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How to decide if cryptocurrency is right for your business: the basics

A conversation with Phil Parisis, Product Head of Marketing, Business Australia and Co-Founder, Inflowlive, on the different uses and examples of cryptocurrency.

Phil, would you mind explaining cryptocurrency and cryptocurrency uses simply please?

Cryptocurrency is decentralised digital money. Encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.

The rise of technology means that cryptocurrency can be sent around the world easily, unlike normal money, which has to be changed to the currency of the country with which you are dealing.

And unlike virtual currency, cryptocurrency is the only financial asset that doesn’t belong to any government or financial organisation. Thanks to blockchain technology, which is effectively a ledger that allows transactions to be recorded and confirmed by its users without an intermediary party, (more about this later) it doesn’t hold value against gold or any other assets.

The list of cryptocurrencies is extensive. How many types of cryptocurrency exist?

There are over 1,000 different cryptocurrencies and they can be broken up into four major categories.

Transactional Cryptocurrencies, the category for which cryptocurrency was originally intended. Bitcoin is the most popular in this category and often appears in the news. The intention of this cryptocurrency is to remove the control of a central authority and cut out the middleman in day-to-day transactions.

Platform Cryptocurrencies, the category that provides the foundation and building blocks that facilitate the operation of other decentralised applications. Ethereum is a good case in point. It is a decentralised software platform enabling SmartContracts, the code that can execute coin transactions without middlemen and third-party organisations; and Distributed Applications (ĐApps) to be built and run without any downtime, fraud, control or interference from a third party.

Utility Cryptocurrencies, which are designed for a specific purpose. Siacoin is one of the notable examples. It is designed to facilitate a decentralised storage network, which is a unique concept and a novel application of blockchain technology.

Application Cryptocurrencies, which refers to the class of cryptocurrencies based upon the platform cryptocurrencies.

Cryptocurrency:

  • Must be digital. There are no coins or notes. They are obtained by mining.
  • Doesn’t have a central computer or server. They are distributed across a huge computer network and because there is no central server, they are called decentralised networks.
  • Is passed from person to person directly online. Users don’t deal with third parties like banks or PayPal.
  • Can be used or owned by anyone and don’t require you to provide any personal information.
  • Doesn’t use third parties. Users are in complete control of their money and information at all times.
  • Is encrypted. Each user has special codes which stop their information from being accessed by others. This cryptography makes it almost impossible to hack.

Does it require you to be technical savvy? Investment knowledge? Trading knowledge?

No, you don’t need to be tech savvy anymore to buy, trade or sell. Like anything involving exchanges of money and where you expect returns, you would need to know what currencies are doing and follow their progress. There are no current trading holds on cryptocurrencies on the stock exchange so there are a lot of rumours that affect currency fluctuations.

What is blockchain?

A blockchain is a decentralised, distributed and public digital ledger used to record transactions, without an intermediary party, across many computers. The record can’t be altered retroactively without the alteration of all subsequent blocks and the consensus of the network. This allows the participants to verify and audit transactions inexpensively. Each transaction forms part of a “block” which is then added to the chain. This record of confirmed transactions is public and made available to all users.

A blockchain database is managed autonomously using a peer-to-peer network and a distributed timestamping server. Bitcoin was the first known implementation of the blockchain back in 2009.

Unlike virtual currency, cryptocurrency is the only financial asset that doesn’t belong to any government or financial organisation.

If blockchain is a linear chain of blocks, can one or more be deleted from the chain?

Once information is added to the blockchain, it can’t be deleted or changed. It stays on the blockchain forever and everyone can see it.

How is the database stored? I have heard the term consensus used?

The whole database is stored on a network of thousands of computers called nodes. New information can only be added to the blockchain if more than half of the nodes agree it is valid and correct. This is called consensus. The idea of consensus is one of the big differences between cryptocurrency and normal banking.

Secure decentralisation would be so important to a business. How secure is bitcoin?

The secure decentralisation of value transfer is bitcoin’s biggest asset and the basis on which all other crypto assets are built.

How do you buy cryptocurrencies?

Acquisition of crypto assets or currencies is primarily done through an exchange. Coinbase is currently one of the largest. They provide a point of access that converts fiat currency into cryptocurrency or tokens.

How is cryptocurrency stored?

It’s stored on a virtual Crypto wallet that Coinspot manages. You can move it to your own virtual wallet. Most Crypto currencies have their own engine for ‘Wallets’ which is basically a place to store your records of coins.

What is the practical use of cryptocurrency and how can businesses benefit from it?

Many businesses, particularly big companies like NAB, Westpac, American Express, and Deloitte are benefitting from this technology now.

If you want to help businesses who are using cryptocurrency, you can make it easy for them by accepting cryptocurrencies on your website as a payment method. And you can use blockchain technology to execute smart contracts.

What are the biggest risk in jumping on the cryptocurrency bandwagon?

The risks are around losing money and losing that valuable cash flow. Like any investment you are exposed to risk around the popularity of cryptocurrencies. There is a risk around hedge funds doing large investments, pumping the media with PR, and then selling out when the price is high.

Things that are illegal on the stock market. Other risks include legal regulations changing in different countries. And the possibility of Cryptocurrency being  taxed or made illegal.

What is your advice to best protect yourself and the business against making bad decisions?

Always use a reputable broker such as Coinspot.

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