The Psychology of Cryptocurrencies in Business
The existence of cryptocurrencies question the very essence of paper money. For one, currencies that are being managed by central banks are always at risk of inflation. That’s because when banks print more money, the value of the currency goes down.
Cryptocurrencies, on the other hand, are different. For example, Bitcoin cannot be mined forever because it has a limit of 21 million mineable coins. With a set limit, the cryptocurrency can’t lead to inflation.
Financial startups look at Bitcoin for hope
The aforementioned quality of Bitcoin, as well as numerous other benefits of owning it, is what leads cryptocurrency startup businesses to look at Initial Coin Offering (ICO) as capital. According to an article by Fortune, ICOs are predicted to eventually give Silicon valley and Wall Street a “run for their money.”
It makes sense, because ICOs bypass the painstaking and regulated capital-raising process required by banks. This is how some financial startups find investors today: they establish their own ICO, offer it to investors at pre-sale, and then sell the cryptocurrencies to the public.
Projects are already being funded this way. For example, Kathleen Breitman, the Co-Creator for the cryptocurrency Tezos, has already used this process. When Breitman setup Tezos’ token sale, she planned to get many people to participate. Thanks to an ICO, she was able to raise over £150 million ($200 million), and, according to her, more than 30,000 Tezos wallets have been opened since her company’s inception.
“It used to be you had to come to Silicon Valley, walk up Sand Hill Road, network with individuals,” said Balaji Srinivasan, the CEO and cofounder of 21.co, a cryptocurrency startup. However, ICOs changed all that.
One factor that makes Bitcoin extremely popular is the idea that exchanges are done without a middleman. The psychology behind this, banks on the idea that people dislike hidden or extra charges, which makes Bitcoin perfect for trading.
While the idea of peer-2-peer sounds simple, the process is quite grand in today’s financial setup. That’s because most debit and credit card transactions only pass through a single, third party gatekeeper, which takes profits off the top of transactions that occur within the system. Meanwhile, Bitcoin transactions, according to an infographic by FXCM, are checked using thousands of computers that verify the blockchain formula. That said, Bitcoin transactions are cheaper, and are relatively safer thanks to its unique way of checking transactions.
Impact on businesses
Even though cryptocurrencies are relatively new, the fact that they are able to shift how investors and financial startups think means that they are becoming serious competitors to fiat money. Cryptocurrencies are reshaping the way businesses are conducted.
Hundreds of merchants are already using Bitcoins as payment. A survey by Gallup last year, noted that only 24% of the respondents in the U.S. prefer transacting with merchants using cash. This is a sharp decline from the 36% of people back in 2011 who said that they prefer to trade using money.
By accepting Bitcoin, merchants will enjoy lower transaction costs. Credit card companies charge about 2% – 4% with every transaction while Bitcoin only demands a 0% – 1% mark up.
In addition, using cryptocurrencies can help businesses stay ahead of the competition. That’s because the blockchain technology can also be used for important operations such as signing agreements and keeping track of inventory.
Some businesses now use blockchain in order to sign agreements to services rendered. Refered to as “Smart Contracts,” these agreements are digitally signed by two parties, and executed when the specified conditions are met. Smart Contacts can’t be altered, and are constantly monitored in order to make sure that conditions are met before payment can be made.
With blockchain, businesses can also easily keep track of transactions like buying, selling, shipping, etc. Once something is recorded, no one can change or delete anything from the inventory. It can only be audited and monitored.
Whether or not cryptocurrencies will replace fiat money in the far future, no one knows for sure. However, what is certain is that they are slowly changing the way people think about storing, investing, and spending currency.
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