What are cryptocurrencies, and how are they prevalent in business?

What are cryptocurrencies, and how are they prevalent in business?

Finance is obviously a fundamental part of business; what we exchange for products and services is the foundation for the maintenance of day to day life. Although the introduction of technology has seen, over decades and centuries, almost all parts of our lives change and improve, money remains relatively unaltered.

This may have changed however with the introduction of cryptocurrencies. But for many, the concept of a purely online currency seems completely foreign and unsubstantiated. In this blog therefore, we will attempt to shine at least some light on what cryptocurrencies are and whether they may feature as a part of daily business anytime soon.

What exactly are cryptocurrencies?

Cryptocurrencies are virtual or digital currencies, utilising cryptography as security. They are created through a process known as mining. Not at all related to that of gathering ore, mining cryptocurrencies consist of hugely powerful computers solving extremely complicated problems. This is a huge security feature and requires vast networks of extremely powerful computers to crack.

These currencies use what is known as a peer-to-peer electronic cash system. This means that there is no central authority or entity controlling the currency, the currency relies on a technology called blockchain – rather than one central ledger, a network of physical computers on a certain network confirms each transaction.

The most prominent cryptocurrency, and the first that was created through this concept of blockchain, is Bitcoin. There are however many thousands of alternatives to this currency, each created for individual purposes. Although these currencies only exist electronically, they can be accessed via a ‘crypto wallet’. This gives you access to purchasing cryptocurrencies, including the ability to exchange traditional money for a specified, digital currency.

What are their benefits?

The concept of a peer-to-peer currency is the primary benefit of cryptocurrencies. In becoming decentralised, there is no government or central authority controlling your credit, so your money will not be affected by any corruption that may exist in these organisations. Each cryptocurrency also has a limited number of coins, meaning that it will not be affected if this central authority chooses to print vast amounts of money during a time of economic hardship.

The other primary benefit is that cryptocurrencies cut out the middleman of a bank. This gives control of your personal finances back to the individual. It also offers those millions of people who do not have access to everyday banking, the ability to do so, by handling it themselves. 

Can they be used in day to day business? – the drawbacks

The primary issues with cryptocurrencies currently is that they are not used in any high street shop. Although this lies primarily with the fact that the process of paying with cryptocurrency is expensive and slow, it also comes down to trust.

This trust is first tested through cryptocurrency’s volatility. The better-known currencies such as Bitcoin are more stable, but other currencies can see huge changes in their value. Without central government control, you could see the value of these currencies fall to zero, rendering it worthless. The lack of centralisation also means that if somehow your electronic cash is stolen, there isn’t any organisation who is responsible in the process of helping you to get it back.

Generally, the uncertainty behind cryptocurrencies mean that there is therefore a lack of trust in them as a means of cash. Although this may change in the future, cryptocurrencies are typically used as investments, by those who expect to see its value rise in the future.

 

Despite the fact that cryptocurrencies may not be your primary concern, finances are an essential element to your business plan. If you would like help with putting together your business plan, get in touch today! Contact us online using the form on the right or call 01604 420 420.

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