Cryptocurrency and blockchain are the latest buzzwords, and if you are not familiar with the concept, here is a quick break down…
WHAT IS CRYPTOCURRENCY?
Digital currency or digital money is a method of payment using a digital form of currency, not paper money or coins like USD or GBP. Digital currency makes instant, borderless transactions possible for goods and services and it is transferred between two entities using internet technology. Cryptocurrency is considered a subset of digital currency that uses cryptography, or the process of converting information into a virtually uncrackable code, to track all transactions in a secure environment. Blockchain technology is the backbone of cryptocurrencies, such as Bitcoin and Litecoin. Blockchain uses encryption methods to regulate cryptocurrency usage and its release into the market. Governments or other third-party authorities do not control the value of cryptocurrency; most are designed to decrease in production over a certain period of time, creating an automatic market cap.
Created in 2009, the first cryptocurrency was Bitcoin; it is still the most well-known, however, it is important to note that there are more than 700 different cryptocurrencies available on the internet.
Bitcoin and other similar cryptocurrencies have decentralized control due to the use of blockchain technology. The blockchain that supports cryptocurrency is basically a digital and public accounting ledger of the currency’s transactions. Data is stored over a network, not just on one computer or server. By distributing access, there are fewer chances of hackers accessing information and no chance of central failure, making it a very secure setup.
Each record or series of records on the blockchain is known as a block. A block is sent to the network for verification as a valid transfer. Once the block has been verified and entered into the ledger, it cannot be altered or changed.
People can buy and trade cryptocurrencies through online exchanges or they can participate in cryptocurrency mining and earn currency for their efforts.
Cryptocurrency networks are anonymously maintained by cryptocurrency miners, members of the general public, who have set up their computers to validate and process each transaction, earning them cryptocurrency in return. Using special hardware and software, miners verify transactions between other users which are then publically and permanently recorded on the blockchain. Blocks need many confirmations from different miners and once confirmed in the blockchain, the information cannot be changed, preventing the same digital currency from being spent twice by the same person and making this self-regulating system of checks and balances very secure for its users.
The more transactions miners verify, the more cryptocurrency they earn. This is a huge incentive for miners and it also ensures the on-going strength of the overall cryptocurrency system.
Once a user has obtained cryptocurrency, it is recorded in a digital wallet that can then be used to buy products online or even at physical stores that accept the currency.
SHOULD YOUR BUSINESS USE CRYPTOCURRENCY?
I believe that there is not a simple answer to this question, as there are many factors that go into this decision. Let’s consider cost first – as miners are given cryptocurrency directly from the network, there are usually low fees, if any, for user transactions. Another advantage is due to the decentralised system, you own your currency and the use of such cannot be limited by any third-party organisation. As transactions are sent directly to users, transactions are safe and private information cannot be stolen, unlike credit card transactions. Also, as we mentioned earlier, payments via blockchain technology cannot be changed or reversed, making it a risk-free environment for vendors.
Now, on the other hand, blockchain technology is relatively new and majority of businesses still do not widely accept cryptocurrency, therefore making credit cards and cash a more popular means for payment. The value of cryptocurrency is also based on demand, meaning that exchange rates can vary greatly day to day.
The market for cryptocurrency and blockchain is growing quickly as businesses find new ways to use the technology. Many international organisations, such as J.P. Morgan, Oracle, and IBM have embraced blockchain in their business transactions and it has been reported by IBM that 9 out of 10 government organisations plan to invest in the technology in the near future. Giulio Prisco from NASDAQ reports that the United Arab Emirates aims to go paperless by 2020 by leveraging blockchain technology.
It is clear that in our hyper-connected world, the ease of a safe, direct method of payment has plenty of potential and I believe that blockchain technology could grow to be an important method of financial transactions in the future.
This is a guest blog and may not represent the views of Eroe Consulting. Please see Eroeconsulting.com/terms-and-condition for more details.