You don’t have to be an investor or involved in the payment industry to know that Bitcoin has been on a roll. And, it’s just not Bitcoin. It’s any type of digital currency that uses blockchain technology. The age of digital cash is just starting and your business needs to be prepared.
The thing is, digital cash isn’t a new idea. David Chaum fist came-up with cryptocurrencies back in 1983. Then throughout the 1990’s companies like Digital Cash were launched.
Media outlets like CNN were discussing the impact that digital cash was going to have in the world in 1998. Things rapidly changed when Bitcoin arrived in 2009.
“While digital money is by no means a new concept, the accelerated adoption of digital money can be attributed to technology trends. These trend have taken the world by storm over the past few years.
Reasons Behind Digital Cash
“The reasons? Access to computing and connectivity through the widespread adoption of mobile devices, ubiquitous broadband availability and the democratization of access to heavy computing power through cloud computing,” writes Guru Bhat.
Bhat is GM Technology & Head of Engineering – PayPal. “In combination with a legislative environment that incentivizes the digitization of money, the vision of digital money is beginning to come to life with unprecedented reach, scale and convenience.”
In India alone, the digital payments industry will hit $500 billion by 2020 and contribute to about 15% of the GDP.
Simply put, digital cash is steadily changing the entire world and deserves the utmost attention of business owners of all-sizes.
We’re all living in the age of digital cash.
Here’s a premier that defines digital cash, an overview of electronic payment systems, and the advantages and concerns involving digital cash.
What is a digital currency?
There are two types of digital currencies;
- Virtual currency is an unregulated, digital money that has been issued and is controlled by its developers. It’s used and accepted among the members of a specific virtual community.
- Cryptocurrency is a digital token that relies on “cryptography for chaining together digital signatures of token transfers, peer-to-peer networking and decentralization.” Bitcoin is the most well known cryptocurrency that has been built using blockchain technology. However, there are approximately more than 740 types of cryptocurrencies in the world.
Brief overview of the electronic payment system.
For years businesses struggled with security, fees, and lag-time when it came to payments.
For example, they would have to wait several weeks for a check to arrive in the mail or several days for a credit card transaction to clear.
Thankfully, that’s a concern of the past. With an e-payment system in-place, customers can easily and quickly send electronic payments.
These are securely sent through one of two areas:
- Electronic Funds Transfer (EFT). This is an electronic system that transfers fund from one bank account to another without exchanging any cash by hand. This includes direct debit, eCash, eChecks, stored value card, and electronic billing.
- Credit Payment System. This electronic system uses credit or debit cards, mobile card readers, digital wallets, and smart cards to process payments instead of transferring money from one bank account to another.
With electronic payment systems, transactions can safely occur almost instantly and cheaply. Because of the speed of transactions it is good for your cash flow and building trust with customers.
Due, for example, encrypts data and charges a flat 2.8% transaction fee.
With the emergence of mobile apps, however, business owners can send invoices through their phone. Customers can immediately pay the invoice on their smartphone. The funds are then deposited into the business’s bank account in under two business days.
How digital change is changing the (business) world.
Digital cash is rapidly improving the current electronic payment system by:
Making bank bank transfer faster and cheaper.
The way banks move money today is archaic and outdated. For instance, international bank transfers can take more than a week.
They money has to go through several different banks and country-specific clearinghouses. With digital cash bank transfers can occur instantly (it removes the middlemen).
The transactions are done cheaply (fees from banks are eliminated). Most importantly the funds are transferred safely (payment information is encrypted and can not be duplicated).
These transfers can take place without even having to use new currencies. Ripple Labs, for example, allows clients to transfer funds from one currency to another. An example is something like changing money from dollars to euros.
This transfer is all done through a secure digital ledger. This impressive technology can transfer money around the globe in a matter of seconds.
Keeping users safe.
“Identity theft is a constant concern across today’s global landscape. Organizations and individuals are increasingly aware of impending threats to digital security,” writes Deep Patel in an article for TechCrunch.
“One company, KYC-Chain, is tapping into Ethereum to help businesses safely onboard new customers. This takes blending simple identification processes and know-your-customer regulations. KYC-Chain’s solution empowers customers to manage their own identities by sharing only necessary information,” Patel adds.
“KYC-Chain protects user data on the platform through a series of cryptographic protocols. The platform allocates responsibilities to “trusted gatekeepers.” These gatekeepers have the clearance to retrieve and authenticate customer documents.”
In developing countries digital cash it has become physically safer than storing/carrying cash or buying gold or silver. It can also protect the unbanked from inflation since digital cash can be exchanged for a more stable currency via a global bitcoin exchanges.
Unleashing the full potential of e-commerce.
Security concerns, as mentioned several times, can make or break a business in today’s competitive global market. This is particularly true when dealing with businesses in parts of the world where credit card fraud is rampant.
With a digital currency the transfer cannot be undone once it has been approved by both parties. This in turn eliminates the risk of fraud for merchants, builds trust, and allows them to participate in the global marketplace.
Additionally, since digital currencies permit customers to transfer funds with just the click of a button. This provides the added perk of low transaction fees, small businesses in developing countries are now able to engage in global e-commerce.
For instance, Latin American vendors can sell hand-crafted goods to customers in the U.K., Canada, or Australia.
Chinese teenagers can offer tutoring lessons online. Marketing firms located in Africa can work with clients in India, Canada, or France.
Bitcoin services are like Coin.ph (Phillippines), Unocoin (India), BitPesa (Kenya), PayFast (South Africa), and BitPagos (Argentina). These cryptocurrencies are already making this a reality for the unbanked in developing countries across the world.
Smart contracts and enhancing crowdfunding and transparency.
Maria Marquit writes for Due that “smart contracts are contracts that fulfill themselves. Of course, they are fulfilling themselves according to the terms you set.”
They’re being used to transport everything from intellectual property, titles or deeds, or even for the sale of luxury items like diamonds without the need of an intermediary.
“Smart contracts use computer code to set the terms of the agreement, and then enforce their fulfillment. So, if you wanted to agree that payment would be sent as soon as certain actions were completed, the smart contract could arrange that.”
Companies like R3 are allowing businesses to create and execute smart contracts – even if you aren’t that familiar with the blockchain.
Additionally, smart contracts can be automated or complement traditional contracts. Best of all? Several states are recognizing the legality of smart contracts.
Smart contracts and crowdfunding.
“Business development has changed drastically over the past decade. No longer are businesses and entrepreneurs relegated to raising funds through VC’s and private investor relations.
“Today, hopeful entrepreneurs are finding public support through crowdfunding. Platforms like Kickstarter and GoFundMe have opened conversations and opportunities around business development,” writes Patel.
Weifund, for example, is utilizing Ethereum’s Smart Contract capabilities in order to to offer customizable solutions to contributors. “Standard crowdfunding platforms generally issue basic refunds if project goals are not met.
“Thanks to Ethereum’s Smart Contracts, project organizers can establish customized agreements, or ‘hooks,’ as Weifund calls them.
“Smart Contracts expand the ways in which individuals can contribute to development. These ensuring complete transparency and strict adherence to contract boundaries.”
Making a decentralized workforce a reality.
Patel also states that “Ethereum can also help budding entrepreneurs build the right teams. An Ethereum-run organization is based on democratic shareholder voting, which means every backer or contractor has access to your latest updates. The initiatives are based on the contracts you’ve drawn up.
“Ethereum takes the pain out of managing an organization and answering to shareholders, because all of those initiatives are automatically executed within the contract.”
Platforms like Colony are leveraging Ethereum to drive decentralized, global work organizations.
Colony accomplishes this by eliminating organizational hierarchy and simplifying the management of a distributed workforce. “Based on principles of meritocracy, Colony encourages people to invest their time, unique expertise, feedback and ideas in global projects,” writes Patel.
The system assesses users and the value that they provide to Colonies on the platform. Users are then awarded tokens after they’ve completed tasks and weighted value.
Finally, automated cryptocurrency payments are facilitated through Stripe so that all contributors are adequately compensated.
Possible concerns for the Age of Digital Cash.
While digital cash has numerous benefits, there are concerns. For starters, digital cash has been associated with nefarious and criminal activity in the past. There has been money laundering or selling illegal goods.
But, for most people, however, they’re mainly concerned with the fact that prices can quickly fluctuate, fraud, and acceptance.
According to one online survey, the biggest concerns over cashless payments were:
- 66% Security (risk of identity theft).
- 48% Poor Internet connectivity.
- 59% Merchant acceptance.
- 28% Costs.
- 10% Lack of tech know-how.
As more people start embracing digital cash, some of these concerns will become less of an issue.
Whether we want to admit it or not, cash still thrives in most parts of the world. While I expect digital cash usage to increase over the next several years, I don’t think that it’s going to completely replace cash.
For business owners, that means that you still need to accept cash in this age of digital cash.
Should your business accept digital cash?
Here’s the million (or billion) dollar question right here. While there are challenges and concerns, there should be no question that businesses should start accepting digital cash.
For starters, it removes third-parties so that you can save time and money when getting paid. It also makes you stand out from your competitors. Accepting digital cash can:
- Provide more privacy and security for both you and your customers.
- Most transactions occur in real-time.
- It’s an international currency since it’s not affiliated with any one government or company.
- It reduces fraud and chargebacks.
- Helps you acquire new customers.
- We’re moving away from paper, so you should become an early adopter to stay ahead of the curve.
The future of digital cash.
“The cryptocurrencies have been invented, they can no longer be dis-invented,” says Adrien Treccani, director at Metaco SA in Switzerland. Treccani is an expert in distributed ledger technologies.
In other words, digital currencies are expected to spread even more, with bitcoin most likely leading the charge. “The bitcoin was pronounced dead almost 30 times, yet each time it got through and resumed its ascension,” said Treccani.”The bitcoin has a solid credibility today; we are no longer talking about the gold coins in World of Warcraft.”
We’re eventually even headed towards the creation of ETFs (Exchange Traded Funds). These funds would trade on traditional markets, such as the Nasdaq. These are becoming official digital currencies, being issued by banks and governments.
Regardless of what the future holds, business owners need to accept that we’re in the age of digital cash. It’s time to join the revolution or risk getting left behind in the cold.
This article was originally published on Due.com.