Cryptocurrency is a means of making payments or paying for items without going through a central bank. Computer algorithms generate the units, determine their value and verify the transfer of funds. Startups may be tempted to use them because of their encryption and security features, but you should keep these three things in mind before entering the world of cryptocurrency payments.
Understanding Blockchain Technology
Blockchain technology is a digital system of recording the transactions that are conducted in a specific type of cryptocurrency. The technology is strung across several different hard drives in a sort of peer-to-peer network. The phrase “blockchain technology” is often used by people, but few of them know what it means. A full 94 percent of financial experts suspect their colleagues are using buzzwords like “blockchain” and “artificial intelligence” without understanding their meaning. When it comes to blockchain technology, no centralized version exists. It is currently a free-for-all market.
More Regulation is on the Way
There is currently minimal to no regulation of blockchain technology, but it is coming. The Commodities Futures Trading Commission treats cryptocurrency as a commodity, while the Securities and Exchange Commission treats it like a security. The IRS treats it like money, making blockchain technology a type of digital banking system that the IRS needs to be informed of for suspicious transactions, fraud, and abuse. People in favor of regulation argue that federal rules for blockchain technology could make it more inclusive and accessible.
Instability is a Real Concern
Instability is a real concern in cryptocurrency use in the USA and around the world. The prices can swing wildly from week to week and month to month. The lack of regulatory oversight plays a big role in this instability. The management of different cryptocurrency services is also volatile. Bitcoin, the most widely used cryptocurrency, experienced the most fluctuation in value throughout 2018. Ethereum’s leader recently dropped projects because of a tweet that caused outrage among industry analysts and coin aficionados. This instability has caused many industry leaders to turn away from cryptocurrency.
Every business has to protect itself against counterfeiting and fraud. The digital encryption offered by cryptocurrency offers some peace of mind, but the volatility may not be for everyone. Before making a decision, you and the other managers of your startup should put plenty of thought and research into your planning process.
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