What is it?
Essentially, a cryptocurrency is digital cash. Technically it’s a “peer-to-peer electronic cash system”.
The clever aspect, and which enables it to work, is a way of ensuring that the cash is only spent once. It’s a bit like making sure you can’t cut and paste cash so you can spend it more than once! Again in technical terms, it uses a decentralised system rather than one central system. Under a centralised system, one server keeps a record of the account, balances and transactions.
In a decentralised network, every part of the network maintains the record of accounts, balances and transactions. Effectively they are entries in a database that no one individual can change without meeting specific conditions.
Simply put, “the blockchain is a public ledger where transactions are recorded and confirmed anonymously. It’s a record of events that is shared between many parties. More importantly, once information is entered, it cannot be altered.” This, then is the decentralised network which records all cryptocurrency transactions. Everyone in the chain has access to all the information.
What are the cryptocurrencies?
The top 5 as of early 2018 are:
- Bitcoin, which almost everyone has heard of. There are about 3 million individual owners of Bitcoins. It is accepted at more retail outlets than any other cryptocurrency.
- Ethereum, or Ether. There are about 750,000 owners of Ether. It has set itself up to be more of a currency for business use, rather than retail.
- Bitcoin Cash is under a year old, and is an off-shoot of Bitcoin which can be transacted quicker.
- Ripple has a more corporate image (and backing) and is more of a decentralised transaction network rather than a cryptocurrency.
- Litecoin is another Bitcoin offshoot and is pretty much identical apart from transacting quicker.
It is a fast-moving sector, and you can expect many new entrants over the short-term future.
As cryptocurrency becomes more widely accepted, more customers will be wanting to use them to pay for goods and services, so businesses will need to have that payment capacity.
The first thing you’ll need is a wallet – effectively a bank account specifically for cryptocurrency when you can store your payments and also convert the cryptocurrency into cash.
- It’s quick and less expensive than, for example, credit cards (although there may well be a charge for the wallet itself)
- All payments are final – no more needing to chase bad debts or fears of fraud
The Big Downsides:
- There is high volatility of prices of the cryptocurrencies. Ethereum, for example, once crashed from a value of $319 per coin down to just $0.10 – although it subsequently went back up in value.
- It is essentially an unregulated market. Taxation issues are not clear and may change quickly.
Because it is still a relatively new phenomenon, things change quickly and it is important to fully do your own research and remember that most people have something to sell! This article serves only as a very brief introduction. As a start, find out more about what cryptocurrency is here, what blockchain is here, the different types of cryptocurrencies here, and what it all means for small businesses here. And if you need to talk to us, find us here.