Can small businesses rely on digital currencies?
Cryptocurrency has risen as the potential replacement for standard fiat currency, many people have already begun using the digital coin to make purchases online.
The reason why the cryptocurrency is such a hot topic of discussion among consumers and businesses is that the idea behind it is innovative and offers a secure method of storing information, such as transactional records.
Even though it is relatively safe, they are very volatile as a currency, which means that individuals with a taste for risk can invest in cryptocurrencies through funds like Steve Hong’s PantheonX.
Also Read: Why it makes sense to do business in cryptocurrency
How does cryptocurrency work?
The initial developer of cryptocurrency envisioned it as a method of breaking the monopoly of central banking and giving consumers power over their own finances.
Forbes mentions that cryptocurrency has the potential to disrupt established financial institutions, and quite a number of those organisations have taken to develop a proprietary technology as a chance for competing.
The technology that frames the cryptocurrency discussion is called blockchain.
It’s a system by which each person on the network has a complete copy of all the transactions that have ever existed, stored in a string of data modules called blocks.
Every once in a while, the system re-synchronizes with other users on the network and verifies that their version of the blockchain is the one that at least half of the network takes as the right one.
An ideal security system?
When blockchain came about, many experts claimed that it was a foolproof system that couldn’t be hacked or manipulated.
Theoretically, the more users there are on the network, the more work a hacker would have to put in to convince the network that his or her version of the blockchain is the right one.
Despite this built-in security system, the blockchain has seen its share of attacks.
EthNews reports that, in 2017, a suspected spam attack of the Ethereum network resulted in the system becoming bogged down trying to deal with transactions.
Also Read: Implementing cryptocurrency and blockchain in the cybersecurity space
The inherent security in any cryptocurrency network is part of its downfall, as each sale needs to be verified before the network adds it to a block.
Theoretically, if a user can generate thousands or even millions of mini-transactions, the user can eat up the processing power of the network, making it harder for more legitimate transactions to get verified.
A much more common method of “breaking” blockchain security is double-spending.
ZDNet mentions that, in 2018, Bitcoin Gold lost as much as US$17.5 million through a single double-spending attack.
Double-spending requires the user to submit multiple transactions to the blockchain and then resetting the blockchain to a point before those transactions happening.
The result is that the malicious user counts as both spending and keeping his or her digital currency.
Other security flaws
There are other inherent flaws within the system, and as new cryptocurrencies become available, more security flaws may surface.
Third-party wallets introduce the chance for hackers to compromise a wallet’s storage location, forcing the user to send his or her digital currency to the hacker’s address instead of their own.
Despite the number of problems that cryptocurrencies face, their innovators will likely work them out.
More modern blockchains have higher levels of security and understand that the major security issue for users comes from users themselves.
How cryptocurrency will impact small business
At the moment, there are not a lot of good ways to change crypto coins into fiat currency.
The difficulty in getting cryptocurrency into actual money is one of the biggest problems the technology has to overcome before it can be useful for a small business.
Sadly, most service providers and suppliers don’t take payment in cryptocurrency, and until it becomes more of an accepted monetary medium, a small business is better observing from the sidelines.
Cryptocurrencies are volatile in their value, and because of that volatility, they lack the trust of paper money.
Until things settle down, small businesses are better off sticking to traditional money.
–
Editor’s note: e27 publishes relevant guest contributions from the community. Share your honest opinions and expert knowledge by submitting your content here.
Join our e27 Telegram group here, or our e27 contributor Facebook page here.
The post What does cryptocurrency mean for your small business? appeared first on e27.