Cryptocurrency & How It’s Impacting Small Businesses
Cryptocurrency is a digital currency or asset that relies on encryption technology to transfer value over the Internet. Cryptocurrencies like Bitcoin operate independently of a banking system and can be used in many countries as a store or exchange of value like cash.
What Cryptocurrency Is
You can think of cryptocurrency like a hybrid digital currency and commodity. Cryptocurrencies store value just like any other currency and also have stated exchange rates for most of the existing legal tender in the world. However, almost all types of cryptocurrencies also have a fixed supply, making them similar to a precious metal like gold or platinum.
In order to use cryptocurrencies, consumers and merchants need to open a cryptocurrency wallet account. These wallets act just like a bank account specifically for cryptocurrency. Once the wallet is open you can both purchase and accept cryptocurrency.
For example, consumers and small businesses can purchase cryptocurrencies using cash on open exchanges found on Coindesk, Coinbase, and Bitpay at stated exchange rates. They can then use cryptocurrencies to buy goods/services at participating businesses that have wallets to accept cryptocurrency payments.
Wallets typically have the option of automatically converting incoming cryptocurrency to cash, letting merchants “cash out” any cryptocurrency sales into a native or foreign currency. However, it’s also possible to store cryptocurrencies in your wallet for later use. For example, you can convert cryptocurrencies to cash at a later date or use them to make business payments with participating vendors and suppliers.
Traditionally, fiat money is created by a sovereign government when it prints currency and regulates it via a central bank. In this case, the currency that’s created by the government is distributed via a treasury and tracked by a central banking system that issues and manages that currency via a centralized ledger.
Cryptocurrencies, on the other hand, are created not by the government but by technically savvy individuals known as “miners.” These miners let cryptocurrency algorithms use their computing power to keep a decentralized ledger of transactions on the blockchain. In return, miners can “mine” or create new cryptocurrencies known as “coins.” There is no central entity or authority that manages creation and use.
While miners are the only people who can create cryptocurrencies, the coins they mine can be used by consumers and businesses to exchange for sovereign currency, purchase goods and services, as well as keep as an appreciating asset. Cryptocurrencies also typically have a fixed amount of coins that can ever be mined.
