the benefits to your business in accepting them
Understanding cryptocurrencies
- Peter Williams
- Average Reading Time: 10 minutes
- Business & Events
- articles, guides, petercw
Many well-known companies and governments have begun to endorse cryptocurrencies publicly and are developing solutions utilising the underlying technology. The world seems to be warming to these new payment methods, which is often highlighted in the frequent positive media stories and use cases. With all of the available cryptocurrencies and platforms, are there any opportunities for small-to-medium sized businesses to adopt them as a means of accepting payments today?
Historically, reading headlines concerning Cryptocurrencies, especially Bitcoin, the stories were often negative or geared towards warning readers, which resulted in many people being put off from investigating further. I partly paid little notice to these digital currencies for many years due to this, arrogantly writing it off as a fringe technology with little practical application in the real world. My interest only peaked after watching a well-known financial reporter and advocate of Bitcoin talking about cryptocurrencies. He spoke with such passion as a specialist in the financial markets, offering well-reasoned and rational explanations to support and back up his opinions.
After hearing him speak, something in me suddenly awoke, and with it, my interest in the world of cryptocurrencies and the opportunities they presented. After getting over my initial regret that I had not had this revelation sooner, I spent months reading, watching and researching as much as possible. I spent much of my free time listening to early adopters and technology specialists, consuming vast amounts of information. Immediately, I was taken aback, surprised and excited about all of the business opportunities. The most significant is the Blockchain’s application in existing technologies and development approaches. The Blockchain, which underpins Bitcoin, is innovative from a security and transaction perspective and has a broader application than just within the cryptocurrency space. Many of the available technologies are inexpensive and offer immediate benefits to small-to-medium-sized businesses even today.
After hearing him speak, something in me suddenly awoke, and with it, my interest in the world of cryptocurrencies and the opportunities they presented. After getting over my initial regret that I had not had this revelation sooner, I spent months reading, watching and researching as much as possible. I spent much of my free time listening to early adopters and technology specialists, consuming vast amounts of information. Immediately, I was taken aback, surprised and excited about all of the business opportunities. The most significant is the Blockchain’s application in existing technologies and development approaches. The Blockchain, which underpins Bitcoin, is innovative from a security and transaction perspective and has a broader application than just within the cryptocurrency space. Many of the available technologies are inexpensive and offer immediate benefits to small-to-medium-sized businesses even today.
Through my research, I quickly learned that there are a lot of cryptocurrencies available to use. As of April 2020, there are 5,392 cryptocurrencies trading. Not all cryptocurrencies are designed as a means of exchange, and I found that comparing many of these cryptos to traditional finance and investment markets helped, so I started by grouping them into three distinct categories:
The three groups and categories help provide a high-level overview of the types of cryptocurrencies. Now let us look at one of the most exciting components of many cryptos, the Blockchain. It is important to note that not all cryptocurrency uses the Blockchain; however, many of the most well-known do. For those that do use it, the Blockchain is important. It is one of the main reasons Bitcoin and other cryptos offer such a high level of security. Bitcoin was the first; it and other cryptocurrencies have been forked off over the years. Forking is the name of the process where they were separated from established crypto and made into a new cryptocurrency. Think of it as a fork in the road. All those involved in developing and getting the cryptocurrency or technology to a certain point then decide to go in different directions. The groups, those in the various factions, take the code at a specific point in time. From that moment on, each group will code and develop their version of the code differently. Each new forked crypto has its unique development approach, strategy, and use case. Now we understand a bit more about cryptocurrencies and forks, let us explore what makes the Blockchain secure. The Blockchain is made up of six components: –
- EXCHANGE/CURRENCY – cryptocurrencies such as Bitcoin, Bitcoin Cash, Monero, Dash, Litecoin and many more are the most accurate definitions of a store of wealth, similar to assets such as commodities (gold, silver etc.) or money held in a bank account. These types of cryptos all have different purposes (use-cases) and target different audiences; however, they are all a means of exchange, as payment for goods and services
- STOCKS AND SHARES – cryptocurrencies such as Cardano, Golem, SingularityNET and many more are creating solutions and infrastructure with broader application from a technology perspective. A range of solutions that will likely be adopted within the cryptocurrency sector and the more traditional software and technology platforms. When you purchase these types of crypto, you are effectively buying into the company and service, similar to a stock or share
- CROWD FUNDING/START-UPS – the final group relates to what is known as Initial Coin Offerings or ICOs. The ICOs relate to new coins or start-ups in either of the categories listed above
The three groups and categories help provide a high-level overview of the types of cryptocurrencies. Now let us look at one of the most exciting components of many cryptos, the Blockchain. It is important to note that not all cryptocurrency uses the Blockchain; however, many of the most well-known do. For those that do use it, the Blockchain is important. It is one of the main reasons Bitcoin and other cryptos offer such a high level of security. Bitcoin was the first; it and other cryptocurrencies have been forked off over the years. Forking is the name of the process where they were separated from established crypto and made into a new cryptocurrency. Think of it as a fork in the road. All those involved in developing and getting the cryptocurrency or technology to a certain point then decide to go in different directions. The groups, those in the various factions, take the code at a specific point in time. From that moment on, each group will code and develop their version of the code differently. Each new forked crypto has its unique development approach, strategy, and use case. Now we understand a bit more about cryptocurrencies and forks, let us explore what makes the Blockchain secure. The Blockchain is made up of six components: –
- Your private encrypted key – a unique electronic key assigned to your wallet (think of it as similar to an electronic safety deposit key)
- Your wallet – this is an address where the cryptocurrency will be stored (similar to a bank account)
- Every transaction – cryptocurrencies are unique in that there is no governing body, authority or organisation that owns the process. Instead, transactions are managed through and within the Blockchain or network
- Blocks in the Blockchain – all transactions taking place at that time fill up a single block. Two things occur once the block is full and achieves a specific file size. The first thing is that a unique code is assigned; the code is generated based on the contents and transactions within the block. Whenever a new block is created, it will immediately record the previous block’s unique code within its record. The last or recently full block will also record the new block’s unique code, so effectively, each block has a record of what came before and what comes after. Every block in the Blockchain works in this way. The Blockchain has a complete history or chain back to the first-ever transactions within the cryptocurrency. Using the previous block’s unique code means it keeps an audit trail and constantly validates to ensure it has not been tampered with or amended somehow
- Many versions of the truth – the entire and frequently updated Blockchain is syndicated to all those that mine. Mining is the term used for all those individuals and organisations that process the transactions. If someone attempted to falsify a transaction within a block, they might manipulate one block. However, when uploaded and syndicated to the rest of the network, all those with the existing blockchain records would know something was wrong. With their own and accurate records, the other users within the Blockchain would quickly identify that the unique code and the block’s contents had been amended and would ignore it. Effectively a collective consensus that one particular block is wrong and would be ignored by the masses
- Miners – as mentioned, these are the individuals or companies that process the block, similar to what a bank would do. The miners are rewarded with new or mined cryptocurrency. The process can be carried out by anyone, anywhere around the world, with the right equipment
There is no one organisation or group solely responsible for transactions like a bank
When reading about Bitcoin, you will frequently see headlines like ‘Bitcoin Scam’, ‘Millions stolen in Bitcoin Heist’ and ‘Organised crime using Bitcoin’. These things may have happened or are happening now; however, it is also true of existing fiat currencies such as US Dollars, Euros etc. Many criminal organisations hold large amounts of cash, even filtering it through onshore and offshore accounts, so it is not a problem unique to Bitcoin or crypto. To link these problems solely to cryptocurrencies is purely a way of scaring people away from learning more or from media outlets not understanding the benefits of the technology
Bitcoin is a lot more securer than people realise, so let us look at some of the things you may have heard: –
Bitcoin is a lot more securer than people realise, so let us look at some of the things you may have heard: –
- Untraceable – the wallets are anonymous, as it uses a string of text and numbers. There are no banks or single authority regulating cryptos, and no one knows who owns a physical wallet. Like with conventional cash, it is when it is exchanged or spent that you can follow the trail to find out the identity of who owns a specific wallet
- Sent to the wrong address – like with cash, once you hand it over, it is hard to get it back if you make a mistake. So, when sending crypto, it is always important to check and double-check an address before confirming
- Easy to steal – like cash, it depends on where you store it. If you keep your crypto in a private wallet and your private key is kept secure, it becomes difficult for someone to hack and steal your crypto. Most of the hacks, where large sums are taken, are often where the money is held on an exchange or central service. In effect, it is the exchange or service provider that are being hacked rather than the wallet or private keys
- Transaction Fees – the fee you pay will vary; however, typically, fees are a fraction of what you would pay a merchant or gateway provider
- Decentralised – unlike most currencies linked to a country or region, many cryptocurrencies are decentralised. Part of its volatility is due to being independent. Not being associated with a country or region means that it will only go up and down with supply and demand; the greater the demand, the higher the price. Traditional fiat currencies are often influenced by the usual factors that affect a country, such as economic outlook, interest rates etc.
Cryptocurrencies generally do not carry much more risk than currencies that you hold and process today
Security is a big concern for many businesses when deciding whether or not to accept cryptocurrencies. However, managing the process in the right way can be both secure and safe. With encrypted personal keys and a sophisticated blockchain design, getting hold of your cryptocurrency would be difficult for most criminals. Here are some tips for safeguarding Cryptocurrencies: –
- Avoid leaving your money on exchanges – transfer your crypto to your private wallet as frequently as possible
- Invest in hardware such as Trezor (https://trezor.io/) and Ledger (https://www.ledger.com/). These companies manufacture inexpensive equipment to secure your wallet; units typically cost between $50 to $300
- You will be given backup codes if you need to reinstall or lose access to your private key. Make sure that you keep the backup codes somewhere secure and in a different location to where you store your hardware
- Never share your private keys with anyone
Many cryptocurrencies have seen phenomenal growth over the years; however, many are still somewhat volatile. As a decentralised currency, the Bitcoin rate, for example, is often compared against all major fiat currencies. Though it has seen a dramatic swing over the years regarding the price, it ultimately depends on what you plan to do with your crypto. Suppose you want to transfer any cryptocurrency you receive directly into your country’s fiat currency. In that case, you will likely get an amount close to your desired/requested amount. If you store your cryptocurrency and treat it as an investment, you could see the amount you hold significantly grow or fall over time. Like most business assets, it will have value; however, when it is realised or converted, it is at that point you will have made an actual profit or loss.
Many are still somewhat volatile
With many countries worldwide suffering recessions or devalued or fluctuating fiat currencies, many are storing part or all of their wealth in cryptocurrencies. Offering customers the ability to pay you in a cryptocurrency does not have to be complicated or require you to introduce new infrastructure or pay hefty fees. Typically, companies offering payment solutions will provide an end-to-end service.
Here is how it typically works:
Many well-known CPS companies offer low-cost solutions. These services are often hassle-free, enabling you to accept but never see any crypto if that is your preferred approach. The CPS will manage the process and automatically convert or transfer the crypto on your behalf. CPS fees are usually lower than conventional merchant payment services, so you could end up seeing greater profits by integrating crypto into your sales process. Companies such as BitPay (https://bitpay.com/), Coinbase Commerce (https://commerce.coinbase.com/), Venmo (https://venmo.com/), Square Payments (https://squareup.com/gb/en) and Coinomi (https://www.coinomi.com/en/), all offer payment solutions for cryptocurrencies.
Accepting cryptocurrencies such as Bitcoin and Bitcoin Cash gives all potential customers globally access to your products and services but at the same time can be seen as a unique selling proposition for your business. You can offer crypto as a payment option and still receive the right amount in your preferred currency by using a CPS. At the same time, you will also see the cost of processing transactions significantly reduced. Cryptocurrencies are no different from any other form of payment you accept, and with the proper measures and controls, your money will be safe and secure.
Even if you decide that accepting crypto is not the right approach for your business, right now, it is worthwhile carrying out research. Keep an eye for developments, as cryptocurrency adoption will inevitably increase in the future.
Here is how it typically works:
- You would set your prices or the amount you wish to receive in your regular/fiat currency. However, some companies may opt for a fixed cryptocurrency price, so it really will depend on your preferred approach
- If customers pay for your goods and services via your website, you would only need to set up a Cryptocurrency Payment Service (CPS). Many of the available services integrate into the main checkout plugins and tools, so they are typically easy to integrate
- When customers use your website and go to check out, they will be presented with the usual payment methods as well as the CPS you have setup
- When selecting the CPS method, the customer would be required to follow the instructions provided by the CPS and transfer over the required crypto
- Once transferred, you will either receive the exact requested amount in your chosen fiat currency or an equivalent amount in the crypto, minus any service fee
Many well-known CPS companies offer low-cost solutions. These services are often hassle-free, enabling you to accept but never see any crypto if that is your preferred approach. The CPS will manage the process and automatically convert or transfer the crypto on your behalf. CPS fees are usually lower than conventional merchant payment services, so you could end up seeing greater profits by integrating crypto into your sales process. Companies such as BitPay (https://bitpay.com/), Coinbase Commerce (https://commerce.coinbase.com/), Venmo (https://venmo.com/), Square Payments (https://squareup.com/gb/en) and Coinomi (https://www.coinomi.com/en/), all offer payment solutions for cryptocurrencies.
Accepting cryptocurrencies such as Bitcoin and Bitcoin Cash gives all potential customers globally access to your products and services but at the same time can be seen as a unique selling proposition for your business. You can offer crypto as a payment option and still receive the right amount in your preferred currency by using a CPS. At the same time, you will also see the cost of processing transactions significantly reduced. Cryptocurrencies are no different from any other form of payment you accept, and with the proper measures and controls, your money will be safe and secure.
Even if you decide that accepting crypto is not the right approach for your business, right now, it is worthwhile carrying out research. Keep an eye for developments, as cryptocurrency adoption will inevitably increase in the future.
Offering customers the ability to pay you in a cryptocurrency does not have to be complicated or require you to introduce new infrastructure
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