Cryptocurrencies used to be seen by many as a left-field concept, which only wacky, techy types were interested in. Things have changed in recent years. Bitcoin’s value is famously unstable, but early investors have made fortunes. Then the news that one of the wealthiest people in the world, Elon Musk, invested heavily in crypto, drove the value up even more.
As a result of Bitcoin’s value reaching astronomical levels, alternative cryptocurrencies are now also gaining traction and smaller-scale investors, and even everyday people like you and me, are starting to think about dabbling in cryptocurrencies. But, for smaller business owners, do cryptocurrencies hold other uses? Could you accept them as payment for goods and services, and can you even use them to secure business finance? Let’s explore this further.
What are cryptocurrencies?
A cryptocurrency is a digital currency that uses complex code systems called cryptography. These code systems can encrypt the transfer of data in a totally secure way, which means they cannot be replicated or counterfeited and also ensure their unit of exchange is secure.
There are many different types of cryptocurrency, with more being released all the time. However, Bitcoin has been the most well-known and popular so far. Bitcoin started out in 2009 and has had a rather chequered past. There have been controversies surrounding the currency, as it has been used in illegal transactions and is not yet regulated in the same way as other currency, giving rise to fears about its use in tax avoidance and money laundering.
And it’s these fears that have kept it as rather a marginal currency in general, with only a few million unique users as recently as 2017, according to research by the University of Cambridge. It’s in the past 12 months that Bitcoin has really demonstrated just how volatile, and potentially valuable, it can be.
In February 2020 it was trading at around US$10,000, before falling to US$4,000 a month later after a huge number of people sold their bitcoin after holding it for fewer than 30 days. Then, in early 2021 Elon Musk sent Bitcoin’s value to an all time high of just over US$61,500 by Mid-March 2021, after investing US$1.5bn of his Tesla car business’s money in the currency. He also stated: “Owning bitcoin was only a little better than holding conventional cash, but that the slight difference made it a better asset to hold.”
Interestingly, it’s these kinds of high-profile news stories that bring cryptocurrency into the mainstream, and your regular Joe on the street is now much more likely to understand cryptocurrency and even be open to buying some. “The world is just beginning to realize the potential of Bitcoin as an asset - and the entire ‘altcoin’ asset class in general,” said Khurram Shroff, Chairman of IBC Group, in a recent interview with Gulf News. However, the price of Bitcoin has now become a barrier to investment for anyone but the mega-rich.
So what are the other options? Shroff explained, “The Bitcoin bull run is expected to continue - so it is by no means a bad option. However, it’s equally true many other altcoins have great potential as well, and those would be more accessible to many retail investors thinking about getting in.”
Why do people like using Cryptocurrency?
There are a number of reasons for using cryptocurrencies that people view as advantages. The concept of a decentralised currency is appealing to people who have certain ideologies, such as libertarianism. Some like to keep their money out of the banks and support the philosophies of decentralisation and anonymity that crypto lends to transactions.
Others view crypto simply as a convenient way to move their money around, invest and pay for goods. It is probably the latter that may result in a more mainstream use of crypto, particularly as we move further into a more globalised, online consumer marketplace.
How could crypto play a part in my small business?
As a small business owner, you may be considering your options when it comes to cryptocurrencies. After all, this alternative way to invest and pay for goods and services is becoming more and more commonplace and popular with the general public. Those of us who like to keep our fingers on the pulse of what’s going on in the world of tech, and how we can benefit as business people, need to think about whether to let crypto into our lives.
There are a few advantages for small businesses to accepting cryptocurrencies, such as:
As a growing number of consumers use cryptocurrency, some will be really eager to spend their virtual cash with businesses that are open to this decentralised option. And these consumers could be big spenders, so attracting them to your business could pay dividends.
There are certain businesses, such as retailers specialising in certain products, that could significantly boost sales by accepting crypto as a payment option. This is because it makes paying for goods internationally easy.
People pay for goods in many different ways around the world. In some cultures, certain payment methods, such as credit cards, are unpopular and attracting and supporting these consumers is difficult for global retailers. Crypto solves this problem and provides a low-cost way to pay for goods from all over the world.
Those taking payments using credit cards and debit cards can be hit with transaction fees. Use crypto and these are gone. Transactions are free, except for a small fee for maintaining the network.
It’s easy to see, then, why a business like Tesla, selling high-ticket items to an international market of tech-savvy early adopters, would start to accept bitcoin as payment. In a way, it’s difficult to imagine why Musk didn’t make this decision sooner!
So what’s standing in your way?
Unfortunately, there are some serious obstacles to accepting bitcoin or any other cryptocurrency as a small business owner.
1. The Tech
Firstly, and fundamentally, if you’re not a tech genius, forget it. Even those on the inside of cryptocurrencies, trying to spread the word that they are worth a try, admit that actually setting up a digital wallet on a digital currency exchange is prohibitively complex as it stands. However, this may change in the future - and needs to if cryptocurrencies are going to have a chance of becoming a mainstream way of completing transactions.
Most cryptocurrencies aren’t back or insured, which means that if a cybercriminal did manage to breach your digital wallet, you could be cleaned out. Some newer cryptocurrencies, such as Coinbase, are starting to ensure users’ wallets though. They only keep 2 per cent of users' currency online at any time to protect it. And, more generally, using crypto does protect users from the kinds of security threats that plague e-commerce, like credit card theft and fraud, for example.
Realistically, the highly volatile nature of crypto value would be a turn-off for many small businesses. While retail investors may like their chances of a dabble with crypto, with the potential for a fortune to be made literally overnight, these kinds of gambles aren’t really so attractive when you’re responsible for running a business and paying people’s wages.
Is cryptocurrency considered an asset?
There are already businesses that will offer you Bitcoin loans. These work similarly to regular lenders, with the amount you can borrow and the interest rate improving after you’ve successfully repaid your first loan. These loans work on a peer-to-peer basis, so lenders can be regular consumers who happen to hold Bitcoin and are keen to try to generate as much return as possible from their investment by lending it out to worthy borrowers.
Most of us, deep down, know that digital currency probably isn’t going away. Indeed, it could be on the verge of becoming much more commonplace and accepted. We’re always looking for ways to make it easier for more small businesses to access the growth funding or working capital finance that they need to reach their potential. Watch this space!