If you run a website and accept payments via that same web property, a time will come soon (if it hasn't already) when cryptocurrency should be on your radar. It has come a long way since it was first introduced in 2008 (pdf).
You're probably familiar with Bitcoin and the concept of digital currency. Maybe you find the idea interesting, but are not enamored with its potential. That is how I felt about bitcoin and similar concepts before I attended Keynote 2015 in Los Angeles, California earlier this month.
Prior to the event, I turned to terms like "digital currency" or the less accurate "virtual currency" to discuss Bitcoin. The event introduced me to a more accurate term — cryptocurrency.
So what is cryptocurrency (also sometimes referred to as “block chain”)?
Essentially, it is a virtual digital form of currency that is highly encrypted and very trackable. While it's still early days in terms of its existence and use in real transactions, a range of companies are already working to establish the infrastructure, standards and processes needed to integrate it into our worldwide economy.
With cryptocurrency poised to make major waves across industries if accepted as a universal monetary standard, it pays to know more about it. What follows are a few interesting takeaways from the daylong event.
Banks Are Not Interested (Yet)
Several presenters noted that banks are generally disinterested in digital currency at this time. This makes sense — banks focus on borrowing and lending actual currency, and their current systems can't accommodate cryptocurrency.
That said, it was pretty clear that banks will need to get on board sooner or later. The lack of critical mass of adoption and structure around systems and regulations will buy major banks some more time for now, but they won't be able to ignore this trend indefinitely. Most of the presenters see bitcoin not as a replacement for existing payment methods, but something that can meld with or improve existing systems.
One of the biggest concerns about bitcoins and cryptocurrency as a whole relates to distrust, or questions of security risk.
In reality, cryptocurrency is at worst as insecure as credit cards, which, given the right circumstances, are more secure than you might think. According to Silvio Tavares, CEO of Cardlinx, only 10 percent of all credit card transactions are via e-commerce, while 50 percent of all credit card fraud is via e-commerce.
In other words, credit cards are remarkably safe and secure if you remove the Internet from the equation.
Now add in that Cryptocurrency is fully encrypted and trackable, and it may actually be more secure than credit cards. After the conference, I learned that you can even trade bitcoins on public markets since May 2015, via a trust (ticker: GBTC).
How and when can cryptocurrency be used? Karla Friede, CEO of Nvoicepay, covered a wide range of potential use cases.
Some of the uses included investing, online purchases, lending and payroll. The biggest use case, however, was for cross-border payments / global business.
Think of bitcoins as a universal, open network of currency exchange capabilities. Imagine if we all spoke a common language that allowed us to communicate on the same terms. Cryptocurrency can serve a similar role for business.
Global transactions come with some pain points for enterprises: speed of payment, visibility into the process and transaction fees. A universal payment method with encryption and full tracking capabilities could potentially fix these pain points. But with existing accounting practices so hardened, it will require a significant disruption to adjust processes to accommodate cryptocurrency.
Transformation of How We Pay
Money has changed. It used to be you'd go to a physical store and spend cash or use credit cards on the spot. Now options like micro-transactions, purchases within applications and merging of mobile technologies exist with nearly every purchase type.
A whole range of apps now merge payment, mobile and their application in unique ways. As this convergence becomes more and more important, alternative currency strategies like bitcoin will find a home where legacy systems cannot.
Further Regulations Necessary
For critical mass of adoption to happen, we need to build much more structure around cryptocurrency.
Keynote 2015 Regulation Panel: l-rmoderator Veronica McGregor, Brian Klein, Marco Santori, Hemmy So, Thaer Sabri
At the root of that structure is regulation, which is a very complex situation when considering the cross-border implications of digital currency. The complexity cannot be understated — a panel of legal experts at the conference made comparisons to the range of legal battles facing newcomers like Uber and Airbnb. Since their models overlap multiple industry types, they have to negotiate the terms of how their new models do and do not align with legacy industry standards (i.e. taxicabs and hotels). Cryptocurrency faces many of the same issues.
Once a skeptic, I am now a strong believer that cryptocurrency / block chain / bitcoin is here to stay. It holds the potential to tear down economic borders and build processes that will make international trade more efficient and secure.
It will be exciting to watch as organizations build the structure around this new type of money. It may be the closest we come to a universal currency in our lifetimes, and is a huge step forward compared to the centuries-old systems currently in place.