cryptocurrency staking requirements. The crypto banking community has the option to participate in voting for important decisions. However, the real power resides with the core developers, biggest account holders, and node validators in reality. Therefore, some people believe that community-owned crypto banking is a ruse that allows private companies to run their businesses without any restrictions from government regulators.

Regulatory Uncertainty

Crypto banks suffer from regulatory uncertainty. If the administrators of a region opt to pass a new law or issue new regulations, crypto banks can go down crashing. After the finance minister of India imposed a 30% tax on cryptocurrency income, a considerable amount of crypto banks folded their businesses in the country.

Hack Attacks

Crypto banks are vulnerable to hack attacks. The hackers are always on the lookout for a technical vulnerability in these organizations so that they can steal the funds of the masses. Sometimes, a recent upgrade on a crypto bank can create a technical blind spot that hackers can exploit to launch an attack on the network.

Financial Scams

Scammers and criminal parties have used the novel concept of cryptocurrencies to thug the masses time and again. The people who are not aware of the inner workings of blockchain or have little familiarity with the technology and financial sector can get easily duped. The Squid Game token is one of the best examples of crypto scams. 

Mainstream Adoption

El Salvador is the first country in the world to adopt Bitcoin as a legal tender. However, the South American nation faced many issues with the mainstream acceptance of Bitcoin. Among other issues, the citizens complained that they do not understand how Bitcoin works. There are attempts by cryptocurrency proponents to plant as many Bitcoin ATMs as possible in the world. However, the larger population of the world still needs more time to get familiar with blockchain and crypto banking.


Crypto banks are the entities that have the potential to change the financial structure of the world in the future. However, the developers, financial experts, artists, and coders are still working to improve and upgrade the enterprise to make it more inclusive. Some of the most popular crypto banks in 2022 are Bankprov, Juno, Revolut, Wirex, Ally, Nuri, and USAA among others. 

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