3 minute read
Small Business Enterprise - SBDC March 2022
Cryptocurrency for small business: Is it ready for us?
Benefits and risks for this new method of monetary exchange
Cryptocurrency is a digital method of exchange that uses a digital ledger called a blockchain to enforce security of transactions. Cryptocurrency is not owned, backed or regulated by any government or financial regulating organization. It relies on encryption and a personal key to maintain ownership of the “money.” There is no middleman in peer-to-peer currency transfer, it’s considered secure, eliminates many types of fraud and is totally disconnected from economic inflation.
Crypto came to be shortly after the 2008 financial crisis where banks, investment firms and financial institutions drove up assets then backed down, resulting in billions of dollars in recovery buyouts. Crypto has several forms such as a Bitcoin, digital coin or a token, and users of crypto can select from Bitcoin, alt coins or stable coins as currency.
As of today, there are more than 16,500 recognized cryptocurrencies with more than 9,600 considered active. Each one is a little different, but all share the same basic cryptocurrency architecture. Many large financial players readily accept crypto: Tesla, PayPal, MasterCard, Microsoft, Overstock and Home Depot, to name a few.
How Can Small Business Benefit from Cryptocurrency?
Simply put, crypto opens up opportunity for small business. Crypto provides small businesses with a new method for accepting payment and greater interoperability with many other types of asset classes and liquidity. It can provide some insulation from economic uncertainty and downturns and has a bonus of being a speculative investment method as well as an immediate payment handling medium.
Crypto is cheaper and faster than conventional payment processing and gives businesses access to new types of business. There are 1.7 billion people worldwide that do not have banking options that can readily use crypto. There are no chargeback fees for merchants and greater protection for merchants from fraudulent purchases. Crypto today is convenient for customers to use, opens sales doors to a global worldwide market and gives merchants a global reach for their services and goods.
What are the Risks of Using Cryptocurrency?
Crypto is not without risks as it is a relatively new concept in monetization. It is somewhat technical to work with and requires a special application called a digital wallet to use. Crypto is also volatile and has an unpredictable value: In 2009, Bitcoin was valued at pennies but now is worth more than $65,000 each. Companies may insulate themselves from volatility by using merchant services to convert transactions to cash right away. Since crypto is new, the exploits from cyber criminals are yet to be discovered. Also yet to be discovered is how global governments will handle an unregulated monetary system they cannot control. Some countries such as China have banned crypto altogether.
Despite the relative few drawbacks and risks, crypto represents a major new opportunity for small business that can be utilized now to increase reach of goods and services and a wide pool of customers. Crypto is not going away and is here to stay. Small business needs to embrace this new way to handle payment, as it is one technology that further levels the playing field for small business to compete with the big players.
Michael Rogers is consultant in cyber security and new emerging technologies for the Rockford SBDC.