Cryptocurrencies are actively entering the lives of ordinary citizens around the world, which includes the payment of goods and services. It’s only the beginning, yet the apparent advantages and disadvantages of cryptocurrencies in a business context have already surfaced. Numerous companies are rushing to include them into their payment structure.
Advantages of Cryptocurrencies for Business
Financial experts have identified the following advantages that cryptocurrencies bring:
- Cross-border operations and the absence of unnecessary intermediaries. The movement of cryptocurrencies is not limited to the jurisdictions of specific states, which eliminates the need for multiple financial intermediaries. The result is much faster and cheaper transactions.
- Minimal or no transaction fees. Three factors reduce the commissions to a minimum: no middle-man, no control over regulatory structures and the decentralization of data processing. As such, these usual components in traditional finance are eliminated in most cases.
- The speed of transactions. Depending on the consensus algorithms used, the asset transfers can happen in a split second or in a few minutes tops. Its near-instant nature, low fees and cross-border capabilities as explained in these first three points make cryptocurrencies a suitable financial instrument for international trade.
- It’s impossible for anyone to have control over the entire system thanks to its decentralized nature, which eliminates the human factor in the context of activity, development and improvement of cryptocurrency systems. All of its active nodes take part in the operating processing within the system and all of its members can take part in the system’s management.
- The openness of the technology. Everyone can study the source code of almost any cryptocurrency. This factor contributes to the development of software and acts as an additional layer of control over the security of the technology used.
- Security of assets, resistance of cryptocurrency systems to hacking. The prefix “crypto” is used precisely because cryptocurrency systems use different methods of data encryption. This, along with code openness and decentralization, provides assets with a high level of security.
- Advanced technological toolkit. The use of smart contacts, multi-signatures and many other technologies allow the automation of business processes and significantly expand asset management capabilities.
So, the key advantages of cryptocurrency over conventional money are: the ledger of all transactions in the blockchain, the system’s smooth operation, the constant growth in user numbers, active information support, and the ability to maintain anonymity to a certain extent. But, when it comes to doing business, some of the advantages can potentially turn into disadvantages.
Disadvantages of Cryptocurrencies for Business
The main cons of cryptocurrencies for business include the following:
- The lack of a legal framework for the use of cryptocurrencies. In fact, cryptocurrencies aren’t official means of payment in most countries, while in others, their use is even prohibited. On the other hand, there are some state governments that do recognize cryptocurrencies as commodities. The diverse stances of people in power regarding crypto makes it problematic to use them as a universal means of payment. Plus, there’s a lack of instruments for state regulation, which complicates taxation issues.
- High volatility and no centralized exchange rate. Cryptocurrencies can fall and rise in price by tens of percent in a single day. Moreover, the value of cryptocurrencies on different exchanges differs per the internal factors of each platform. As a result, using cryptocurrencies as money remains a challenge, although stablecoins can partially solve the volatility problem.
- Small circulation, complexity of use and perception as an investment instrument. Many economically active people have an extremely superficial understanding of what cryptocurrencies are, how they work, and their benefits. Mastering the use of cryptocurrency is still a challenge. And cryptocurrencies themselves, due to their high volatility, have been primarily perceived as an attractive investment opportunity.
- Technical means and software for accepting cryptocurrency payments haven’t yet reached the level as payments by bank cards. Consequently, it’s difficult for business representatives to implement suitable payment acceptance systems in their businesses, not to mention, means users interested in paying with crypto don’t have access to this option. However, it comes down to a purely technical difficulty, which can be solved by a payment service provider with expertise in crypto payments, such as CoinsPaid and its crypto processing gateway.
If we consider all the advantages and disadvantages of using cryptocurrency for business, there are many more pros than cons. Moreover, most disadvantages will be solved in the next 5-10 years with the development of new solutions, better regulation and an evolved mindset around crypto. As it stands, there’s a positive global trend in the context of using cryptocurrencies in business: major IT corporations (Microsoft, Dell and Overstock) have started accepting bitcoin as a means of payment, many iGaming companies include cryptocurrencies in their list of available payment instruments, and Tesla is experimenting with accepting bitcoin payments, to name some examples. In addition, countries are developing their own cryptocurrency, called CBDC (Central Bank Digital Asset), which means more positive developments are on their way.