What Technology Companies Need to Know About Cryptocurrency

It’s no secret that cryptocurrency is creating a frenzy in the tech industry. The price of bitcoin price has skyrocketed, sending investors on a mad dash to get their hands on this new digital currency. It has also dropped precipitously at times.  While some are uncertain about its long-term prospects, others see it as an opportunity for lucrative investments backed by blockchain technology.

But what does all of this mean for the future of tech? Will it be good or bad? Well, let’s look at how cryptos can help or hurt different aspects of the tech industry and get into why these happen before we can make any conclusions.

What is Cryptocurrency and How Does it Work?

Cryptocurrency has been around for about a decade. In that time, it has gone from being an obscure and little-known asset a mainstream phenomenon that is increasingly accepted as payment. Cryptocurrency is a digital currency that is created and managed through cryptography. This means that it is secure and difficult to counterfeit.

In basic terms, the integrity of cryptocurrency is maintained through a blockchain.  Simply put, the blockchain is like a checkbook that everyone can access.  Each transaction in the checkbook is a “block”.  When you look at all the transactions together, they create a blockchain.  Each time there is a new transaction, it is recorded in a new “block”.  In the case of bitcoin, each block is automatically assigned a 64-character code, called a “hash”.  This code would be virtually impossible to guess randomly.

Bitcoin miners (people who verify bitcoin transactions and are rewarded by being paid in new bitcoin) race to solve complex mathematical equations to figure out the hash.  The first user to figure out the hash wins and gets paid.  That user then adds the verified “block” to the “blockchain”.   The 64-digit hash is recorded on the ledger accessible to everyone.  Thus, if anyone attempts to change has it would not match what is on the ledger available to everyone else and would be detected the next time someone attempts to make a record of a new transaction.

Cryptocurrency can purchase goods and services or even be traded for cash. The technology sector is one of the world’s greatest adopters of Cryptocurrency, particularly for online purchases. For most technological companies now, due to cryptocurrencies, their online transactions are safer, easier, and faster than ever before.

How does Cryptocurrency Fit Tech Business?

Cryptocurrency can be beneficial to tech businesses because it avoids fees associated with other modes of transactions. This is especially true for international transfers, which can carry high fees charged by money remittance services. For international transactions, the fees are much lower than those associated with traditional money transfers.  In addition, crypto currencies such as bitcoin are not regulated the same way traditional cash is.

By using cryptocurrency, tech firms can reduce the costs of these transfers, allowing them to become more competitive in the global market. Another way that cryptocurrency can help tech firms is by increasing their payment options to eliminate the need for credit cards. Overstock.com, for example, began taking Bitcoin payments in 2014 and has since processed more than $1 million in Bitcoin transactions.

Cryptocurrency can also help tech businesses by providing a new way to raise money. For example, in 2017, the blockchain company FileCoin raised $257 million by issuing its cryptocurrency in just five minutes. This ability has allowed the company to bypass the traditional venture capital funding process, which can be slow and expensive.

How can Cryptocurrency Hurt a Business?

Over time, there have been claims that the cryptocurrency’s anonymity makes it difficult for businesses to get information about their customers, which has been a considerable risk because it can lead to fraud and other criminal activities.

In addition, the volatility of cryptocurrency can cause businesses to lose money if they invest in it. For example, the price of Bitcoin rose from $1,000 to $20,000 in 2017 before crashing back down to $6,000. This volatility can make it difficult for tech businesses to forecast their expenses and revenues.

Also, because it is unregulated if access to a cryptocurrency wallet is lost, there is often no way to retrieve it.  This means that if you lose your login credentials to access your bitcoin, it may be gone forever.

The Future of Cryptocurrency in the Technology Sector

Cryptocurrency is becoming increasingly popular with technology companies. Many new cryptocurrencies are becoming available, and their popularity has skyrocketed since the creation of Bitcoin. Soon, cryptocurrency may completely revolutionize how technology companies do business globally.

But wait—what does this have to do with tech businesses? The cryptocurrency market is growing every day and becoming more popular for investors looking for alternative investments. This means that now might be the time to buy into the market. However, if your company isn’t prepared, you could lose a significant amount of money.

Generally, insurance does not protect against changes in value.  However, there is an emerging market for policies that cover theft or malicious attacks involving cryptocurrency.  If you or your business is investing in cryptocurrency, you should consider such a policy.

Contact us today to learn more about how we can help you stay safe and secure while doing business in the digital age.

*Information on this site is provided for general information only.  Each policy has specific terms and exclusions that affect coverage.  Please read your policy carefully and call an agent with questions.  InsureYourCompany.com is an insurance agency.  We do not provide investment, legal, accounting, or tax advice.