Cryptocurrency: A means of payment for your Internet business?
April 27, 2018
Cryptocurrencies are fun and rev up the business? It certainly looks like it when we take a look at the market trends of the most popular digital currencies. But what is crypto money? Does it have a real value, or is it only an object of speculation? Should you accept crypto money as a means of payment for your Internet business? This blog post wants to provide answers to the many questions on the subject.
What are cryptocurrencies?
Cryptocurrencies are digital currencies that can be used to buy services and make purchases on the Internet as well as in real life. Of course this only works where the currency is accepted.
Cryptocurrencies are not issued by a central bank, although there is perhaps one exception, the Petro. According to the Chavez administration, the Petro is Venezuela’s official, oil-backed currency, covered by the country’s huge oil reserves. However, that is more than questionable. The Petro is generally rated as a scam set up by the Venezuelan government to obtain quick access to foreign currencies. (Find out more at: What is crypto money worth?)
Crypto money is based on a peer-to-peer payment network. Which basically means that the currency is distributed over many computers and anyone can participate in this network. And, to prevent a cunning computer coder from counterfeiting the currency, it uses cryptographic techniques. These techniques ensure that only crypto money owners are able to carry out financial transactions and especially that no one can forge the monetary units.
In the case of crypto money, cryptography functions like a supervisory body, which is why it is named cryptocurrency.
Cryptocurrencies are stored by means of a so-called wallet software. This makes transactions such as sending and receiving money possible. Every currency has its own wallet.
What does cryptocurrency have to do with blockchain?
Blockchain is similar to a ledger. It keeps records of every Bitcoin, Ripple or whatever currency transaction takes place and whom it belongs to. This means that cryptocurrencies cannot simply be replicated because information about who sent which coin or token to whom is recorded in the ledger. If the coin appears somewhere else, that person’s crypto money is worthless because according to the ledger that person is not its rightful owner.
Since the blockchain is spread out over a large number of computers it cannot be forged. In doing so, the community generates security within this type of network thus ensuring that digital currencies cannot be duplicated.
How are cryptocurrencies created?
Cryptocurrencies are “dug” or calculated by means of very complicated and complex mathematical processes. This is referred to as mining. The problem is that the more cryptocurrency units exist, the costlier is the calculation process. This is meant to prevent the inflation of the currency. When the most well-known currency, the Bitcoin, first appeared, you could dig Bitcoins yourself on your personal computer. Meanwhile, there are so many units of the currency that mining with a personal computer is no longer worthwhile. Your electricity costs would be much higher than the returns. Furthermore, a cryptocurrency has an upper limit – it is therefore not suitable for inflationary production.
Graphic cards are ideal for digging cryptocurrencies. Several are usually combined to ensure effective mining. Mining uses a lot of electricity and creates heat. Most of the mining farms are therefore located in Iceland, where it is cold and electricity costs are low.
Tip: If you are thinking of starting your own cryptocurrency mining then have a look at this article “How to mine bitcoin”.
Are cryptocurrencies legal?
Some countries have forbidden cryptocurrencies. The Bitcoin is illegal in the following countries:
All the other countries are pushing for a regulation of cryptocurrencies because these are often used as objects of speculation or for illegal transactions. On April 19, 2018, the EU-Parliament approved a new directive against money laundering and financing of terrorism. According to this directive, operators of exchange offices for virtual currencies must store the identity of their users and their wallet address in a central database. This is intended to prevent the anonymity and abuse of virtual currencies, for instance to finance terrorism.
Cryptocurrencies are therefore not illegal, but carefully observed by many authorities.
Which cryptocurrencies are available?
On April 23, 2018, the website coinmarketcap.com listed 1584 cryptocurrencies. These are the ten most important cryptocurrencies, based on their market capitalization (updated 23.04.2018)
Bitcoin with a market capitalization amounting to 151.273.257.909 US Dollar and a unit price of 8.901,51 US Dollar
Äther (market capitalization: 63.003.803.962 US Dollar / unit price: 636.45 US Dollar)
Ripple (market capitalization: 34.218.987.356 US Dollar / unit price: 0,874656 US Dollar)
Bitcoin cash (market capitalization: 23.424.336.884 US Dollar / unit price: 1.370,72 US Dollar)
EOS (market capitalization: 9.417.773.120 3. US Dollar / unit price: 11.62 US Dollar)
Litecoin (market capitalization: 8.390.539.504 US Dollar / unit price: 149.27 US Dollar)
Cardano (market capitalization: 7.444.180.493 US Dollar / unit price: 0,287120 US Dollar)
Stellar (market capitalization: 6.886.960.876 US Dollar / unit price: 0,370872 US Dollar)
JOTA (market capitalization: 5.704.568.976 US Dollar / unit price: 2.05 US Dollar)
NEO (market capitalization: 4.896.749.000 US Dollar / unit price: 75.33 US Dollar)
The biggest problem with digital currencies is their volatility. Bitcoin is a good example.
Bitcoin for instance:
Bitcoin is well-known for extreme fluctuation in its exchange rates. In 2011, one Bitcoin could be purchased for less than $10. In April 2013, the exchange rate was $266 per Bitcoin, but in October of the same year it dropped to $60. In November 2013, it soared back to $1,100 per Bitcoin. However, in February 2014, it fell to $340. In February 2017, the rapid development of the currency reached new spheres. At the time, it shot through the $1,000 mark and reached its financial climax in December 2017 when one Bitcoin was worth $16.000 at times.
Two economists, Savvas Savouri (partner at a London hedge fund) and Richard Jackman (professor emeritus at the London School of Economics) speak out against the current Bitcoin exchange rate of $8,000 (as per April 2018). They calculated a Bitcoin value amounting to $20.
The experts at Allianz Global Investors also examined the intrinsic value of the Bitcoin. They came to the conclusion that the cryptocurrencies had an intrinsic value of zero. The experts’ explanation is simple: in contrast to government bonds, stocks or paper money, Bitcoin has no claims options towards third parties.
Bitcoin is therefore more of a fascinating “speculative plaything” than a real means of payment. Which is something many other digital currencies and their creators are pitting on. They program a cryptocurrency and hope that their exchange rate will “go through the ceiling”.
To answer the question of how much crypto money is really worth, all we can say is, that what counts is how much real currency is spent on the cryptocurrency.
How long does a payment with crypto money takes?
Cryptocurrencies only exist digitally and can therefore be transferred very quickly. There is no need to use intermediaries such as banks.
The transfer itself occurs within seconds and is free of charge. Verification and validation of the payment by the network (blockchain) takes a bit longer. Anywhere between a few minutes and a few hours.
To accelerate the verification by the network, a financial incentive in form of fees can be made. However, these are much lower standard bank fees.
How safe is crypto money?
Forging or hacking cryptocurrencies is practically impossible. However, among the 1600 cryptocurrencies there are ones where it is unclear whether they really comply with cryptocurrency standards or not. It is therefore very important to do some research regarding the background of a cryptocurrency before selecting it.
Theft of the currency within the currency system is basically ruled out. However, it can be stolen due to carelessness. For instance, if the owner of the crypto money uses unsafe passwords or keys he is making it easy for hackers to steal the coins.
What do I need to be able to accept crypto money as a means of payment?
Are you the operator of an online shop and want to accept Bitcoins or other cryptocurrencies? It is quite simple, because various service providers take care of it for you: from setting up an account to payment handling. You do not even need a wallet or knowledge of the current Bitcoin exchange rate. The service provider calculates the euro amount based on the current Bitcoin exchange rate, shows it to the customer and pays the money. You then receive the money paid out in euros from the service provider. The service fees are very low.
You can of course set up your own wallet and by means of plug-ins offer payment in cryptocurrencies such as Bitcoin in your shop. Then you have to pay no fees.
Should one accept cryptocurrencies as a means of payment?
What do the game platform Steam and Microsoft have in common? Right! They no longer accept Bitcoins as a means of payment. This is because of the high fluctuation rates of the currency. A reliable calculation of your revenue is hardly possible with Bitcoins.
Other cryptocurrencies might be a bit more reliable in that respect, but they can also fall prey to a hype. It becomes more likely the more widely used the currency is. However, a large prevalence is necessary in order for you to offer a means of payment that many people can use. As you see, it is like a dog chasing its own tail.
Our tip: Go ahead and offer cryptocurrencies as a means of payment. Currently they will not make up more than 1% of your turnover. However, instead of exchanging the currency into euros, view these earnings as a financial investment. You might be able to earn a lot of real money with virtual currencies.
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