Interest in cryptocurrencies like Bitcoin and Ethereum skyrocketed in 2017. This spike in interest prompted significant spikes in the value of cryptocurrencies. In fact, Bitcoin’s value peaked at around $20,000 per coin a few weeks ago. This value, however, didn’t last too long as Bitcoin’s value dove down as low as $13,300 before rebounding up to $15,000.
This erratic value behavior is indicative of the unstable fascination the market has with cryptocurrency. In other words, investors have a love-hate relationship with Bitcoin. These feelings carry over into small businesses.
While a few scrappy entrepreneurs are making a killing in the larger cryptocurrency market, others are skeptical of the long-term profitability of cryptocurrencies. In order to better understand the ramifications of the Bitcoin boom, it’s important to know where it came from.
Bitcoin History 101
The actual identity of Bitcoin’s creator has never been confirmed. All we know is the creator, going by the pseudonym Satoshi Nakamoto, published a proof of concept for Bitcoin in 2008.
Then, on May 22, 2010, a programmer named Laszlo Hanyecz said he “successfully traded 10,000 bitcoins for pizza.” That sum of Bitcoins today would be worth about $99 million.
Bitcoin emerged from almost nowhere and is now a part of world commerce. This should grab any savvy businessman’s attention, and it has. Many large businesses now accept Bitcoin as legal tender.
High-profile companies who accept Bitcoin include Overstock.com, Expedia, Newegg, and Dish. These companies view Bitcoin as a viable exchange medium.
The steps these aforementioned companies have made in accepting Bitcoin has lead many small business owners to wonder at the possible pros and cons of accepting cryptocurrencies as a medium of exchange for their products.
Benefits and Pitfalls of Bitcoin
Bitcoin is a currency whose value is largely driven by consumer excitement. Right now, there’s a lot of positive speculation surrounding Bitcoin. This has pushed the value of this currency in a fairly steady upward curve. If this trend continues, businesses will see a steady rise in the value of their bitcoin assets.
For consumers, skepticism of large companies tracking internet actions has increased. This has lead many to look for ways to stay “off the grid.” Because of this, the most important benefit of Bitcoin to many consumers is that transactions are harder to trace.
In response, the Federal Reserve has noted the value of cryptocurrency in enacting consumer-level monetary policy and has said that “offering digital currencies” is something they are “thinking about.”
Unfortunately, however, it’s hard to tell at this point if Bitcoin hype is propping up a currency that has no substantial long-term value. Warren Buffet has called bitcoin a “mirage,” which it very well might be.
Businesses might build up reserves of Bitcoin only to have those reserves evaporate overnight. As we’ve seen with the recent erratic value behavior of Bitcoin, the currency can be unpredictable and unstable.
For entrepreneurs who like chasing high-risk, high-reward ventures, bringing Bitcoin into their business coffers can be an exciting and potentially profitable idea. For businessmen who prefer stabler investments, Bitcoin might cause a few too many heart attacks.
Successful Cryptocurrency Startups
In the wake of the cryptocurrency craze, a few young startups have fashioned clever businesses around the hype.
One such business is Coinjar. Coinjar, founded in 2013, allows users to exchange and store Bitcoins. With over 70,000 customers, Coinjar has processed more than $100 million worth of transactions.
Another startup success is a company called Power Ledger. Their services have nothing to do with cryptocurrency – they’re a solar company. What they did, however, is raise money for their business through an ICO. They managed to raise $27 million in October via their ICO and have since seen an eightfold increase in market capitalization.
The Future of Cryptocurrency
In due time we’ll see if cryptocurrencies are here to stay. Who knows? If demand keeps rising and the strengths of cryptocurrencies emerge victorious over their weaknesses, then we may see a future where Bitcoin is an essential part of ecommerce.