Over the past decade, cryptocurrency has gained a large amount of interest from all around the world. One of the main reasons why is the immense potential returns on Bitcoin, Ethereum, Ripple, and Dogecoin. This has meant that there are many opportunities for businesses to profit, changing the way that they operate in the future.
What is cryptocurrency?
Cryptocurrency is a digital currency that is not backed by any central authority and is stored in digital wallets and computerised files. They are almost impossible to counterfeit and are encrypted on a secured network. Blockchains are methods used to ensure that transactions between cryptocurrencies are legitimate. There are many advantages including its low fees, fast cross-border payments, lack of government interference in markets, as well as a world-wide view of the importance of technology moving forward.
How is business changing?
The ease of payments involving peer-to-peer cryptocurrency trading removes the need for third-party intermediaries that would usually facilitate these transactions with high processing costs; international money transfers can take weeks to be cleared, however crypto transfers are almost instantaneous. Therefore, this gives international businesses a competitive advantage whereby companies can now accept payments from a wider demographic as well as deliver a faster service than ever previously seen before. Additionally, it allows management to take greater control of their capital by seeing the value of their assets in real-time. More businesses are now holding cryptocurrency as an asset in their balance sheets and are using it as a hedge mechanism against inflation and adverse market conditions.
Whilst crypto is infamous for its volatility, Bitcoin has been primarily used since it has a limited supply and is informally considered a digital gold (Bloomberg, 2021,). Since the start of 2015, Bitcoin’s price has nearly risen by 10,000%. It has somewhat taken a greater portion of inflation hedge dollars that would otherwise be directed into precious metals, especially within gold and silver markets. In the 13 months leading up to April 2021, the cryptocurrency market capitalisation has risen from USD $150 billion to approximately USD $2.1 trillion (a rise of 1400%), however the gold’s market capitalisation has only risen from $9 trillion to $10.7 trillion (Bloomberg, 2021).
Lastly, Initial Coin Offerings (ICO) have become an extremely popular method of attracting investors to digital markets, giving businesses greater access to capital. Similar in the way in which Initial Public Offerings are used, firms can create a new crypto token specific to the objectives of an underlying project. The token holds value and may represent the ability to use a product or service but does not offer any stake (or equity) in the project. Investors are buying into speculative technology which has the potential to succeed. Some ICOs have seen substantial returns on investment over the past few years; its
advantage for businesses is that shareholders get to keep their percentage of equity and it has a low cost of capital since no repayments on the investments are required. However, ICOs have been notorious for its low quality and targeting misinformed customers given that it is
almost unregulated in the US, raising the opportunity for “scam” projects to be created (Vasconcelos, 2021). If used correctly, ICOs will revolutionise the way businesses raise capital and operate; this could be through employing staff who specialise in digital currency and have an understanding of existing ICO protocols, or even revamping a whole company’s strategic and operational objectives which could focus on the creation of technological-based projects to maximise profits. Projects developed include the “Alias” coin which is deemed to have complete anonymity whilst sending and receiving, and also the “NXT” coin which is focused on penetrating the financial services sector.
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