Crypto is here to stay, but it’s a complex, rapidly evolving area that’s fraught with challenges and risks. Companies that decide to introduce it as a way of conducting business will need to think carefully about their goals and plan accordingly. They will also need to make sure they are fully aware of the implications of the new frontier—including regulatory, security, accounting, tax, and operational complexities.
In essence, cryptocurrency is a digital medium of exchange that functions as a store of value and a medium of payment. It’s also a form of investment with potential to yield high returns if held for long periods. But it’s important to remember that cryptocurrencies are not backed by governments or monetary authorities, so they don’t offer the same protections as fiat currencies or traditional stocks and bonds.
The most well-known cryptocurrency is Bitcoin, which was launched in 2009 as an open-source software project. It was created by Satoshi Nakamoto, a pseudonymous person or group of people, to allow anyone on the internet to send and receive Bitcoins. Since its inception, many other cryptocurrencies have been created. Each cryptocurrency has a unique blockchain that records transactions in a secure, immutable manner.
While some people use cryptocurrencies to invest, most people hold and spend them to pay for goods or services. The list of items you can purchase with cryptocurrencies grows daily, and includes everything from consumer staples to insurance and luxury watches to event tickets. Some even have debit cards that let them use cryptos to make purchases at participating merchants.
Because of the lack of government backing, cryptocurrencies are highly volatile. It’s not uncommon for a large percentage of the market’s value to disappear in a matter of hours. There are also risks involving the technology itself, including hacking and theft. The lack of coherent regulations also leaves investors and merchants vulnerable to manipulation by unethical management practices.
Some people use cryptocurrencies to make investments in companies that are listed on major stock exchanges. This is called “overtrading,” and it can lead to large losses if done over a short period of time. Investors should stick with companies that have solid business models and long-term growth prospects, and avoid any investments that promise huge returns in a short amount of time.
Many people also use blockchain to immutably record data points—such as votes in an election, product inventories, state identifications, deeds to homes, and much more. This can help prevent fraud, counterfeiting, and other types of misreporting that has led to recent food safety issues involving E. coli and salmonella. The ability to verify data through a blockchain could also help businesses improve supply chains and ensure compliance with environmental, health and safety, and social responsibility standards. For example, a blockchain could be used to track food safety compliance with standards such as those set by the Global Food Safety Initiative. (For more on these uses, see Deloitte’s report, Beyond the hype: The real business benefits of crypto and other digital assets.)
