Cryptocurrency In Business: How Can It Be Used, And Is It Beneficial?
Cryptocurrency is getting a lot of attention, and is being discussed more than ever these days. This type of digital currency is popular not only among investors but also among people who have become acquainted with NFTs (non-fungible token). While some are sceptical of its popularity, others believe it's the future of money and will eventually replace traditional centralised currency controlled by governments.
It was first introduced by Satoshi Nakamoto in 2009, and Investopedia defined it as “a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralised networks based on blockchain technology – a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they're generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.”
With the freedom that crypto provides, interest in it has undoubtedly skyrocketed. Today, the most popular cryptocurrencies are bitcoin, Ethereum, and Litecoin, but other cryptocurrencies are gaining popularity as well. Remarkably, the global cryptocurrency market is projected to grow from US$910.3 million in 2021 to US$1,902.5 million in 2028 at a CAGR (Compound Annual Growth Rate) of 11.1% in the forecast period, 2021-2028.
It has also been reported that “Cryptocurrencies have surged so much that their total value has reached nearly US$2.5 trillion, rivalling the world’s most valuable company, Apple, and have amassed more than 200 million users. At this size, it’s simply too big for the financial establishment to ignore.”
Many must be asking the important question of all – Is cryptocurrency really the future we are moving towards to?
As it is, this digital currency has been approved and used by a wide range of businesses, and it’s the only currency accepted for transactions in the Web3 world. With the increasing number and usage of cryptocurrencies, it appears that it'll be around for a long time, possibly forever. A survey found that 88% of institutional respondents and 75% of retail investors believe that crypto will see mainstream adoption within a decade.
What Is Cryptocurrency In Business Like?
Never in our wildest dreams would we imagine the business world transacting in anything other than fiat currency. However, according to a late-2020 estimate, approximately 2,300 US businesses accept bitcoin as a form of payment for transactions. This demonstrates that businesses are beginning to recognise cryptocurrency as a viable source of revenue.
Why do they do it? Most likely due to the digital payment system, which does not rely on banks to verify transactions, making financial processes quick and easy. Businesses globally can use cryptocurrency not only for transactions, but also for investments and operational costs. In fact, many are waiting for the price of cryptocurrencies to stabilise so that companies can develop more import/export services.
Introducing crypto now may help raise internal awareness of this new technology within the respective companies. It may also help the company position itself in this important emerging space in preparation for a future that may include more central bank digital currencies (there are already nine!). We could say that crypto transactions in businesses are still in their infancy, so companies that join now may be among the first, and far ahead of competitors while reaching new customer groups and increasing profits.
It's also advantageous to businesses in the sense that certain alternatives are available with crypto that are just not possible with conventional currency. For example, programmable money can ease back-office reconciliation by allowing for real-time and precise revenue sharing.
Furthermore, cryptocurrency may serve as an effective alternative or balancing asset to cash, which may depreciate due to inflation over time. Companies are now discovering that key clients and vendors want to engage using cryptocurrency. As a result, businesses may need to be prepared to receive and disburse cryptocurrency to ensure smooth exchanges with key stakeholders.
Of course, the evolving crypto transactions will not be the same as those that all businesses are accustomed to.
What Are The 2 Main Paths That Companies Can Use When It Comes To Doing Business With Cryptocurrency?
When businesses first consider incorporating cryptocurrency into their operations, they must decide whether to include cryptocurrency on their balance sheets or simply accept crypto-enabled payments. They must be cautious in determining which would best meet the business objectives. As that company embarks on its crypto journey, it has two options:
Option #1: Enabling payments – “Hands-off”
This way, cryptocurrencies received by businesses do not appear on their books because the payment is converted to fiat currency. Companies can pay a fee to have a third-party supplier operate as their corporate agent, receiving or making crypto payments, and then converting them to fiat currency.
The third-party vendor will handle the majority of the technical questions and will manage various risk, compliance, and controls issues on the company's behalf. Companies must, however, abide by any restrictions imposed by the agency in charge of administering and enforcing the government's economic and trade sanctions.
For businesses that are unfamiliar with the cryptocurrency market, this is a relatively secure solution. This method does not alter the company's existing internal functions. It may necessitate the fewest changes across the board of corporate functions and may achieve immediate goals such as attracting new customers and increasing the volume of each sales transaction.
Option #2: Enabling payments – “Hands-on”
Companies can opt for this path when ready to expand crypto usage in operations and treasury. This entails doing more than just accepting crypto payments. This strategy will significantly increase the company's profits, but it’s fraught with technical issues that must be addressed first.
Before deciding on this route, consider the following questions:
Why would the company need to accept and initiate cryptocurrency transactions?
Has the company conducted sufficient research before deciding to invest in the cryptocurrency market?
Is the finance department well-equipped and adequately trained to conduct, monitor, and handle crypto transactions?
Should the company hire an external third party to help with cryptocurrency self-maintenance and monitoring, or should it rely on its own finance department?
Choose this path only if the company is truly prepared to face the challenges and risks that come with it.
How Would Companies Go About Using Cryptocurrency In Their Business?
Companies that are considering using cryptocurrency in their operations should have a clear understanding of why they're doing so. Businesses that want to start using cryptocurrency must first understand how to do so. To ensure a smooth transaction, the following steps should be taken:
Step 1: Choose the currency that is best for the business and its customers. Several cryptocurrencies have been made available to the public, so selecting one with a large user base and reasonable transaction fees is critical.
Step 2: After deciding on a currency, create a digital wallet where customers can pay for their services or products. Make sure the company's digital wallet is secure and regularly updated, to avoid malware or computer viruses.
Step 3: Check the company's bank statement after each completed transaction to ensure that funds were properly transferred from one account to another. Otherwise, there could be a problem with the transfer, in which case the financial institution should be contacted.
Once the company has determined the best cryptocurrency and wallet to use, it can also be used for other purposes other than as a mode of payment for customers. For example, using cryptocurrency to pay employees or suppliers.
Nonetheless, it’s important to note that the use of crypto for business purposes presents a number of opportunities as well as challenges. As with any unexplored territory, there are both unknown dangers and strong incentives.
What Are The 10 Benefits And Setbacks Of Using Cryptocurrency In Your Business?
The advantages of using cryptocurrency are substantial, particularly in the realm of virtual businesses. Here are some of the benefits of cryptocurrency:
Decentralised: Decentralisation means that cryptocurrency is not dependent on central banks or other financial institutions. At the same time, it’s not constrained by government regulations and can be transferred globally in seconds.
Private and anonymous: Users' personal information is not linked to cryptocurrency transactions, making them private and anonymous. This makes it substantially safer for people to send money online without revealing their identity in public records.
Company growth: In some businesses, growth is characterised by the acceptance of the potential change to move forward. If there's a high demand for it, incorporating cryptocurrency into the business would place it in this critical emerging space for currency evolution.
Fast transactions: The speed and security features ensure a convenient and seamless method of making payments for products and services.
Low transaction fee: When it comes to making online payments with cryptocurrency, there aren't many fees involved. This is due to a scarcity of middlemen or intermediaries. Most companies and businesses that accept cryptocurrency can transact with their customers directly or through just one intermediary.
Investment and income potential: The aggressive investing option provided by cryptocurrency volatility can be beneficial to certain businesses. It can also provide a consistent source of income because it’s not governed by any authorities, and its value can fluctuate daily depending on the market's demand for these virtual currencies.
Although cryptocurrency has numerous benefits for businesses, there are a few potential downsides to be aware of, such as:
No established bodies: There's no authority in place to oversee financial transactions involving cryptocurrency. Because there are no rules to protect it, it becomes more dangerous and vulnerable. It’s also riskier than investing in the stock market.
Highly volatile: Volatility can be beneficial or detrimental. In this sense, cryptocurrency values can fluctuate significantly, creating uncertainty about their future value. In May 2022, the crypto crash sent the price of bitcoin plunging about 50% in a single day.
Sole responsibility: Nobody else is in charge of safeguarding your digital assets, but you! You'll have to deal with the consequences of, say, losing your virtual wallet. Money in your bank account is protected by banks and authorities in the outside world, but not in the crypto world. Once you've lost it, it's gone, sorry!
Complex set-up process: Because of the unique nature of cryptocurrency payment options, setting them up may necessitate additional effort and time. It entails an e-wallet, which the company could create or use third-party exchange services to act as an intermediary. This could be a setback and impractical in the long run, depending on how the business is doing with crypto.
Not widely accepted: Because digital currencies are still unfamiliar to some people, cryptocurrency use is still not widely accepted. If the majority of the business' clients still prefer fiat money, it’s best to stick to the conservative methods.
Susceptible to scams: The cryptocurrency's foundation is based primarily on new and developing technology areas such as Blockchain. Because of the novelty of this technological aspect, internet fraudsters and hackers can use it to defraud cryptocurrency owners via social media platforms such as Facebook, Instagram, and Twitter. Fake cryptocurrency investment schemes have also been used, resulting in losses.
To recap, here are the benefits and drawbacks of businesses using cryptocurrency.
1) Decentralised 2) Private and anonymous 3) Company growth 4) Fast transactions 5) Low transaction fee 6) Investment and income potential
1) No established bodies 2) Highly volatile 3) Sole responsibility 4) Complex set-up processes 5) Not widely accepted 6) Susceptible to scams
What Impacts Can We Expect From The Use Of Cryptocurrency In Business?
Regardless of investment stance, there's a strong possibility that cryptocurrency will have an impact on companies around the world and the future of business transactions. Let's take a look at some of the ways cryptocurrency will affect business and essentially answer why the cryptocurrency is the future.
Increase of target audience and customer base as anonymity cryptos can attract usage from those who prefer to remain private. Customers from other countries won’t have to deal with currency conversion fees, no matter what the nation’s currency is.
Although some people are still traumatised by the crypto crash, there's still hope that cryptocurrency values will stabilise, and one day become a mature alternative to fiat currencies. The values will still continue to fluctuate, but as the market stabilises and gambling speculators are gradually replaced, cryptos should become much less volatile.
The blockchain technology that underpins cryptocurrency purchases and transfers have enabled a secure, anonymous, and distributed asset tracking system. It allows for the tracking of valuable assets such as real estate deeds and intellectual property rights, allowing payments to be sent to the right holders. Smart contracts are also being used to track asset purchases and sales, service delivery, and money transfers.
It's no surprise that more businesses are beginning to accept cryptocurrency as a means of conducting business. Let’s look at some real-life examples of formerly-traditional businesses which have already adopted cryptocurrency.
Mastercard: Mastercard has granted its network partners the ability to allow their customers to buy, sell, and hold cryptocurrency using a digital wallet, as well as reward them with digital currencies through their loyalty programmes. Customers would be able to earn and spend rewards in cryptocurrency rather than loyalty points as a result of the change. To offer the new crypto services to its customers, the credit card giant will collaborate with Bakkt Holdings Inc, the digital assets platform founded in 2018 by NYSE-owner Intercontinental Exchange.
Pavilion Hotels & Resorts: The Hong Kong-based Pavilion Hotels & Resorts group has become the first international hotel chain to accept virtual currency payments as the latest company to allow crypto transactions. The group, which has properties in Amsterdam, Madrid, Lisbon, and Rome, as well as Bali and Phuket, will begin accepting bookings in 40 different tokens, including bitcoin and Ethereum, in July as part of a partnership with payment platform Coindirect.
AXA Insurance: Customers in Switzerland will be able to pay their bills in bitcoin beginning in early April, according to the insurance broker behemoth. The company's decision to embrace cryptocurrencies has been in the works since 2019 market research found that nearly a third of respondents aged 18 to 55 had either already invested in them or were interested in doing so. Customers will now be given a reference code on their bills for non-life insurance policies to pay their premiums through the cryptocurrency exchange Bitcoin Suisse, which will then convert them into Swiss Francs.
Microsoft: Microsoft's acceptance of bitcoin payments, as one of the world's leading software businesses, is crucial in terms of instilling trust in the use of cryptos. Bitcoin can be used to pay for a variety of services, including Xbox Live and Skype, when redeemed for credit in topping up user accounts. The company's interest in crypto technology isn't limited to that. In late March 2021, Microsoft launched ION, a two-layered authentication platform based on blockchain, on the Bitcoin network. Instead of accepting payments, the technology generates digital IDs that can be used to verify online identities.
Starbucks: Starbucks customers may now use the new Bakkt app to pay for drinks and merchandise using converted bitcoin after a successful trial. According to the app's makers, 500,000 individuals signed up for the invite-only early access programme to try out the digital wallet as a payment option.
Tesla: Elon Musk, the CEO of electric carmaker Tesla, has had an up and down relationship with bitcoin. Initially, the company stated in 2021 that it would accept bitcoin payments for vehicle purchases in the United States. It follows Elon Musk's company's $1.5 billion (€1.2 billion) investment in the cryptocurrency in February. This has now been turned on its head by Tesla's announcement that it will halt bitcoin transactions until more than 50% of tokens are mined using renewable energy.
Amazon: It was reported earlier in 2021 that Amazon was following in the footsteps of other tech behemoths such as Facebook in laying the groundwork for its own exclusive cryptocurrency. However, the e-commerce company does not currently accept cryptocurrency payments. You can, however, purchase Amazon vouchers through the crypto-only company Bitrefill, a platform that makes cryptocurrency living easier by converting bitcoin into gift cards, refilling phones, and so on.
Visa: Visa confirmed at the end of March 2021 that it was testing a scheme with cryptocurrency platform Crypto.com to accept cryptocurrency to settle transactions on its payment network. It will now accept USD Coin (USDC), a stablecoin cryptocurrency whose value is tied to the US dollar.
PayPal: PayPal users in the United States can now buy, sell, or hold a limited number of cryptocurrencies, including bitcoin, Ethereum, Bitcoin Cash, and Litecoin, following an announcement in October of last year. In addition, the PayPal app will allow you to track cryptocurrencies. The only disadvantage is that money cannot be transferred from the company's digital wallet. Users in the United Kingdom can now trade Ether, Litecoin, and Bitcoin Cash on PayPal's website and mobile app, the company announced in August. So far, PayPal has remained tight-lipped about plans to expand the service to other countries.
airBaltic: AirBaltic, a Latvian airline, was the first in the world to accept bitcoin as payment for fares in 2014. Since launching the payment option seven years ago, the company claims to have processed over 1,000 bitcoin transactions. Following its decision, another eastern European airline, LOT Polish Airlines, followed suit the following year.
Always Be Cautious When Dealing With The Crypto Space
Cryptocurrency has the potential to be one of the most significant disruptors in the global business process due to the technology that powers it. One thing is certain: anyone can get involved with cryptocurrency. There are few to no restrictions on investing in or trading cryptocurrency. And as more people become involved in this space, events in the physical realm may slow down.
Another method of disruption is the use of cryptocurrency, which has the potential to destabilise the traditional banking system. This is because transfer fees are minimal when sending cryptocurrency coins since authorisation and authentication of transfers are no longer required. In this regard, banks also can’t compete with the anonymity and privacy provided by cryptocurrencies.
Cryptocurrencies provide features and functions that are changing (and possibly improving) the way we do things, but there are risks to consider, particularly as cybersecurity evolves. It’s worth noting that cryptocurrency is not immune to security breaches. Some cryptocurrencies have already been the target of ransomware attacks and other security breaches perpetrated by hackers. Both ZenCash and Ethereum Classic have lost millions of dollars due to blockchain security problems.
The use of keys and transactions on the blockchain is the source of the security issue. The key is a combination of letters and digits that serves as one’s bitcoin's unique correspondence. It’s safe and secure, but once it is placed in a bitcoin wallet or on a trading platform, the security of that platform becomes critical. If someone obtains access to the key, they can obtain the crypto money.
So, just as you would exercise caution with your online banking account, you should make certain that no potentially exposing data is compromised!
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