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Cryptocurrency and Business – Part 1: Some Basics

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Cryptocurrency and Business – Part 1: Some Basics

A whole new financial sector has been lurking in the shadows, brewing in the minds and computers of seriously techy people for the last few years.

I believe that history will show that 2017 was the year that cryptocurrencies came out of the dark and into the bright light of mainstream awareness. Spurred on by the remarkable attention paid to Bitcoin for its incredible run from a value of US$765 in December 2016 to a peak of US$17,550 just 12 months later (figures sourced from cryptocurrency exchange CoinDesk), representing an astounding increase of more than 2,000%.

This article is the first in a series that will cover cryptocurrency (or just ‘crypto’ as the cool kids like to say) in business. This article will cover crypto basics, with the following articles to cover what the emergence of crypto means for business owners, what business owners can do to prepare themselves for what’s coming and what businesses could be doing right now to handle crypto payments in their businesses.

My thanks go to Mr George Siosi Samuels for his great contribution to these articles. George graciously gave his valuable time for me to interview him as part of my research for these articles. He is the founder of It Will Come, and host of the It Will Come Show, a YouTube program dedicated to helping people find their way in business and life, especially those starting their own business or transitioning between careers. George is now a Community Manager for a global fintech firm and is heavily involved in the crypto world.

What is crypto?

The most logical first question for my interview with George was the most fundamental one; what exactly is a cryptocurrency? George’s answer to this was simply, “It’s the next logical step in the evolution of money.”

Money is simply a way of transferring value between parties in a transaction, which can take many forms. Step 1 in the exchange of value goes back to the dawn of mankind when goods were bartered in trade. Step 2 was the introduction of coins made from various metals including bronze, silver and gold. Step 3 was the introduction of paper money, which first appeared around 800 years ago. Step 4 followed long after, around 1950 when the first credit card was introduced. Step 5 surfaced at the beginning of the 21st century when mobile payments via portable devices such as mobile phones and tablets were first introduced and are now commonplace from providers such as Apple Pay and Samsung Pay. Now, here we are at evolutionary Step 6, crypto.

A cryptocurrency is virtual or digital money. This concept should not be too foreign, since most of us would be very familiar with the concept of using eCommerce, trading electronically without physical cash. We’ve been trading zeroes and ones digitally for many years when we’ve bought our gadgets on eBay or Amazon using PayPal or any other means of electronic payment. The key difference with cryptocurrencies is that they use high-level cryptography to track and verify the financial transaction, hence the name cryptocurrency.

Traditional currency.

It’s worth highlighting a common term used in the financial world, ‘fiat currency’. No, this is not what you use when you buy a small Italian car, although coincidentally the term is actually derived from Latin, meaning, “It shall be”. Fiat money is currency that is declared as legal tender in a country, but its underlying value is not backed by a physical asset, nor does the substance from which it is made have an intrinsic value that is anyhow related to the monetary value that the currency represents.

Bitcoin.

By now, many people would have heard of Bitcoin, which was the pioneer, the first ever crypto. Bitcoin emerged in 2009, just after the Global Financial Crisis in 2008. The inventor of Bitcoin has never been officially identified, which contributes to the cloak-and-dagger intrigue of the crypto world. The identity of the Bitcoin inventor (or inventors) remains a mystery, known only under the alias Satoshi Nakamoto.

Bitcoin is a peer-to-peer, publicly visible electronic system of money. It is decentralised, which means it does not follow the traditional ‘trusted third party’ approach to handling financial transactions, where a central body such as a bank keeps records of the balances and transactions. Instead, the transactions are tracked by a public ledger using a system called Blockchain (more on that in the next article).

Other cryptos.

Bitcoin has spawned an incredible number of other cryptos, according to CoinMarketCap, there were more than 1 500 different cryptos in existence on 22 February 2018, with a total market capitalisation in excess of US$480B (the market cap of each crypto is determined by multiplying the value of each crypto coin by the number of coins on issue).

Current notable cryptos include Bitcoin, Ethereum, Ripple, Bitcoin Cash and Litecoin, which on 22 February 2018 were the top five cryptos by market capitalisation according to CoinMarketCap, with a combined value in excess of US$350B.

A new frontier.

The crypto world is a new frontier for the financial and business world that’s just getting started. We’ve barely scratched the surface on some crypto basics in this first article, so stay tuned for more to come in the articles ahead for what crypto might mean for you and your business.

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