All about cryptocurrency
Cryptocurrency is gaining rapid global adoption, and businesses
are beginning to explore its integration into their accepted digitally
based payments. But what exactly is it, how are businesses using it
and what are the risks? Here’s an overview.
Cryptocurrency, also known as crypto, is a digital currency
designed to work as a medium of exchange. At its core,
cryptocurrency is decentralized digital money intended for use over
the internet. Cryptography is used to secure and verify transactions
and control unit expansion. Many cryptocurrencies are built on a
distributed ledger enforced by a network of computers commonly
referred to as blockchain technology. Cryptocurrencies are
distinguishable from fiat — currency backed by government decree
— because a central authority does not issue the asset. This
decentralization makes crypto potentially impervious to
government intervention and manipulation.
Decentralized currency was first conceptualized in the mid-1990s
by cryptographers such as David Chaum. While early creators are
credited with laying the intellectual and technological groundwork,
it wasn’t until Bitcoin’s emergence that global adoption began to
increase. Bitcoin, or BTC, is the largest and best-known
cryptocurrency, launched in 2008 when Satoshi Nakamoto, the
pseudonymous creator of Bitcoin, released a white paper inviting
other technologists and cryptography enthusiasts to participate in
its inception. The first codes of BTC were written in 2009.
Cryptocurrency was intended to democratize finance the way
the internet democratized content, opportunity and the
spread of knowledge. Before the internet, content could be
widely disseminated only by a few designated authors. Today,
anyone is capable of creating and sharing their thoughts with easy
global access. The goal of digital assets is to allow democratized
access in a similar way. Fractionalization and transferability allow
equal access to investors of all sizes. No longer is investment in a
market relegated to institutional or wealthy investors.
Cryptocurrencies’ potential to store and grow value has made
them particularly intriguing to investors and traditional
businesses alike. But beyond simply exchanging products, crypto
also allows for secured transaction storage on the blockchain,
making larger purchases, like real estate, appealing to those who
want to make a secure exchange without traditional paper
documentation. This happens through smart contracts, which are
digital agreements stored and executed across all nodes in the
network. The creator of the smart contract defines the terms of the
agreement, and it will be saved onto the blockchain where it will
remain forever in an unchangeable code.
As cryptocurrency use spreads, businesses are increasingly
including crypto among other digital payment methods. E-
commerce and cryptocurrency work well together given they both
appeal to digitally focused users. Given the continued transition to
internet based-business, accepting cryptocurrency is a natural
progression. Crypto also allows a faster and more convenient way
to pay for goods and services while protecting against data and
information privacy concerns. Cryptocurrency furnishes certain
options that are unavailable with fiat currencies, such as the ability
to enable real-time and accurate revenue-sharing while enhancing
transparency to facilitate back-office reconciliation.
Like all financial structures, fraud and scams are present
with digital assets. The best way to protect from crypto-related
theft is by exercising caution and conducting the same thorough
due diligence and research an investor would typically conduct
when investing in a project. Security experts have identified the
following red flags that might indicate when an investor is being
targeted by a scammer:
1) a third party demands crypto-only payment,
2) a third party guarantees profits,
3) the third party promises quick returns, and
4) a third party will send unsolicited job offers related to selling,
mining or managing crypto investments.
While 2022 promises to be the year of enforcement actions, fines
and regulation, the original timeline has been delayed by Russia’s
invasion of Ukraine. Before the invasion, President Joe Biden had
promised an executive order related to digital asset regulation. As
of press time Thursday, no such order had been released.
But one thing is certain: Regulation is coming. It is still a battle as
to which regulatory body will be responsible for crypto oversight.
The most likely contenders are the U.S. Securities & Exchange
Commission and the Commodity Futures Trading Commission.
