Understanding the answers to such questions as, “What is cryptocurrency?” and “Is accepting cryptocurrency right for your business?” is a vital component to operating modern businesses. While cryptocurrency is rising in popularity, it can be easy to misunderstand the terms exact nature as well as the risks and benefits involved in its use. Taggart & Partners can help explain the advantages and disadvantages of cryptocurrency to provide you with the knowledge required to make an informed choice whether its right for your business.
What is Cryptocurrency?
Cryptocurrency is a digital token used by people to directly pay each other online. There are a variety of cryptocurrencies, the best known being Bitcoin, and the market for them has been trending upward. It is important to understand that, currently, they have no intrinsic or legislated value and are simply worth what users are willing to pay for them. As such, they are a highly speculative form of payment and asset class.
A Brief History
Cryptocurrency began being used under the name Bitcoin in 2009 as a means to imitate cash transactions without the need for a central party (a bank for example) while providing complete anonymity to the user. Since then, interest in cryptocurrency has increased and accepting them as a form of payment is becoming more common. Their value may be volatile but the underlying technology is very secure and private.
Blockchain technology merges transactions (blocks) over time (in a ‘chain’) while verification and data security are protected by complex mathematical codes. Every time a transaction happens, a new block is joined to the chain and the history of the chain is available to everyone on a public network (also known as a ‘distributed ledger’).
Features of a Transaction
Cryptocurrency transactions use a network to send, receive, and confirm data in a process referred to as mining. To ensure the integrity of the network, the complexity of the code sending the data increases over time. Miners are rewarded with cryptocurrency for successfully completing a transaction.
While not currently legal tender in Australia, some businesses do accept cryptocurrency as payment for goods and services. It is often used as a speculative long-term investment as well.
Cryptocurrencies may be purchased with normal money or ‘fiat currency’ and are stored in a digital wallet. The wallet uses one-of-a-kind codes to approve outgoing transactions on the blockchain network.
Types of Cryptocurrencies
There are a large variety of cryptocurrencies available with some being extremely short lived while others have proved to be longer lasting. Some key terms include:
- Bitcoin – perhaps the best known, runs on the Bitcoin network, bought and sold in large quantities
- Ether – Uses the Ethereum platform, a decentralised platform, to run all manner of programs
- Stablecoin – a generic term for cryptocurrencies that try to follow government released currency
Cryptocurrencies are not currently regulated so if they fail then investors have no legal recourse and will most likely lose their money. Their value is often driven by hype and popular opinion which creates large swings in value. They are also technically difficult, which make it hard to understand the complete transaction process to those not familiar with it and increases the likelihood of mistakes and loss of investment. Finally, users are susceptible to crypto scams and may potentially be tricked out of their currency.
What is Cryptocurrency: Is Accepting Cryptocurrency OK?
More and more consumers are beginning to invest in and use cryptocurrencies while many businesses have begun accepting them as payment. In-store payment and ATMs equipped to handle cryptocurrencies are becoming more popular in Australia and Commonwealth Bank is set to pilot buying, selling, and holding crypto assets.
Melbourne, Sydney, and Brisbane are the top 3 cities for accepting cryptocurrencies and allow them to be used for food, medical services, entertainment, and places to stay. Both physical stores and online stores will accept payment in cryptocurrency for goods and services.
Once you are familiar with the transaction process, trading and using cryptocurrency is easy while being convenient to use. Businesses are concerned with the fluctuations in the value of cryptocurrency, but payment services can step in to act as a 3rd party and convert cryptocurrency into fiat currency, such as the Australian dollar, which can reduce risk if converted immediately.
The funds can be made available very quickly and with lower transaction fees. Also, fraud is reduced significantly since once payment is made it can not be unmade which lowers instances of chargeback fraud.
Interested in Learning More?
Taggart & Partners provides business advisory services to help you create a sustainable and successful business while informing you about modern trends such as cryptocurrencies. As professional business accountants, we are here to help grow your business into the best it can be. Please call (07) 3391 1188, e-mail email@example.com or touch base with us via our online contact form for more information today.