What is Cryptocurrency?
The definition isn’t as straightforward as you might think. Several hours and many pages could be spent filling this conversation with technical jargon, but at its core, cryptocurrencies are meant to exist as secure, digital assets, designed for use in monetary exchange. As the name suggests, the currencies use cryptography to both secure transactions and to control creation of additional units of the currency (like a mint would “print” more money). There are many different flavors of cryptocurrency, ranging from the somewhat silly like Dogecoin (branded based on an internet meme), to the serious and powerful like Bitcoin (the largest and oldest).
Chart: The Coin Universe Keeps Expanding
As you may imagine, the use of these currencies is limited almost exclusively to online transactions, though this has not slowed the growth of big players like Bitcoin, Ripple, and Etherium. Since the inception of Bitcoin in 2009, the overall market for cryptocurrencies has ballooned to almost $100 Billion – growing almost 900% in the last two years alone – and it’s showing no signs of losing steam. This expansion is making cryptocurrencies harder to ignore for business owners, and while many larger companies have been increasingly receptive to them, notably Microsoft and PayPal, there are questions and some risk involved in accepting these currencies for small business owners.
The meteoric rise in value of cryptocurrencies like Bitcoin comes with quite a healthy dose of volatility. One unit of Bitcoin is currently trading for around $2,300 USD. Back in June of this year, the price dropped by over $200 in one day, equating to nearly a 10% free-fall overnight. These kinds of daily flops may not turn off an investor because the overall trend in price is upward, but for someone taking payment in Bitcoin it can be a real headache. Imagine selling a television to a customer on Monday for $600 and having only $540 to show for it on Tuesday. This factor alone is probably the biggest reason most businesses steer clear of accepting payments in digital coin, as they just can’t stomach the risk of losing double-digit percentages of their revenue over fluctuations in currency values.
One of the things that makes cryptocurrencies special is also a major drawback for a business looking to accept them as payment. The decentralized, secure, and anonymous nature of these digital currencies make them extremely difficult to trace. Businesses in sectors that are highly regulated will likely find this to be an impassable hurdle, as there is no accurate way to report on the origin of funds that were received. Pawn shops, financial organizations (insurance, banks, lending), firearms dealers, and others are among the many businesses that will find accepting digital currencies deeply challenging if not impossible.
As cryptocurrencies continue to grow and become more prominent, it will be tempting for more and more businesses to jump in and begin accepting them as payments. The unregulated and “wild-west” nature of the currencies has made them attractive for some investors, as it has allowed unfettered growth in value over the past five or so years, but this also means that the sector is ripe for intervention by a government body looking to protect consumers and businesses from fraud and economic collapse. Formal regulation and monitoring by an oversight entity will give cryptocurrencies a higher degree of credibility and will increase safety for the person or business holding the asset at the end of the chain, which may also have a calming effect on the swings in value. Although investors and currency exchange operators are largely opposed to such a change, as it will dampen their ability to earn returns as values increase, it will ultimately help legitimize digital currencies and push them further into the mainstream.
In today’s digital world, many will find cryptocurrencies to be a natural evolutionary step and welcome them with open arms. Many others will (or may be required to) view them with a skeptical eye, realizing that there may simply be too many unknowns as the industry stands today. Whether or not your business falls into the former or latter category will depend on many factors, from your industry’s regulatory environment to your ability to absorb any losses. Over time, digital currencies are bound to become safer and more regulated, which will make them more appealing for most businesses, but may fundamentally alter the anonymous appeal of the assets. For now, businesses may find that accepting payments like Bitcoin will open up new markets to them, which may be attractive enough to override the risks. Businesses that are willing to spend the time and resources to research and stay on top of the evolving cryptocurrency exchanges will be positioned to grab new customers and markets.