48 SEPTEMBER / OCTOBER 2022 Diving Into Digital Currency What you need to know about crypto Matt Herren Director of Strategic Product Management Computer Services Inc. matt.herren@csiweb.com Computer Services Inc. (CSI) is an associate member of the Indiana Bankers Association. The digital currency environment is a space that traditional financial institutions should watch in order to stay competitive. There is much to gain from understanding and staying ahead of digital currency trends, including cryptocurrencies. As they navigate this new digital currency landscape, bankers should consider customer demands and how to best position themselves for success. What Is a Cryptocurrency? Cryptocurrencies are digital or virtual currencies protected by encryption, making counterfeiting and double-spending practically impossible. Many cryptocurrencies use blockchain technology, a distributed ledger enforced by a network of computers. In short, cryptocurrencies leverage advanced mathematical formulas to create digital assets. The value of these digital assets ebbs and flows, much like traditional currencies or stocks. Sophisticated cryptography prevents counterfeiting and fraudulent transactions. Cryptocurrencies have also become more popular in recent years. TIME magazine reported the world’s cryptocurrency as worth more than $3 trillion globally, and consumers transact trillions of dollars in value each year. While there has been much debate over the true “value” of cryptocurrencies, these digital assets have undoubtedly made headlines – both positive and negative – for the value the marketplace has placed upon them. It’s important to remember that volatility is part of any emerging market and has been a part of the crypto space since its inception, though the general trend has consistently been upward. More established crypto assets have gained additional certainty from a regulatory perspective, making them more attractive offerings as banks begin to explore this space. The volatility in the crypto space has caused some to question whether consumers should participate, but this creates even more demand for banks to serve as trusted partners that can guide consumers to safer, more established options like bitcoin. Why Enter the Cryptocurrency Marketplace? In short, banks should care about cryptocurrencies because many of their customers are showing interest, and competitors are getting there first. Capitalizing on this trend could ensure that customers engage in the space safely and deepen the connection with their institutions. According to Visa, 32% of crypto-aware consumers own cryptocurrency, with 21% being active owners who have transferred crypto or used it in a transaction. Despite the difficulties banks have implementing digital currency services, there’s no reason they can’t dip their toes into the water. A recent Cornerstone Advisors survey found 60% of crypto owners would use their banks to invest in cryptocurrencies, and another 32% might. Customers are interested in digital assets, and banks can use this interest to further their position at the center of their financial lives. As with previous innovations like digital banking, the capacity to control customer experience and truly drive strategy depends upon how quickly a bank adapts. Financial institutions have an opportunity to maintain their role as financial advisers regarding crypto. Many consumers want to participate but need a trusted OPERATIONS / TECHNOLOGY
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