Cryptocurrencies: Fact and Fiction. As with any new technology, it can be hard to determine what’s myth and what’s reality when it comes to cryptocurrency. The proponents will tell you that crypto will eventually make traditional currency obsolete. On the other hand, the detractors will say that cryptocurrency is nothing more than a flash in the pan, soon to be replaced by the next shiny new object. The truth, as per usual, lies somewhere in between. To help provide a more nuanced opinion on this topic, let’s identify some of the most significant talking points surrounding cryptocurrency and determine whether they are fact or fiction.
Fact: Cryptocurrency is decentralized
The underlying principle that makes cryptocurrency so intriguing is its decentralized nature. Traditional currencies require a central authority like a bank to authenticate their value. Because cryptocurrencies are based on blockchain technology (more on that later), they require no such authority. Instead, they rely on a massive peer-to-peer network to set rates and keep a record of all transactions.
Fiction: Crypto is all about BItcoin
While Bitcoin garners the lion’s share of attention, it’s just one of thousands of cryptocurrencies, and there are more being created all the time. In fact, many startups are opting for initial coin offerings (ICOs) in lieu of traditional IPOs. Anyone with enough tech savvy can create their own cryptocurrency, but making that currency valuable is another story.
Fact: Blockchain is even more important than cryptocurrency
The technology that allows cryptocurrency to exist is called blockchain. Harvard Business Review defines blockchain as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.” Basically, once data is encrypted into the blockchain, it cannot be altered, because it is not held in one central location. While currency markets are where blockchain has flourished so far, it has the potential to alter huge swaths of the financial world.
Fiction: The banks are doomed
While there are definitely insurgent members of the crypto community, the idea that blockchain-based systems will spell the end of banks is an outlandish claim. The banks themselves are already experimenting with blockchain and they have more resources to invest than anybody. Sure, blockchain may radically alter the way banking is done, but don’t expert major institutions to fall by the wayside.
Fact: I can already take payment in crypto
Adventurous accountants can already begin accepting payment in the form of Bitcoin or another cryptocurrency. There’s two ways they can go about this. You can use a merchant account, like Coinbase, to immediately convert all payments received into dollars, limiting your exposure to the volatility of crypto. Conversely, you could simply just hold onto the currency as is and assume the risk that comes along with that.
Fiction: We know what the future looks like
While it’s a safe bet that blockchain-based technologies will see widespread adoption in the coming years, what form they’ll take is anyone’s guess. Bitcoin may capsize, but it’s hard to see cryptocurrency not surviving in some form or another. Just like the currencies themselves, the laws regarding them are still a work in progress. If you’re interested in dipping your toe in the crypto-waters, it’s a good idea to keep abreast of the tax and reporting laws surrounding these new forms of money.
AccountingSuite stays on top of all the latest technologies and continues to evolve as technology evolves take a test drive today!