Can Volatile Online Currencies Actually Benefit Your Business?
In the last few months, the names of cryptocurrencies have been on the front pages of multiple major finance and tech journals. Bitcoin, Litecoin, and Ethereum, all cryptocurrencies, had an unprecedented spike in value in the final quarter of 2017. Many eCommerce store owners, however, are unfamiliar with cryptocurrencies, which are largely popular in tech circles, and may not even know what they are or how they work. With the recent volatility of the cryptocurrency markets, more and more people outside of the usual cult following of techies have been investing in, trading with, and researching cryptocurrencies, and that means that the time has come for owners to understand the pros and cons of cryptocurrencies for eCommerce stores.
While “decentralized” currencies like Bitcoin can be volatile, potential does exist for them, especially since they aren’t merely a fringe payment type anymore. A growing chunk of buyers online own at least some Bitcoin, for example, and many are more than open to exchange it for needs, goods, and services. This article will explore how cryptocurrencies work, what the major currencies are, and how companies can reasonably (and responsibly) accept them.
What Are Cryptocurrencies?
Cryptocurrency, in general, refers to a digital type of money that utilizes algorithms to facilitate trade, secure value, and, often, anonymize transactions. Cryptocurrencies vary significantly in the nuances of their technical function, but, as a class of currencies, there are a number of factors that are similar among them all. They all rely on blockchains, which are digitally-constructed series of encrypted data blocks; they are most commonly peer-to-peer, meaning that transaction verification occurs between two individuals and copies of all transaction data is stored locally for the purpose of verification; and they are almost all “anonymous,” meaning that there is no identity information disclosed during a basic transaction (this changes when cryptocurrency exchange organizations are involved, which we will explore more below.)
Bitcoin is the most popular cryptocurrency by far, and the way it uses the blockchain is mostly regarded to be the most reliable for the time being. Everytime a transaction occurs, the bitcoin application publishes a record of that transaction, with all relevant information, to the currently available block of data. Each data block contains all the records of the previous block, encrypted by a complicated algorithm. When the new block is decrypted, it is compared to the previous block automatically, with any new transactions being added to the data that will form the next block. In this way, every transaction is verified and recorded across many evolving blocks of data. Fraudulent transactions can quickly be identified by the algorithm by comparing each block of data, making the system very internally secure.
Bitcoins themselves are rewarded to “miners,” individuals who devote their computers to decrypting the complicated algorithms that secure each block. As there are only a limited number of Bitcoins, the value of Bitcoins are designed to increase as time goes on, and coins become more and more difficult to unlock (due to the data blocks growing larger and more complicated.)
However, the value of a currency is not determined simply by its technical viability, but, instead, the value is created by those who are willing to trade in that currency. World currencies (fiat currencies) are issued and vouched for by governments who regulate massive economies, but digital currencies are only backed by the blockchain. This characteristic is what makes the use of cryptocurrencies for eCommerce stores a potentially risky investment; if faith in the blockchain falters, cryptocurrency values plummet. Despite the inherent risk in the system, there are reasons for eCommerce companies to accept cryptocurrencies and methods they can employ in order to minimize that risk.
Reasons and Methods to Safely Accept Cryptocurrencies for ECommerce Stores
Now that we’ve explored the basic structure and function of cryptocurrencies, it’s time to delve into the reasons why a company would want to accept them as a form of payment on their store. At the beginning of this piece, we briefly touched on the growing user base that cryptocurrencies are enjoying, but this fact warrants further exploration. In the final quarter of 2017, the three leading cryptocurrencies had an incredible surge in value. Some analysts estimated that currencies such as Litecoin had as much as an 8000% increase in value during the final months of 2017. The rapid value growth of three major cryptocurrencies brought day traders, entrepreneurs, and even everyday investors with a little bit of pocket change to gamble with rushing into the cryptocurrency market. Thousands upon thousands of new users learned about, traded, and bought products with newly bought cryptocurrencies, which only drove the market prices higher.
The surge finally broke, of course, as all do, but the value of the major cryptocurrencies now sits higher than it has ever been. According to Bitcoin.com’s value graphs, for example, Bitcoin began the year around the $800 per coin mark and now rests at around $13500 per coin. With thousands of users trading high-value coins, eCommerce companies can open their doors to customers looking to buy with a totally new type of currency and make huge profits doing so. Cryptocurrency traders not only want to put their money to good use, but they tend to support companies that are helping to build an economy around the coin. What that means to merchants looking to accept cryptocurrencies for eCommerce stores is that they can secure statistically more loyal customers simply by accepting a new currency.
At the same time, the price fluctuation of cryptocurrencies is clearly volatile in comparison to fiat currencies. Many eCommerce brands simply cannot tolerate holding onto a currency whose value is volatile, doing so would be akin to accepting volatile fiat currencies instead of staples like USD, CAD, Euros, and Pounds. In order to earn the benefits of cryptocurrencies responsibly, though, steps must be taken to reduce risk. Thankfully, there is a way for eCommerce companies to mitigate the risk, and that method involves utilizing two tools:
- Crypto Exchanges like www.Coinbase.com, which operate like online banks and are backed by major financial institutions
- Dynamic Cryptocurrency tracking apps which work in tandem with payment processors to actively track the value of cryptocurrencies and adjust checkout prices accordingly.
Because quality crypto exchanges offer extremely low exchange costs, eCommerce companies can often instantaneously and inexpensively turn cryptocurrencies received from customers into the local currency. Dynamic price tracking apps nearly negate the risk of losing money on cryptocurrencies by ensuring that users are paying rates that align with the current value of the currency. Upon completion of checkout, a company can then either choose to immediately cash out their cryptocurrency for fiat currency or hold on to a certain amount of cryptocurrency for investment purposes.
With cryptocurrencies undergoing a market transformation going into 2018, eCommerce companies have real incentive to explore their options in regard to accepting them. If you’re thinking about the possibility of cryptocurrency integration for your store, contact 1Digital Agency today at firstname.lastname@example.org. Our professional team can help you analyze your options and strategize implementation so that you can make the most of the newest frontier of shopping in the internet age.
- Dan Kogan
- January 17, 2018