Cryptocurrency refers to a digital form of currency that can be used as a medium of exchange for goods and services. Since the internet became popular in the 1990s, the tech world has been trying to innovate ways to optimize transactions that are done digitally. Finally, in the year 2009, an anonymous programmer named Satoshi Nakamoto introduced Bitcoin (Bennett, 2017). Bitcoin is widely considered the first cryptocurrency to get mainstream attention. However, the instability of Bitcoin concerning stock market prices and value has scared away more people. The main aim of this paper is to analyze the impact of the introduction of cryptocurrency, the advantages of using cryptocurrency and the potential risks of cryptocurrency.
When Bitcoin was introduced in 2009, it was not popular and therefore did not have many users. However, interest intensified and thus its value increased exponentially. In 2017, it was valued at a $1000. Towards March 2018, its value rose to $10000 (Bennett, 2017). The ascent of Bitcoin can be attributed to increased confidence in the legitimacy of the currency and increased investments towards its development. However, its lack of a centralized monitoring system has made it impossible for the government to regulate it. Therefore, governments have issued warnings against its use and highlighted its risks. Despite the warnings, the governments are actively looking for ways to restrict supply and introduce a tax system to cryptocurrency.
The main impact of cryptocurrency is the elimination of third-party entities in a transaction. Cryptocurrency uses a peer-to-peer type of technology, referred to as blockchain technology, which entirely removes the essence of a verified “middleman” (Schrage, 2018). Therefore, the restrictions and charges that accompany a verified third-party are wholly eliminated from the business transaction. Moreover, the absence of a third party makes it impossible for an authority to gain access to a specific person’s personal information. Due to these features, cryptocurrency has gained a considerable amount of willing users.
The use of cryptocurrency can present a business owner with some benefits. First, it saves money through the elimination of third parties in transactions. Since the third parties charge a fee to use their services, an entrepreneur can forego these charges and deal with his or her client directly. Throughout the past years, it is estimated that in the United States of America merchants have spent over $78 billion on fees only (Halaburda & Gandal, 2014). For small businesses, saving between five percent and twenty percent on charges may prove to be beneficial to them in the long run.
In cryptocurrency, transactions take place quicker than conventional forms of operations. Due to the elimination of the third party element, bureaucracy is significantly reduced in payments. For instance, in a traditional bank, there are times in which a person cannot withdraw money from his or her account because he or she needs validation or documents to access his or her money. In cryptocurrency, provided that the person has the amount required to perform a transaction, he or she can do so without any problems in real time (Delmolino, Arnett, Kosba, Miller, & Shi, 2016).
Cryptocurrency can enable a business to expand its market. First, since it is not bound to any country, transactions can occur worldwide without any complications. Moreover, due to the instant validation, cryptocurrency offers a more convenient method of payment when it is compared to conventional means of payment. Secondly, as cryptocurrency is gaining popularity, a merchant runs the risk of losing clients if he or she does not incorporate cryptocurrency as a means of payment (Delmolino, Arnett, Kosba, Miller, & Shi, 2016). Recent studies have indicated that a considerable amount of shoppers do not complete their orders due to the lack of a convenient means of payment. Therefore, cryptocurrency can boost a business’s market share.
Despite having benefits, using cryptocurrency as a means of payment for business has its share of risks. First, the volatile nature of the value of cryptocurrency is a significant point of concern for parties involved in the transaction (Halaburda & Gandal, 2014). The unpredictability of the cost of cryptocurrency can cause a business to run into losses in minutes after receiving the payments. Secondly, the transfer of cryptocurrency to the currencies is also challenging. The exchangeability is made harder due to the action of some governments to illegalize forms of cryptocurrency. In most scenarios, cryptocurrency is only exchangeable with the major currencies such as the US dollar. Consequently, international transfers are made more challenging.
In conclusion, cryptocurrency has all the signs of becoming the next significant technological innovation. Many of the challenges that it faces can be looked at as the "growing pains" of new technology. However, just like any technology, cryptocurrency runs the risk of amounting to nothing in the next few years. Despite this risk, cryptocurrency has shown resilience in its continuous growth. Consequently, major companies such as IBM and Barclays have incorporated cryptocurrency into their systems. Therefore, cryptocurrency presents a unique opportunity to both small and large businesses to gain an edge over their competitors. Accordingly, companies should prepare adequately for cryptocurrency.
References
Bennett, S. (2017). Cryptocurrency: Understanding Bitcoin, Bitcoin Cash, Ethereum & Altcoins. Cryptomasher.
Delmolino, K., Arnett, M., Kosba, A., Miller, A., & Shi, E. (2016). Step by Step Towards Creating a Safe Smart Contract: Lessons and Insights from a Cryptocurrency Lab. Financial Cryptography and Data Security, 79-94. doi:10.1007/978-3-662-53357-4_6
Halaburda, H., & Gandal, N. (2014). Competition in the Cryptocurrency Market. SSRN Electronic Journal. doi:10.2139/ssrn.2506463
Schrage, A. (2018, May 30). 4 Important Cryptocurrency Facts Business Owners Should Be Aware Of. Retrieved from https://www.forbes.com/sites/theyec/2018/05/24/4-important-cryptocurrency-facts-business-owners-should-be-aware-of/#76d599c94e1c
