Limitations on Cryptocurrency for Entrepreneurs
Alana Goycochea
What is Cryptocurrency?
Cryptocurrency is a general name for all encrypted decentralized currencies. Some examples of cryptocurrencies are Bitcoin, Litecoin, Ripple, and Ethereum. They are all based on the use of blockchain. Given that cryptocurrency relies on peer to peer technology, it is not centrally regulated.
What is Blockchain?
Blockchain is similar to a public ledger of all transactions in the cryptocurrency network. The nodes are the computers that record entries into the ledger. Each cryptocurrency type has its own rules.
Why do Consumers Want to use Cryptocurrency?
Cryptocurrency is very appealing to consumers for a variety of reasons. Mostly, it has a huge appeal for consumers that are concerned about privacy. One of the main uses of Bitcoin was on the Silk Road marketplace. Silk Road was an online black market. Consumers were able to purchase illicit drugs or other items on Silk Road because of the privacy afforded to them through Bitcoin. Whereas other electronic payment systems reveal personal identifiable information, cryptocurrency’s use of blockchain allows for complete anonymity in purchases.
The use of cryptocurrency has grown tremendously beyond the dark net. Consumers have become more privacy aware. Further, many consumers that travel want a currency that can be used globally.
Why Should Entrepreneurs Care About Cryptocurrency?
Cryptocurrency is a very quickly developing technology. It allows consumers the ability to have more privacy with their transactions. As a result, many consumers have pushed companies to accept cryptocurrency as a form of payment. Recent reports estimate that approximately 70,000 US retailers accept cryptocurrency. Many cryptocurrency forms have little or no fees for the person receiving the cryptocurrency. This is extremely beneficial for small business owners. Credit card fees are very expensive for most small businesses.
US Cryptocurrency Regulations
Under US law, Bitcoin and other cryptocurrencies are not viewed as a currency and are instead regulated as commodities. However, in some respects, cryptocurrency is sometimes regulated as a security. As an example, the SEC requires that any platform for currency exchange must be registered. Further, there are multiple tax regulations that consider cryptocurrency as a currency and not as a commodity.
What Are Some Logistical Problems With Cryptocurrency?
- Currency Fluctuation
One of the biggest concerns regarding cryptocurrency is that the value is very subject to fluctuation. Many reports have illustrated that the value of cryptocurrency has fluctuated significantly more than the value of traditional currencies. As a result, entrepreneurs need to be constantly monitoring the value of the currency. Cryptocurrency is very subject to fluctuation as a result of monetary policy, inflation rates, and mostly the threat of further regulation. An additional risk with cryptocurrency is the risk of currency manipulation.
The value of the currency can be manipulated by majority owners. The blockchain ledger is whatever is determined by the majority of the currency holders. In September of 2018, Ethereum’s value plummeted by 45% in one week as a result of manipulation by BitMEx, a competitor. By using social media and editing the blockchain ledger, BitMEx was able to convince many people to short Ethereum and thus manipulate the price. Incidents like this should be a major concern to entrepreneurs.
2. Cryptocurrency Security
Many of the cryptocurrency exchanges are regularly hacked. These incidents can impact any exchange, but have taken the biggest toll on the smaller exchanges. Given that cryptocurrency is not viewed as a currency by the US regulatory scheme, these cryptocurrency “banks” are thus not FDIC insured. Hence, if your cryptocurrency is stolen by hackers, the exchanges are under no legal obligation to refund your stolen cryptocurrency.
3. Legality abroad
While cryptocurrency is legal in the United States, it is not legal in all countries. There are 11 countries where cryptocurrency is illegal. There are also multiple countries (including China) where the use of cryptocurrency is severely restricted. Entrepreneurs doing business with foreigners should research the legality of cryptocurrency in all applicable market places before deciding to accept cryptocurrency.
4. Technical Difficulties
In order to accept a digital currency, business owners must set up a digital wallet. Given the wide area of different types of cryptocurrency, there are many possible wallet choices. Recent inventions of technology like Optherium B2C enables customers to pay in whichever cryptocurrency they choose, and businesses receive payment in only their preferred cryptocurrency. Without technology like this, it is very difficult for small businesses to navigate the high learning curve required when accepting cryptocurrency.
Conclusion
While cryptocurrency offers substantial consumer benefits, such as privacy protection, it has a steep learning curve for small business owners. Thus, entrepreneurs should be fully informed before rushing into cryptocurrency.
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Sources:
https://www.businessnewsdaily.com/6181-bitcoin-for-small-business.html
https://unreasonable.is/six-ways-cryptocurrency-and-blockchain-are-changing-entrepreneurship/
https://blockgeeks.com/guides/what-is-cryptocurrency/
https://medium.com/decryptionary/what-is-bitcoin-for-dummies-a-guide-for-beginners-8b3d9c0a8065
Photo:
http://www.thesslstore.com/blog/what-is-mining-cryptocurrency/
For someone with little knowledge of Blockchain technologies, I appreciate having all this info in one document! I would be interested to know more about the tax implications and securities regulations for cryptocurrencies!
I also have almost no knowledge on Blockchain, so I appreciate the simplification of it all. With all the risks associated with cryptocurrency, I am curious to know whether there are any other benefits aside from fee-free transactions that would encourage entrepreneurs to adopt crypto-currency as a payment method. Do you think businesses that fail to adopt a crypto-payment method will fall behind their competitors?
Alana –
I thought your post was very interesting and very well written.
To add to Sarah’s comment above, I would be interested in knowing about the organizational structure of cryptocurrency promoters and participants.
Our current currency is governed by the government and is therefore always accountable. Cryptocurrency, on the other hand, is governed by non-government entities who are often unknown to the participants. So, when an issue arises, who is held accountable? And, if a corporation is involved, can the corporate veil be pierced?
(I apologize if these are very simple questions to answer. I am new to this subject.)
-Ashley
Coinbase commerce and PayPal have made it very easy for business owners to accept crypto for the purchase of goods and services, I am very bullish on the future of crypto for entrepreneurs,
also, the adoption of crypto by mainstream investors like Elon musk has added more credibility also to crypto. but concerns about climate change and the impact crypto is having on power generation and consumption is a sore point for crypto. and talking about tax, it will be interesting to see how easy it would be for the SEC to tax crypto transactions.
i write about this and more on my blog https://ogabtc.com