With cryptocurrency becoming more prominent than ever before, here are five ways that the introduction and gradual mass implementation of cryptocurrency could impact your business.
Instead of using physical cash, the dominant method for payment in businesses nowadays is transferring and sending money through electronic means. Payment of employees, receiving payments or just general costs tend to use the same processes: bank transfer, wire, PayPal etc. These transactions use the traditional banking system through a central bank or government (depending on the jurisdiction).
With cryptocurrency, the payment method is decentralised from the traditional banking system. For example, Bitcoin operates on a peer-to-peer protocol that is maintained by people running Bitcoin’s software across the globe who are incentivised by the network itself. Thus, with a Bitcoin wallet and an internet connection, it can be sent to any desired location very simply.
Thus, two significant impacts on businesses arise.
The nature of the system makes transactions relatively faster and more direct, enhancing day-to-day operations.
Being independent of existing financial infrastructure means that international payments are much more streamlined. The traditional system is disadvantageous because of high transaction fees and slow clearing times as a result of the different banking systems in each country. Whereas, cryptocurrency is a global system and thus makes overseas transactions direct, allowing it to bypass the need of going through international banking systems. Therefore, businesses can wrap up their international dealings much faster with quicker transactions.
The increase in popularity of cryptocurrencies for both consumers and businesses may mean that businesses will have to offer coin payment options to increase their audience of buyers. As previously discussed, the globalisation of cryptocurrency means that businesses could see an increase in international clientele. International consumers would be more inclined to use this method of payment in comparison to traditional payment methods given that there are no exchange rates or fees across borders.
As the prominence of cryptocurrencies increase, consumer confidence in crypto will likely increase as well and those businesses accepting cryptocurrency payments will likely boost their sales as they attract new customers.
As continuously mentioned, the decentralisation of cryptocurrency from the government means that money is not supplied by the government. Anyone who holds government issued currency is subject to the government’s policies and decisions as a result.
Monetary policies implemented by the government can have both positive and negative effects on individuals holding the currencies, however, historically these policies haven't always been in the best financial interests of the individuals. Thus, an advantage to businesses who hold cryptocurrency means that the supply of the coins is known and predictable and business operations will not be so heavily affected by monetary policy.
It should be duly noted however, that it is heavily debated whether the aggregate benefits of the alternative system of cryptocurrency outweigh the benefits of the traditional system. What this does mean for businesses is that they have options. The ability to exit the existing system or have another option alongside it means businesses can somewhat tailor the system to their individual needs.
The value of cryptocurrencies is extremely volatile. For investors, this may be an attractive quality in the sense that high risk tends to correlate a high reward. On the flip side, businesses who accept cryptocurrencies as payment could be exposed to the risk of their coins being devalued and thus losing relative profit. This circumstance would arise where a customer has used cryptocurrency to pay for goods and services, but then after the transaction the value crashes in the market. In this instance, the business owner is worse off.
To combat this issue, the use of cryptocurrency wallets have been employed which offers immediate conversion of the coin into fiat money (government issued currency). However, the possibility remains that in the short amount of time (literally seconds!) between the payment being made and it being accepted, the currency can crash and the value can decrease. The effect of this on businesses is that those who keep payments and revenue in the form of cryptocurrency are essentially taking the risk that comes with the unpredictable nature of coin investment.
Chargeback fraud occurs when a consumer makes an online shopping purchase with their own credit card, and then requests a chargeback from the issuing bank after receiving the purchased goods or services. This is a significant problem facing both land-based and online businesses.
Payments conducted on the blockchain system (cryptocurrency operates on this technology) do not encounter this difficulty as chargebacks only apply to fiat currency transactions. The payments using cryptocurrencies are permanent and irreversible, which leaves the customer with no choice but to contact the business directly if they desire a refund.
This undoubtedly benefits businesses and could be an incentive for businesses to move towards cryptocurrency in the long run.
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The above information may have been been collected from relevant government or other sources and is subject to change. For the latest information regarding new or amended legislation, please refer to state and federal government websites.
