In 2009, the very first Bitcoin transaction was used to order two Papa John’s pizzas, marking the humble beginnings of what would eventually change the meaning of currency as we know it. Since then, the world of cryptocurrencies has exploded, with the number of cryptocurrency users expected to reach a staggering 994.30 million by 2027.
December 15, 2023
In 2009, the very first Bitcoin transaction was used to order two Papa John’s pizzas, marking the humble beginnings of what would eventually change the meaning of currency as we know it. Since then, the world of cryptocurrencies has exploded, with the number of cryptocurrency users expected to reach a staggering 994.30 million by 2027.
What started as a response to the Great Recession and a way to decentralise money has turned into the future of currency. It’s also become a lifeline for many small businesses around the world who would otherwise be financially fragile.
Before we can dive into the pros and cons of digital currency for small businesses, it’s important to distinguish how it differs from other types of currency, like the U.S. dollar, as well as the main types of cryptocurrency.
To put it simply, digital currency is any currency that exists solely in electronic or digital format. This can be confusing, because many countries use electronic versions of currency (aka the currency that’s in your bank account). However, the difference is that digital currency can’t leave a computer network, while you can easily visit an ATM to transfer money from your bank account into physical dollars.
There are three main forms of digital currency: cryptocurrency, stablecoins, and central bank digital currency, known as CBDCs.
Cryptocurrency
Cryptocurrencies, like Bitcoin and Ethereum, cut out the middleman with their decentralised technology. They let you make global transactions whenever, wherever, and bring financial services to those who don’t use traditional banking.
Stablecoins
Stablecoins are known for being traditional flat currencies, which helps minimise price volatility. They’re your best bet if you need to make international money moves without the crazy price rollercoaster of other cryptocurrencies.
Central Bank Digital Currency (CBDC)
CBDCs play by the rules. By allowing central banks control over their policies, they are able to respond to economic changes in real-time. This also means they can implement measures like interest rate adjustments and quantitative easing.
Did you know: Half of all small businesses have a cash buffer of less than one month? Unlike larger firms, small businesses can be extremely vulnerable when it comes to fluctuations in the economy.
This was evident during events like the 2008 financial crisis and the COVID-19 pandemic. In fact, during the global pandemic, many businesses were forced to accept funding from the government to keep their lights on.
Typically, a small business does not have the same access to credit or financial options like a larger corporation would. They’re also viewed as a bigger risk in the eyes of lenders, so they’re unable to get credit easily.
Digital currency can provide critical support to small businesses in various ways:
Business advisor Adam Lyons recently predicted that any company that accepts cryptocurrency will gain a significant competitive advantage over its competitors.
Transitioning to digital currency can lower transaction fees and potentially the risk of fraud and chargebacks (when a customer disputes a charge on their credit card statement).
Lyons also pointed out that digital currency could help businesses attract new customers looking to invest, spend, and trade cryptocurrency.
On top of everything else, small businesses would gain faster access to funds, improving their liquidity and cash buffers — a desperate need in their current state.
Unfortunately, it’s not all rainbows and butterflies when it comes to digital currency. Like anything else, there are potential drawbacks as well.
As with most things, digital currency has a number of advantages and disadvantages. Because of their financial fragility, it’s especially important that small businesses carefully consider their options before deciding to accept a new currency.
With that said, the predictions are high that cryptocurrency will be adopted into the mainstream in the near future. Small businesses need to be nimble in order to thrive, and adapting to new technology like this is key to appealing to customers.
For personalised service, the very best financial products and exceptional customer service where you really matter, look no further than the professional team at Mainland Finance
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