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Cryptocurrency and Your Small Business: What You Need to Know

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Cryptocurrency,  is rapidly emerging from high tech obscurity and becoming mainstream.

These currencies continue to proliferate. Last year all cryptocurrencies combined had a market capitalization of over $13 billion.

Electronic currencies are becoming part of the financial landscape; they aren’t going anywhere. Businesses need to start understanding these financial instruments today. If your company figures high tech currencies out soon, you’ll be ahead of your competitors.

Here are three things your small business needs to know about cryptocurrencies right now.

Similarities and Differences

There are hundreds of cryptocurrencies available for financial transactions. The 12 most popular ones account for the majority of market capitalization.

All these monies are paperless, and exist entirely within the digital realm. These financial instruments rely on cutting edge encryption technology, which makes each transaction unique and secure.

Bitcoin, for example, uses a system commonly called blockchain, which timestamps each digital transaction successively for systemic verification. The enhanced security of cryptocurrency allows it to function as a peer-to-peer financial transaction system. Using it enables parties  to conduct financial transactions and avoid intermediaries, like banks, that other financial instruments require.

There are considerable differences in the  types of high tech currencies available today. Some cryptocurrencies limit the total number of digital “coins” that can exist within the system; these are deflationary currencies.

Inflationary cryptocurrencies, on the other hand, allow for additional money to be added to the system. Bitcoin is an example of the former, while Ripple is an example of the latter.

There are pro and con arguments for these two types of cryptocurrencies,. Understanding them both is important for any small business that is going to start using them.

Going Global with Cryptocurrency

A great way to make your small business more competitive is to expand into international markets. Businesses that go global normally realized a positive return within two years,. Furthermore, 34 percent of those achieving returns did so  within six months of going  international.

Adopting cryptocurrency can actually help your small business enter global markets. Additionally, doing so can help your company be more effective than competitors who have yet to embrace digital currencies.

Cryptocurrencies are essentially a peer-to-peer transaction system. They do not rely on a central bank or exchange. Businesses that accept cryptocurrencies can do so without the hassle and costs of currency exchanges.  Paperless currency is increasingly a borderless currency.

As cryptocurrencies become increasingly mainstream, their value in enabling global business will only increase. Beyond maneuvering past exchange rate costs and risks, this technology will enable increasingly rapid, secure transactions.

Moreover, since cryptocurrencies operate peer-to-peer, they will also help empower small businesses and their customers.  Standard financial transactions are essentially at the mercy of the third party intermediary facilitating them. If a bank decides to invalidate a transaction, your business is often caught in the middle.

The P2P nature of cryptocurrencies eliminates third party intermediaries.  It also frees small businesses from the hazards and costs associated with them.

Enhanced Security

Using cryptocurrency can also help reduce two major costs  due to fraud or theft. Fraud is a major drain on businesses. Credit card theft alone costs merchants an estimated $190 billion annually.

Cryptocurrencies, however, can offer businesses a respite from this threat. The backbone of these new digital financial instruments is the cryptographic system that underpins them, and therefore makes them secure enough for peer-to-peer transactions in the first place. They are dramatically less prone to the types of fraud small businesses often have to contend with in legacy payment systems.

Additionally, these instruments offer additional protections for businesses and consumers alike. For example, using these encrypted currencies can protect businesses and customers alike from identity theft.

Finally, these currencies offer enhanced privacy for businesses and consumers. Since no third party intermediaries are required, financial transactions can remain anonymous.

Instant Customization

Electronic currencies  can be custom-designed to execute a specific transaction, like a contract. Cryptocurrency can therefore  eliminate many of the middlemen – notaries, brokers, lawyers, etc. – often required for complex financial transactions. This can save businesses and their customers considerable time when buying and selling real property.

It can also eliminate the hefty fees associated with these intermediary services,. Furthermore, the small businesses that these currencies have a considerable advantage over less tech-savvy competitors.

Final Thoughts

While new,  cryptocurrencies are firmly established and here to stay.

Over 100,000 businesses, already use these currencies in everyday transactions. Giants like Amazon and Tesla, have begun accepting them as well. Hundreds more are following their lead every day.

Small businesses that fail to adapt to new currencies could be left behind. The sooner you understand how cryptocurrencies work, the better you will be prepared for a rapidly evolving financial landscape.

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Finance Author
William Lipovsky owns the personal finance website First Quarter Finance. He began investing when he was 10 years old. His financial works have been published on Business Insider, Entrepreneur, Forbes, U.S. News & World Report, Yahoo Finance, and many others.

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