The Edge: From Bitcoin to Banking: The Rise of Crypto

Cryptocurrency is rapidly gaining prominence in the financial services industry, even becoming a major point of consideration in the latest presidential election. Millions of dollars are regularly invested in the industry as individuals have increased opportunities to take advantage of its benefits, but with these opportunities come risks. As with any new technology, there remains uncertainty regarding its rules and best practices. Whether individuals are pro or anti-crypto there is one consensus: the industry needs clearer regulations as it continues to expand. 

Investigating the opportunities and challenges of incorporating crypto into today’s banking system, associate professor Vicki Wei Tang discusses insights from her research, “Financial Inclusion, Trust, and Geography of Cryptocurrency”. 

Your paper highlights that a lack of trust in banks drives cryptocurrency use. What are the key points of your research?

People who do not trust banks are more likely to turn to cryptocurrency as an alternative to traditional banking systems, expanding financial inclusion. Blockchain-powered cryptocurrency provides a digital cross-border payment option, which lowers payment costs and largely mitigates friction in less developed, conventional financial markets. When certain countries are banned from the traditional worldwide banking system, those with underdeveloped cross-border payment infrastructures experience greater Bitcoin inflows from sanctioned nations compared to those with more advanced systems. The more people that use traditional banks in a country, the less cryptocurrency flows into that country.

As cryptocurrencies become more mainstream, how might the banking industry be reshaped?

Cryptocurrencies, if properly guided, will likely substitute the banking industry in some use cases and complement the banking system in others. For instance, cryptocurrency could serve countries with less developed banking systems and those who are traditionally unbanked or underserved in more developed countries in cross-border payment markets. These markets are more effective by reducing transaction times and lowering cross-border payment costs. Meanwhile, the existing banking industry can integrate cryptocurrency into all aspects of operations by allowing easier exchanges between traditional currency and cryptocurrency for their existing customers. 

Other initiatives are being explored to expand financial inclusion such as reshaping how credit scores are calculated. In your view, how does the expansion of cryptocurrency compare to the reform of traditional financial institutions in advancing financial inclusion?

The key difference, in my view, lies in the ultimate beneficiaries. Credit score modifications primarily impact banked populations—those with existing transaction histories within conventional financial institutions. In contrast, cryptocurrency expansion has the potential to benefit unbanked populations, who are often excluded from traditional financial services. For example, in rural Africa, some farmers must travel hours to reach the nearest bank branch. Cryptocurrency can provide these individuals with direct access to financial tools, bypassing the barriers of conventional banking infrastructure.

While there are benefits to blockchain technology such as making payments faster and cheaper, this heightens the risk of fraudulent activities like money laundering. How might cryptocurrency impact the geopolitical landscape?

Using cryptocurrencies for fraudulent and illicit transactions is a real concern in the space. This risk underscores the need for greater coordination among regulatory agencies to develop a framework that balances financial innovation, market integrity, and investor protection. As the cryptocurrency market transitions from an unregulated to an increasingly more regulated environment, a critical component of a balanced framework is more stringent and consistent enforcement of anti-money laundering (AML) measures such as Know-Your-Customer policies across all jurisdictions. Without consistent enforcement, countries and regions with lax AML enforcement will likely become havens for digital asset crimes.

What regulatory measures would you recommend to ensure cryptocurrencies enhance financial inclusion rather than destabilize financial markets?

To create an ecosystem where cryptocurrencies empower the unbanked without introducing systemic risks to traditional financial markets, I would recommend a balanced regulatory approach that fosters innovation while mitigating risks. Key regulatory measures should:

• Identify clear legal frameworks that recognize crypto as a legitimate financial instrument. 
• Implement tiered requirements, rather than blanket restrictions, based on the risk level posed by different crypto assets. 
• Establish consumer protection standards such as disclosure requirements, fraud prevention mechanisms, and financial literacy initiatives to ensure individuals can use cryptocurrencies safely.
• Encourage standards that allow different blockchain networks and financial systems to work together seamlessly.
• Tailor anti-money laundering (AML) and Know Your Customer (KYC) regulations to balance financial security with accessibility. Alternative verification methods, such as digital identity and watermark systems, can help include those without traditional identification.
• Regulate cross-border collaboration to help prevent illicit activities while maintaining accessibility for financial inclusion.

This story was originally featured in the Georgetown Business Spring 2025 Magazine. Download the Georgetown Business Audio app to listen to the stories and other bonus content.