IT professionals with more than a passing interest in cryptography, the dark web or peer-to-peer dynamics will know about cryptocurrencies, XBT, blockchains, mining, and nonces.
But in a business environment, there will probably come the dread day when the CTO (or his/her selected underling) will have to explain the murky, oft-misunderstood, world of Ethereum, Dogecoin etc. to someone without the chops to grasp the technical issues that underpin the concepts.
Understanding SHA 256 isn’t necessary to appreciate the business implications presented by cryptocurrencies.
Naturally, any body attempting in a serious way to adopt a cryptocurrency-based commercial facility will have to have the capability to understand the full implications of what they’re getting involved in.
But the purpose of this article is simply to outline some of the common business questions asked about cryptocurrency by interested, non-technical parties. In a second article, we’ll consider how cryptocurrency can be used to make money and how the stuff can get from A to B.
1. We need to move money faster. Can cryptocurrency help?
In the days when physical cheques and money orders were common ways of moving funds, waiting for monies to ‘clear’ was acceptable. Ironically, in these days of digital exchange, many banks still insist that their customers wait, for arguably dubious ‘security reasons’.
Movement of cryptocurrency anywhere in the world is effectively instantaneous.
2. It costs too much to transfer funds around. Is it free to move cryptocurrency?
When moving fiat currencies, there’s usually a cost. This is carried by someone: a vendor (possibly passing costs onto the customer), a bank, an international transfer service etc.
In some cases, cryptocurrency transactions are free. If not, costs are minimal.
When a transaction takes place it needs to be authorized. This is done anonymously by another computer(s) in the cryptocurrency network which is engaged in mining. In some instances (and this will be increasingly common as cryptocurrency supply begins to dry up), a small levy, or bonus, is paid to the miner for the cost of processing the transfer.
3. We trade in places where the government has been known to seize funds without reason or warning. Can cryptocurrency avoid this issue?
Governments cannot sequester cryptocurrency funds. There is no central controlling body which has access to anyone’s funds but its own.
Unless a government develops the superpowers required to ascertain the private keys of every cryptocurrency owner, it cannot transfer cryptocurrency to itself.
Private keys constitute one half of the encryption that protects, and enables, cryptocurrency transactions. Unless an owner gives up their details, their cryptocurrencies cannot be transferred.
4. Currencies we use are subject to devaluation, which has a negative effect on our profits. Is cryptocurrency immune?
The relative value of a cryptocurrency is set by supply and demand, so will change in value against other types of cryptocurrencies, and against fiat currencies.
But central banks cannot create more Bitcoin, for instance, at times of financial austerity, causing devaluation.
Most cryptocurrencies have finite limits on their numbers (there will be only ever around 21 million bitcoins – the original cryptocurrency) so revaluation is more likely in the long term.
5. We lose a lot of money to fraud. Can using cryptocurrency help reduce this balance sheet entry?
Because cryptocurrency transactions don’t require the spender to reveal any details that can be potentially reused by another party (a fraudster or the recipient), there’s no danger of payment details being stolen and sold to the highest bidder – this happens a great deal with credit cards, for example.
6. Our finances need to be private. Is cryptocurrency private?
Cryptocurrency is transparent in the sense that everyone can see how much is stored at a particular address – a transparent safe deposit box, if you will – and how it got there. Who owns that address is as difficult to ascertain as you wish to make it.
It is a trivial matter to make cryptocurrency ownership effectively 100% anonymous.
Ascertaining a careful individual body’s overall cryptocurrency worth (the contents of their wallet) is physically impossible, given the laws of physics as we understand them at present.
7. Some banks and institutions we’ve worked with aren’t trustworthy. Can cryptocurrency help us round this problem?
When you make a bank deposit or pay using PayPal, there’s a degree of trust required that a currency handler won’t rescind their services, go bust, or behave improperly.
Cryptocurrency requires no trust. A transaction is signed, anonymously verified and reaches its destination anonymously. In fact, the system is so designed that a payment’s recipient won’t know who sent the payment unless the sender wishes to identify themselves!
In the next article, we’ll consider how cryptocurrencies can be used to generate income in their own right, methods of exchange and some real-world uses.