by Grace Barone
Cryptocurrency, crypto, crypto-currency. The new form of money that the world is talking about. But what is this magical internet money and why is it important? In this blog I'll explain what cryptocurrency really is and the possible effects it has on the world of payment processing and small businesses.
So What is Cryptocurrency?
According to google, cryptocurrency is "a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority." What does that even mean? Well, I'll tell you. Cryptocurrency is a type of digital money that relies on a blockchain, a publicly distributed record, rather than central banks or other reputable third parties to validate transactions. So, in other words, it's digital money that lives within a blockchain and is not controlled by the government. Typically, cryptocurrency is kept in digital wallets that can be accessed via private keys. A decentralized network of computers called nodes processes and verifies transactions, maintaining a blockchain.
But... What is a Blockchain?
Blockchains are decentralized digital ledgers that record transactions across numerous computers in a safe, open, and unchangeable manner. Transactions are recorded in blocks and chronologically linked together. Each block forms an uninterrupted chain of blocks that cannot be changed without also changing each subsequent block in the chain. Each block includes the digital records of numerous transactions as well as a special code called a hash that connects it to the block before it. This makes chains of blocks difficult to tamper with or change.
This is how I rationalized this concept in my head. Imagine a big book that keeps track of things, kind of like a diary. But instead of just one person writing in the diary, lots of people write in it together. And instead of paper, it's all on the computer. Each time someone writes something new in the diary, it's like adding a new page. But every page is connected to the page before it, like a chain. So if someone wanted to change something they wrote before, they would have to change all the pages that came after it too.
This is why people are interested in the idea of crypto. You can't make a transaction without everyone else on the chain seeing it. If a hacker were to try and tamper with the blockchain and attempt to alter the funds. It would be seen immediately and effect the rest of the chain. People find this idea comforting in a way, because the risk of their money being tampered with is very low. If you want to learn more about all the nuances of cryptocurrency, here's a great blog all about crypto.
Crypto Gaining Popularity
The price of Bitcoin, the first and most well-known cryptocurrency, reached an all-time high of around $20,000 per coin in 2017, which marked a significant increase in the popularity of cryptocurrencies. Bitcoin became widely known as a result of this unanticipated rise in value, which also triggered a wave of media interest. But Bitcoin had been around since 2009, it just didn't gain traction until the value skyrocketed.
Why Crypto is Important
Since then, the public has discovered all of the benefits that come along with cryptocurrency:
Decentralization: Cryptocurrencies are decentralized, which means that no one government or financial organization has any influence over them. This increases people's financial autonomy and lowers the possibility of intrusion from institutions or the government.
Security: To secure transactions and guard against fraud and hacking, cryptocurrencies use cutting-edge cryptography and decentralized networks. They are therefore more secure than conventional payment methods like bank transfers and credit cards.
Transparency: On a blockchain, transactions are visible to everyone and can be independently verified to be true. Because of this, they are advantageous in applications like supply chain management where transparency is crucial.
Accessibility: Because they are easily available to anybody with an internet connection, cryptocurrencies are effective tools for financial inclusion. They can be used to send money across international borders, cutting out traditional financial institutions and costs.
Innovation: As a relatively new technology, cryptocurrencies have the potential to spur advancements in a variety of industries, including identity management, banking, and healthcare. New use cases and applications are likely to arise as more individuals use and create bitcoins.
In general, cryptocurrencies provide a brand-new, cutting-edge method of transmitting and holding money that is safe, open, and available to everyone with an internet connection. Cryptocurrencies have the potential to alter many aspects of our life, but there are still obstacles to be addressed, such as regulatory uncertainties and scalability problems.
Different Kinds of Crypto Currency
There are many different forms of crypto out there, Bitcoin (BTC) is just the most well known one. Others include;
Ethereum is a decentralized platform for building decentralized applications (dapps) using smart contracts. It has its own cryptocurrency called Ether, which is used to pay for transactions on the network.
Binance Coin (BNB)
Binance Coin is the native cryptocurrency of the Binance exchange, one of the largest cryptocurrency exchanges in the world. It can be used to pay for trading fees on the exchange and to participate in token sales.
Ripple is a payment protocol and cryptocurrency that was created to facilitate fast and low-cost international money transfers. It is often used by banks and financial institutions to settle cross-border transactions.
Cardano is a decentralized platform for building and running smart contracts and decentralized applications. It is designed to be scalable, secure, and sustainable.
Created in 2013 as a joke, Dogecoin is a cryptocurrency that features the likeness of a Shiba Inu dog as its logo. Despite its humorous origins, Dogecoin has gained a large following and has been used to raise money for various charitable causes.
Tether is a stablecoin that is pegged to the value of the U.S. dollar. It is often used by cryptocurrency traders as a way to move money between exchanges without having to convert to fiat currency. Fiat currency is issued and regulated by a government but is not backed by a tangible good like gold or silver. The dollar, the yen and the euro are examples of fiat currency.
Major Credit Cards Joining in
While we don't know for sure what the future holds when it comes to crypto currency, there's no doubt that it's gaining traction. Some are betting that crypto really is the future of payment and soon we will be paying for everything with some kind of crypto. Major credit card companies are taking note and don't want to get left behind if or when that happens. Mastercard, Visa and American Express see the potential and don't want to be late to the game.
Visa has invested in a number of blockchain-related firms and has been researching the usage of digital currency and blockchain technology for a while. Customers will be able to use their bitcoin holdings to make purchases at millions of merchants worldwide. This is thanks to the companies announcement that it would begin accepting cryptocurrency payments on its network in 2021.
Several patent applications pertaining to cryptocurrency payments have been made by Mastercard, which has also been investigating the usage of blockchain technology and digital currencies. Mastercard declared that it would begin to support a few specific cryptocurrencies on its network in 2021, enabling users to use their digital assets to make purchases.
Although it has approached cryptocurrencies with more caution, American Express has also been looking into how to integrate blockchain technology into its business practices. American Express invested in many blockchain-related firms. In addition to filing a patent for a payments system based on blockchain in 2018.
Should Business Owners Start Taking Note?
With all this talk of cryptocurrency, the question is, what should business owners do with this information? Well, it's time for business owners to start considering whether or not they want to start accepting cryptocurrency. For small businesses that start taking bitcoin payments, there are a number of possible advantages, including:
- Increased sales and clientele: By accepting cryptocurrency payments, small companies can reach a customer base that is expanding and prefers to deal with digital currencies. The consumer base of the company may grow as a result, and sales may rise.
- Cheaper transaction fees: Compared to more conventional payment options like credit cards, cryptocurrency transactions often have cheaper transaction fees. This can lower transaction costs for small firms and boost their profit margins.
- Faster settlement times: Compared to traditional payment methods, cryptocurrency transactions can be settled considerably more quickly. This can be very helpful for small businesses who need to manage their cash flow.
- Reduced risk of chargebacks: Since cryptocurrency transactions are final, small businesses don't have to be concerned about chargebacks or fraudulent transactions.
- Innovative and forward-thinking: By accepting bitcoin payments, small businesses can provide a positive image to clients who are attracted to emerging technology and trends.
Accepting bitcoin payments does come with risks and difficulties, such as price volatility and regulatory ambiguity. Before deciding whether to accept cryptocurrency payments, small businesses should carefully consider the possible rewards and hazards.
If you're a business owner looking for more information about accepting cryptocurrency at your business, head to getvms.com or fill out the form below.