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Cryptocurrency is gaining rapid global adoption, and businesses are beginning to explore its integration into their accepted digitally based payments. But what exactly is it, how are businesses using it and what are the risks? Here’s an overview.
Cryptocurrency, also known as crypto, is a digital currency designed to work as a medium of exchange. At its core, cryptocurrency is decentralized digital money intended for use over the internet. Cryptography is used to secure and verify transactions and control unit expansion. Many cryptocurrencies are built on a distributed ledger enforced by a network of computers commonly referred to as blockchain technology. Cryptocurrencies are distinguishable from fiat — currency backed by government decree — because a central authority does not issue the asset. This decentralization makes crypto potentially impervious to government intervention and manipulation.
Decentralized currency was first conceptualized in the mid-1990s by cryptographers such as David Chaum. While early creators are credited with laying the intellectual and technological groundwork, it wasn’t until Bitcoin’s emergence that global adoption began to increase. Bitcoin, or BTC, is the largest and best-known cryptocurrency, launched in 2008 when Satoshi Nakamoto, the pseudonymous creator of Bitcoin, released a white paper inviting other technologists and cryptography enthusiasts to participate in its inception. The first codes of BTC were written in 2009.
Cryptocurrency was intended to democratize finance the way the internet democratized content, opportunity and the spread of knowledge. Before the internet, content could be widely disseminated only by a few designated authors. Today, anyone is capable of creating and sharing their thoughts with easy global access. The goal of digital assets is to allow democratized access in a similar way. Fractionalization and transferability allow equal access to investors of all sizes. No longer is investment in a market relegated to institutional or wealthy investors.
Cryptocurrencies’ potential to store and grow value has made them particularly intriguing to investors and traditional businesses alike. But beyond simply exchanging products, crypto also allows for secured transaction storage on the blockchain, making larger purchases, like real estate, appealing to those who want to make a secure exchange without traditional paper documentation. This happens through smart contracts, which are digital agreements stored and executed across all nodes in the network. The creator of the smart contract defines the terms of the agreement, and it will be saved onto the blockchain where it will remain forever in an unchangeable code.
As cryptocurrency use spreads, businesses are increasingly including crypto among other digital payment methods. E-commerce and cryptocurrency work well together given they both appeal to digitally focused users. Given the continued transition to internet based-business, accepting cryptocurrency is a natural progression. Crypto also allows a faster and more convenient way to pay for goods and services while protecting against data and information privacy concerns. Cryptocurrency furnishes certain options that are unavailable with fiat currencies, such as the ability to enable real-time and accurate revenue-sharing while enhancing transparency to facilitate back-office reconciliation.
Like all financial structures, fraud and scams are present with digital assets. The best way to protect from crypto-related theft is by exercising caution and conducting the same thorough due diligence and research an investor would typically conduct when investing in a project. Security experts have identified the following red flags that might indicate when an investor is being targeted by a scammer:
1) A third party demands crypto-only payment,
2) A third party guarantees profits,
3) The third party promises quick returns, and
4) A third party will send unsolicited job offers related to selling, mining or managing crypto investments.
While 2022 promises to be the year of enforcement actions, fines and regulation, the original timeline has been delayed by Russia’s invasion of Ukraine. Before the invasion, President Joe Biden had promised an executive order related to digital asset regulation. As of press time Thursday, no such order had been released.
But one thing is certain: Regulation is coming. It is still a battle as to which regulatory body will be responsible for crypto oversight. The most likely contenders are the U.S. Securities & Exchange Commission and the Commodity Futures Trading Commission.