The idea that it takes a large bank to store or send money digitally is as old as it is wrong. It has long since been overtaken in the course of advancing digitalization: cryptocurrencies arose from rejection of the financial industry, its high costs and morally reprehensible investments in war, suffering and human and ecological exploitation. Digital means of payment that do not depend on a specific company or a single person, but can be generated, stored, sent and received by everyone – everywhere.
What started with Bitcoin has since expanded to several thousand different cryptocurrencies – some more serious and more likely to succeed than others. This broad supply and extremely volatile prices have long attracted investors, but this makes it difficult to use it for everyday transactions.
Nevertheless, cryptocurrencies are increasingly being used as digital means of payment in the course of digitalization: they help to avoid additional fees in international transactions. They allow people without access to a bank account to pay online. And they are also very popular with illegal transactions, as senders and recipients are easy to disguise.
The latter, combined with the anti-crypto lobbying of the financial industry, which fears for its position of power, led to a dubious reputation that dissipates only slowly. Nevertheless, they can also be of great interest to companies.
A cryptocurrency is a digital means of payment which either represents a) the equivalent of different possessions, b) is linked to a “real” currency, or c) does not represent any real value, but acts only as a means of payment between two parties that have agreed on a value. At first glance, they are similar to our euro, dollar, yen, etc., which we have in our bank’s account and use for payment via online banking. Cryptocurrencies, on the other hand, have no fixed place where they are stored.
Instead, they are distributed to different locations according to the Distributed Ledger system. Since no single person can gain access to the database (because “one” database does not exist at all) and can make tampering and they are additionally encrypted cryptographically (hence the name), they are considered extremely secure.
Blockchain technology is usually used to implement this distributed ledger system, i.e. the tamper-proof simultaneous storage in many different places around the world. The term cryptocurrency is also so closely linked to it because it launched the first such currency, Bitcoin, in 2009.
Another aspect is the decentralized structure of the so-called “Cryptos”. They are deliberately designed in such a way that there is no central authority, group or company that makes decisions about the currency in question. This makes them very different from traditional banks and states that manage their respective means of payment.
With the explosion of cryptocurrencies, this definition has been softened piece by piece. Today, a cryptocurrency can be centralorized or decentralized, or use a technology base other than blockchain. Only the digital form and cryptographic security must be available in order for us to be able to speak of a cryptocurrency.
Definition of digitization
Digitalization is, quite soberly speaking, simply the transfer of formerly analogue processes to digital ones. Even if we are currently increasingly encountering these and similar terms, this is a very old and simple process, because almost every form of digitization is rewarded with efficiency increases, cost reductions and new, previously unknown possibilities. No wonder we humans have always been very interested in her.
Due to the accelerating technical progress and the mutual support (new technologies enable new technologies …) digitalization has gained so much speed in recent years that it has now penetrated into all areas of our lives and is indispensable from there. This digital transformation is a technological, socio-cultural, economic and intellectual process that brings with it gigantic upheavals.
For companies in particular, the digital transformation creates unprecedented opportunities – but it also lurks with considerable dangers, especially if it is ignored.
Possible applications for companies
With the success of the original bitcoin in the form of a gigantic price increase of several thousand percent, great interest was created almost overnight from all sides. It quickly began to trade these and some other cryptocurrencies in the world’s major financial centres along with other currencies, stocks, ETFs, etc.
This “knight’s strike” made individual Cryptos valued investment opportunities, but at the same time destroyed their initial purpose: as a simple, everyday means of payment, they were no longer usable. With Wall Street’s announcement in December 2017 that it might want to enter the bitcoin market, the price of a single unit rose to USD 20,000. Only six months later, however, the price had been reduced to only a third of it. While these jumps may be of interest to courageous investors, they are simply too pronounced to be used as an everyday currency.
This problem could be quickly solved by other currencies: with transaction-oriented Cryptos such as Bitcoin Cash, weekly shopping in the supermarket would also be easy to pay for.
By definition and declared goal, cryptocurrencies are designed to eliminate the middleman in transactions. Since this middleman usually acts in the form of banks and his services can be remunerated excellently, considerable sums can be saved.
Since for many years both partners involved had to have appropriate crypto wallets, i.e. digital wallets to store the respective currency, the use cases for companies were often limited. The issue had been handled too dubiously in the media attention, for a large number of companies and private individuals to have relied on this method of payment. One simply did not find anyone willing to trade in these intangible currencies.
With the advancing recognition of Bitcoin and Co. in public opinion as well as new service providers supported by trusted investors, the picture changed. Thanks to digitalization, it is now possible to transfer assets via cryptocurrency without any problems.
Since the transfer takes place directly between the business partners, no trading costs are due. It does not matter whether the transmitter and receiver are in the same room or on different continents. This offers companies two direct benefits:
On the one hand, you can process your own payment out and receipts free of charge in this way. This means significant savings compared to established financial service providers, especially for internationally active as well as small and medium-sized enterprises.
On the other hand, it is possible to receive payments from customers in this way. Again, there are no costs, which can mean several percent difference in direct comparison with the fees for Paypal and Co. Since the payment takes only a few seconds, depending on the cryptocurrency used, a speed bonus is also required.
Since this payment method has not yet been used extensively, it depends on the industry whether the implementation is worthwhile. It is not surprising that mainly tech-savvy men still make up the vast majority of Crypto enthusiasts and come into question as customers. Accordingly, it is primarily online shops for computer accessories and the like that offer payment in this way – sometimes very successful.
By the way: the first “real” transaction with a cryptocurrency took place on 22.05.2010. On that day, a programmer bought two “Papa John’s” pizzas for the equivalent of $30 – then 10,000 bitcoins. At its peak in December 2017, this would have been around US 200 million US dollars, or 100 million dollars per pizza, making it probably the most expensive meal in history.
Most of the available Cryptos still need to be “mined”. This refers to the cryptographic development process through computing power of a computer. In the case of blockchain-based currencies, which still make up the majority, appropriate computational operations are required to attach the next block to the eponymous block chain and thus update them. This is a prerequisite for completing new transactions, because only if they have been entered into the blockchain database will they be completed.
Those who help with this calculation of the blockchain with the computing power of their computer – whether it is an ancient laptop or state-of-the-art data center – will be rewarded: units of the respective currency can be “won” in the process. It is true that this process also requires a good dose of luck; However, those who use enough computing power over a corresponding period of time can rely on finding the appropriate remuneration in their digital wallet.
Cryptomining has long since developed into an industry of its own: Due to the high computational effort, often only correspondingly powerful systems are worthwhile. As these in turn consume high amounts of energy, profit margins are very tight. The result is a veritable “crypto-nomadism”, in which the people and companies involved move on to the place with the lowest energy prices. At the time of the article’s constitution, China was still the first address, while Kazakhstan came in second place in the miners’ favor.
Companies that have their own data center have been given new opportunities to use their capacities efficiently through digitalization: while their own employees at home are blissfully dreaming of the next working day, the unused computing power can be rented out to users on the other side of the world via cloud computing solutions. An IT that is ideally utilized in this way pays off quickly and can mean significant profits.
But also the use for cryptomining can make sense in certain cases: Who can supply his data center with cheap energy, is predestined for this. This can be the case on the basis of appropriate contracts or, for example, if the solar system on the roof of the company building shines in the sun. However, due to the usually very high electricity prices in Germany, this should remain the exception.
For a company that has locations abroad, however, this calculation is quite different: Lower energy prices on site can make the use of its own computing power lucrative. At the very least, it does not hurt to make a corresponding calculation and to inform yourself about the local laws in this regard.
Only a comparatively small proportion of the many cryptocurrencies serves as a pure means of payment; behind many are real values or services. Often these are much cheaper than if they are acquired by the “normal” way, because here again the missing middleman comes into play.
As an example, “Golem”, a cryptocurrency used for trading computing power, should be mentioned here. Those who make their computer available will receive corresponding portions of the Golem currency. Persons or companies who, on the other hand, want to buy such arithmetic operations, exchange other funds for Golem in order to spend them. Overall, this is often significantly cheaper than with established cloud computing service providers such as Amazon.
Services or even concrete objects/valuables can be purchased with special crypto variants. A look at the offer can always be worthwhile, as a real marketplace for such Cryptos with direct benefit has developed.
Disadvantages and risks
With the stated aim of Bitcoin users to make central banks and their machinations superfluous, powerful enemies were immediately created. In different countries, they have made different successful opinions against the “new enemy”. It can be explained that many states have generally banned the trading and mining of cryptocurrencies.
Other nations, on the other hand, saw the new means of payment as an opportunity and developed specific strategies for dealing with them. For example, Kazakhstan and Iran have concrete plans to lure professional Crypto-minders into the country with low electricity prices and other benefits.
In China, too, crypto-production is more than just “tolerated”. This is understandable: cryptocurrencies also have a corresponding power. After all, this is a huge market with a high impact on other sectors of the economy.
The US, on the other hand, remains a side note, with less than 1% of global production. China, the adversary in the new cold war, largely dominates the field, is causing great tension. A political powder keg whose explosion will see private users of Bitcoin & Co. be left behind. Government influence, prohibitions and similar measures can lead to price losses or may cause a currency to collapse completely. The result would be a loss of the respective investment.
A longer-term entry into the crypto world should therefore always be done cautiously and in the knowledge that success can literally be absent overnight. Since this is still a comparatively young means of payment, which also entails extreme price fluctuations and other risks, it is still the particularly courageous investors who are hitting here.
Cryptocurrencies are already a free alternative to established financial service providers. Paying by means of “Bitcoin Cash” and similar variants has been experiencing a slow but constant upswing for some time and is expected to spread further. This is not surprising: one consequence of digitalization,which is so encompassing our society, is the shift of familiar services towards a digital variant. Money transactions are no exception – and no one likes fees. Creating your own wallet, as the digital wallet, is free and takes only a few seconds.
If you run an online shop or generally offer digital payment methods, you can think about including a cryptocurrency as a payment method. Even if it may not be worth it at the moment, companies do well to keep an eye on this technology.
On the other hand, those who want to enter the field on a larger scale and, for example, intend to invest extensively or start producing Cryptos themselves, should be careful: the highly volatile prices promise hefty profits – but they can also make large losses just as quickly. Nor should the political dimension be underestimated, as many states change their minds about cryptocurrencies from support to ignorance to prohibition (or vice versa) with little or no warning.
Cryptocurrencies thus form a mixed picture for companies. There are numerous possibilities, especially in direct customer contact. At the same time, the environment is fast-paced and difficult to calculate, so caution is always required.