CRYPTOCURRENCIES
Cryptocurrencies and What They
Mean for Businesses
T
echnology has added efficiency
and modern conveniences
to daily life. Among these
conveniences, computer
experts have managed to apply
digital traits to new, online currencies in
what is called cryptocurrencies.
Simply put, cryptocurrency is digital
money that operates independently of a
bank and can be used similarly to cash
around the world. Cryptocurrency is a
relatively new way for businesses to accept
and send payments to customers, vendors
and suppliers.
Despite concerns over cryptocurrencies,
they aren’t likely to go away anytime soon
as an alternative method of payment,
investment or means of raising capital.
While it can be easy to get caught up in
the excitement and potentially lucrative
nature of cryptocurrencies, it’s important
to understand how they work as well as
their positives, negatives and risks.
HOW DO CRYPTOCURRENCIES WORK?
While it may seem confusing on the
surface, the way cryptocurrencies function
is actually quite simple. Relying on
encryption technology to make transfers,
most cryptocurrencies are decentralized
and work without administrators. This
means that there is no central entity or
authority that manages the creation and
use of cryptocurrency.
Like most currencies used around
the world, cryptocurrencies store
value and have specific exchange
rates. Cryptocurrencies are similar to
commodities like gold or platinum in that
they have a limited supply.
Bitcoin, one of the most popular
cryptocurrencies, encourages users to
participate in the system by rewarding
additional bitcoins. In fact, this is the only
way new bitcoins circulate.
To use cryptocurrencies, consumers
30
and businesses must first acquire a
cryptocurrency wallet account. These
accounts work like a bank, but are
designed specifically for individuals who
want to purchase or accept cryptocurrency.
Most cryptocurrency coins have an official
wallet or recommended third-party
wallets, and it’s important to conduct
thorough research before choosing a
service.
After you have acquired a wallet, you
can purchase cryptocurrencies on open
exchanges and use them for a variety
of transactions. You can even convert
cryptocurrencies to cash at a later date if
you so choose.
THE POSITIVES AND NEGATIVES OF
CRYPTOCURRENCIES
Cryptocurrencies — and bitcoin in
particular — have greatly increased in
popularity over the past few years. Japan
declared bitcoin legal tender in 2017 and
online services like Microsoft, Overstock
and PayPal also accept the currency.
Before adopting cryptocurrency at your
business, you must consider its potential
benefits and drawbacks.
THE BENEFITS OF CRYPTOCURRENCIES
• No processing fees — Unlike
traditional forms of payment like
credit cards, cryptocurrencies have
no processing fees. This is because
cryptocurrency transactions are
facilitated through a decentralized
ledger on what’s know as a blockchain.
Transactions are recorded on the
blockchain chronologically, and
users can create, verify and enforce
transactions without an intermediary
or central authority.
•
High transaction speed—Credit and
debit card payments often take two
to three days to process and clear.
With cryptocurrencies, transactions
happen in real time and take about 10
minutes or less. As an added bonus,
cryptocurrency transactions are final,
which means consumers can’t dispute
a charge and negate a sale.
•
Increased payment options — The
more payment options you can provide
as a business, the better. As such,
cryptocurrency has the potential to
attract a wider customer base.
THE DRAWBACKS OF
CRYPTOCURRENCIES
• Price volatility — The value of bitcoins
and other cryptocurrencies can change
drastically over a small period of time.
• Anonymity — While the details of
cryptocurrency users and transactions
are often held in a public ledger, names
and locations are encrypted. This
can be an issue when complying with
regulations on customer identification
or fraud protection.
• Cyber security — Cryptocurrencies
exist digitally, and the proof of
ownership is often limited to the
private keys used to authenticate
transactions. This makes
cryptocurrencies a prime target for
hackers, especially because many
businesses aren’t aware of how to
protect this new form of currency.
SHOULD YOU ACCEPT
CRYPTOCURRENCY?
While global companies like Amazon and
Microsoft accept cryptocurrency, that
doesn’t necessarily mean it’s right for your
organization, especially if you’re a small
business. Before using cryptocurrency, it’s
important to conduct adequate research
and understand how it may impact your
company. In addition, you should speak to
a qualified insurance broker to determine
how using cryptocurrency opens you up to
new risks.
To learn more, contact Knight Archer
Insurance Ltd. today at
knightarcher.com. +