Up to now, not everyone understands cryptocurrency and the way it works. However, cryptocurrency refers to an encrypted and a decentralized electronic currency that operates between peers and confirmed in a blockchain ledger through a process called mining. More importantly, there are cryptocurrency facts that business owners should know.
Before venturing into cryptocurrency, it is advisable to understand how digital currencies such as bitcoin work. Generally, it is important to review the essentials of cryptocurrency while business owners should understand cryptocurrency facts that make the digital assets appeal to their trade. The following are some of the major properties of the crypto space:
A public ledger is the custodian of all confirmed transactions that involve cryptocurrency. On the blockchain, every detail is recorded including the identity of the coin owners. The system utilizes additional cryptographic techniques to safeguard the legitimacy of the records. Additionally, the system guarantees that all the digital wallets work accurately to deliver exact spendable balance. In addition, the ledgers are able to check new transactions to guarantee that every transaction corresponds with the cryptocurrency currently owned by the spender.
The term transaction refers to the movement of funds from one digital wallet to another. The transaction is relayed through a public ledger, which eventually confirms it. Digital wallets utilize encrypted electronic signature whenever a transaction is conducted. The signature, which is an encrypted piece of data, provides the exact truth that the transaction is from the owner of the wallet. The period of confirmation varies from one cryptocurrency network to another during the mining process. Through the mining process, fresh transactions are added to the public ledger.
Mining refers to the process of confirming transactions and eventually adding them to the public ledger. Adding transactions to the ledgers takes the computational skills of miners, in which they solve increasingly complex mathematical problems. The process of mining is open-source, which allows anyone to verify the transaction. The first miner to solve the computational puzzle adds a fresh “block” of transactions to the public ledger.
The public ledger, transactions, and blocks all work together to guarantee a seamless process in which no one can willingly alter the block. When a new block is added to the ledger, all associated transactions remain permanent, adding just a small processing fee to the miner’s wallet. In essence, mining is the backbone of the cryptocurrency generation process, technically referred to as a proof-of-work system.
Important cryptocurrency facts for business owners
Even though bitcoin came into existence in 2009, its popularity only rose in the recent months. In early 2017, the value of bitcoin was at $1000. The value rose steadily to an all-time high of nearly $20,000 towards the end of the year. In March 2018, the value was hovering at around $10,000, according to Coinbase charts. The rising value of bitcoin sparked interest in cryptocurrency, as people looked for emerging investment opportunities in the crypto space.
Unlike the universal currency, the digital currency has no regulation such as those imposed by governments or central banks. With no proper regulation, investing in cryptocurrency becomes a risky venture compared to the stock market. Many regulators around the world have warned about the volatile nature of bitcoin, suggesting increased oversight.
However, amid the call for regulation, the price of bitcoin continues to soar. Similarly, cryptocurrency continues to get increased attention from the press. Today, it is common to find products that focus on alternative currency, which gives aspiring investors the opportunity to tap into the flourishing market. All the same, as a business owner, you need to ask important questions before you venture into the market. What are the risks involved? What is it all about?
Here are essential cryptocurrency facts that business owners should consider:
Cryptocurrency removes the intermediary
Cryptocurrency was designed to remove the middleman from the equation. Using a digital asset like bitcoin ensures that transactions remain anonymous, with no fees attached. Since the coins are applicable to any country, no government can impose any regulation on them, which makes cryptocurrency an easy and cheaper way to conduct international transactions.
Since its inception, bitcoin has remained operational, thanks to the technology behind its operation. Bitcoin network embraces the blockchain technology and a digital ledger in which it records all transactions in a chronological order, visible to everyone. Bitcoin network stores an online ledger of transactions for the cryptocurrency. Besides, the network is unregulated and transparent. The elimination of the middleman is one of the interesting cryptocurrency facts that business owners should consider.
When it’s legitimate, the price soars
When the price of bitcoin surged in 2017, many theories arose to explain the cause and effect. The same is true when the price of the cryptocurrency has remained speculative in 2018. Bitcoin has an overarching theme, which confirms its increasing legitimacy. Bitcoin features even in morning talk shows, which has made it easier for the common citizen to know something about bitcoin. This is different from the times when only tech enthusiasts know about it. In early 2018, bitcoin received a big boost when Japan legalized the cryptocurrency as a method of payment.
All the same, it’s important to note that government validation is just one of the factors that drive the price of bitcoin and other cryptocurrencies. Other factors such as cryptocurrency funds also have a role to play. For instance, Initial Coin Offering (ICO) is one of the major ways to raise funds in the crypto space. Instead of selling stocks, they sell cryptocurrency tokens, which leads to millions of dollars in investments.
Similarly, the generation of hard forks is another way that keeps the prices of cryptocurrency rising. A hard fork is the result of a split blockchain, after the introduction of new rules to create a second digital currency. Common examples of hard forks include bitcoin cash and classic Ethereum. While all previous transactions remain on both blockchains, fresh transactions go to respective blockchains. Bitcoin cash, a hard fork of the original bitcoin, created billions of dollars in the market cap after it joined the market.
Volatility—it’s possible to lose it all
With zero regulation and anonymity, the crypto space is highly volatile—risky is an understatement. A good explanation for this cryptocurrency fact is the plummeting of bitcoin price, only to rebound with fresh record highs.
Volatility is one of the major cryptocurrency facts that business owners should have in mind. It is the biggest risk to the future of cryptocurrency. Another important concern is the increasing pressure on regulatory scrutiny. Governments around the world have stepped up a crackdown on cryptocurrency and if the rules hit hard, it may affect the price of cryptocurrency.
In the meantime, many commercial startups offer investors cryptocurrency instead of capital. Regarding this, some investors may not be able to cash out the tokens. According to the Financial Industry Regulatory Association, investors should be careful with ICOs and ensure the trade states clearly how they can recover money from the tokens. Usually, it’s in two ways: either traders can cash the tokens for a refund or they can resell the coins in a secondary market. Since the market is unregulated, business owners need to understand the risk associated with ICOs before investing.
Think twice about bitcoin payment
For small business owners, bitcoin payments may present major challenges due to the volatility of the cryptocurrency market. This is because the price can change very quickly, making it difficult for a business owner to accept the cryptocurrency as a form of payment. For seasoned traders, a bear market is an opportunity to buy cryptocurrency and sell when the price hikes. All the same, cryptocurrency price can dip in one hour, and rebound in the next, but still with lucrative gains.
Upon launching of bitcoin futures by CME and CBOE World Markets, a few online brokerages started offering the cryptocurrency to their clients. The handful that took the risk experienced an increase in trading volumes and new customers. Despite the risk, bitcoin has been a worthy investment for many traders, with some proponents predicting the value to $25000 by the end of 2018.
Cryptocurrency trading might affect business reputation
One of the major cryptocurrency facts is lack of regulation. Besides, all transactions remain anonymous. While these pillars make cryptocurrency what it is, anonymity can hurt your business reputation, especially if your client’s digital wallet is hacked leading to loss of digital tokens. Since cryptocurrencies operate on the blockchain technology, it keeps the funds safe from hackers. However, the system, like any other is not 100% foolproof.
Against that backdrop, issues of hacking are still rampant in the crypto space, with cybercriminals breaking into digital wallets. For example, a wrongful purchase from a hacked wallet can ruin your business reputation. While digital wallet providers try to improve the security of the devices, a hit on the reputation can greatly affect the credibility of a startup.
With the value of bitcoin consistently soaring high, cryptocurrency is on the way to becoming the next big thing. Everyone wants to be part of this new venture. Even so, as a businessperson, you need to be aware of the risks associated with the digital currency. Weigh the chances of losing all your investment against the possibility of acquiring riches before you put your money into cryptocurrency.
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Tony is a writer for the crypto space. He presents cryptocurrency and blockchain topics to the public in a way that he only can. While carefully researched, this article should not be taken as an express investment guide. Do your own research and consult a financial advisor before you invest in cryptocurrency.
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