Demystifying Cryptocurrencies: Promise and Potential Lead to Growing Appeal
Even if you don’t fully understand what it is, chances are good that you’ve heard of Bitcoin. Bitcoin is one of the most popular and widely used forms of cryptocurrency, a digital or virtual form of currency or exchange. Cryptocurrency is made possible because of blockchain, which IBM defines as “a shared, immutable ledger for recording transactions, tracking assets, and building trust.” It’s the foundation that makes Bitcoin and other cryptocurrencies possible.
Although Bitcoin was officially launched in 2008-09, the groundwork for its creation actually can be traced as far back as 1982 when computer scientist David Chaum first proposed the concept of e-cash and a blockchain protocol.
Cryptocurrencies, and the technology behind them, allow transactions to be both anonymous and secure. These transactions take place in a peer-to-peer environment that removes the intermediary, like a bank or credit card issuer.
While Bitcoin is the most popular of the cryptocurrencies currently available, with the highest market capitalization, other formats do exist. Facebook is the latest entrant, announcing plans last fall to work with a large network to create a new digital currency called Libra. Partners include payments companies Visa, Stripe, PayPal, and Mercado Pago, as well as other tech companies, including eBay, Lyft, Uber, and Spotify. Facebook is also looking to create a new subsidiary, Calibra, to build a digital wallet for people to store and exchange the currency using Facebook apps. Apple and Google have already put forth their own cryptocurrencies, and another recent addition to the market is Coin Rivet.
Cryptocurrencies still occupy a largely niche market, but for marketing and sales professionals, there is a newfound interest in the technology and what potential it might have.
HOW CRYPTOCURRENCIES COULD WORK FOR MARKETERS
Marketers of all types of products and services are, of course, familiar with accepting currency—coins and paper bills minted in their countries of origins. Physical currencies, while still traded for goods and services, have given way over the years to credit cards and various online exchanges like PayPal and Venmo.
For online marketers, these online forms of exchange offer a convenient means of receiving payment for products and services. Cryptocurrencies go one step beyond these online services, taking out the financial institution in the middle and adding security that not only keeps the value of the currencies intact but also protects the identity of the purchaser.
As alternative forms of currency emerge, marketers are interested in determining whether it makes sense for them to accept those forms of currencies. There are still small businesses that do not take credit cards, although services like Square have helped to minimize barriers such as cost and approval processes.
Cryptocurrencies are likely the next step in the constantly evolving landscape of payment options.
Marketers aren’t the only group taking an interest in cryptocurrency. Consumers are as well—an interest that certainly helps to fuel marketers’ attention. According to Bitcoin News Network (BTCNN), 13 percent of consumers have used cryptocurrency to pay for online purchases. To meet that demand, thousands of merchants around the world are beginning to accept cryptocurrencies for goods and services.
Adam Traidman, CEO of BRD, a mobile wallet provider, explains how this works: “Just like you can hand someone a dollar bill without permission from a third party, you can send someone a Bitcoin without permission from an entity,” he says. Transferring money from bank to bank requires permission and, often, fees.
Another benefit, Traidman says, is that cryptocurrencies are not subject to inflation or some other market fluctuations. “Bitcoin is essentially minted into circulation through a global mining system, which is quite technical, but no one entity controls the supply and inflation rate of Bitcoin,” he says.
Another relevant comparison to help understand the benefit of cryptocurrencies: the stock market. Ethan Fast, cofounder and chief technology officer at Nash, which provides a platform for decentralized financial services, uses the stock market to help marketers and consumers better understand Bitcoin and other cryptocurrencies. “If I buy a stock, I own that stock, and there’s a digital representation of my ownership, but I don’t directly control that representation. I have to go through my broker to move it around. Whereas with cryptocurrency I have direct control and I can do with it as I wish with no intermediaries.”