Around 2010, a mysterious programmer (or group of programmers) known only by the pseudonym “Satoshi Nakamoto” invented what is now known as “Bitcoin.” This virtual currency exists on a technology platform called the blockchain, which is essentially a system that allows for files and data to exist without threat of copy or counterfeit to them.
Bitcoin (BTC) has grown to enormous heights in recent times, with a menagerie of competitor coins and tokens popping up, including Ethereum (ETH) and Litecoin (LTC). Companies around the world have begun accepting cryptocurrency as payment, and indeed they’ve even begun paying employees in digital currencies of sorts.
All of this is compounded by the fact that the blockchain technology that these coins and tokens exist on is perhaps even more valuable than the coins themselves, promising to revolutionize the world of finance and security in the future.
So how does a small business navigate this confusing world full of bits, blocks, coins and chains? Will cryptocurrency and blockchain tech even affect your small business in the first place, or is this just a bubble — a fad that will blow over?
Here are four reasons bitcoin and the blockchain might affect your small business, and how to handle it if they do.
1. It’s the Future of Currency
At one point in time, Jamie Dimon, the CEO of JP Morgan Chase, labeled Bitcoin a “fraud,” akin to the “tulip mania” bubble of the 1600s. Earlier this year, he reversed his stance, telling Fox Business that he regrets making those comments.
“The blockchain is real,” Dimon said in a CNBC report. “You can have cryptodollars in yen and stuff like that. ICOs … you got to look at every one individually. The bitcoin was always to me what the governments are going to feel about bitcoin when it gets really big.”
JP Morgan Chase, has actually announced that they will begin utilizing a blockchain-based system to conduct global banking, cementing Dimon’s reversal in opinion with cold hard cash. Interestingly, the problem with the future of cryptocurrency has to do with exactly what Dimon mentioned: how governments feel about it.
Because cryptocurrencies are treated as a form of digital property, any appreciation in that asset needs to be taxed as capital gains. The problem is that, even though Bitcoin saw gains of over 1000% percent from the beginning of 2017 to the end of it, almost nobody is reporting their BTC holdings to the IRS with analyst Tom Leet estimating that US households owe $25 billion in taxes on crypto.
So it may just be a matter of time before you decide to start accepting cryptocurrency — but it’s also possible that if you jump in early, you may run afoul of tax laws in whatever state and country your business is operating in. Make sure that you study up on the laws in your locale, unless you want be audited by the IRS. Follow these tips to make sure you aren’t.
2. It’s the Future of Technology, too
As JP Morgan Chase has shown, whatever your feelings on BTC and cryptocurrency in general, the technology is undeniable. The idea of smart contracts have started to gain a lot of traction, and CoinDesk has a fantastic explanation of how they work:
“While a standard contract outlines the terms of a relationship (usually one enforceable by law), a smart contract enforces a relationship with cryptographic code … Put differently, smart contracts are programs that execute exactly as they are set up to by their creators.”
Ethereum was created so that developers could create apps using these smart contracts, creating a whole new world of technological possibility. Some of these developers have splintered off from the ETH project and have formed organizations that have begun looking at real-world solutions and use cases based completely around the blockchain. Skycoin is just one of those organizations.
The purpose of Skycoin and the Skywire network is to fight for and maintain net neutrality. From a Skycoin post on Medium:
“How does Skywire work? Think of it as a decentralized internet service provider. Skywire uses blockchain technology to create a peer-to-peer community-driven market for internet service. It’s fast, private, and secure. Best of all, it puts the user first.”
These types of solutions are great for small businesses, considering that a repeal of net neutrality would likely be harmful for entrepreneurs. Whether or not these type of solutions will work is anybody’s guess, but you can bet that your small business will be utilizing the blockchain and apps that function using them in a mere matter of years.
3. Criminal Activity and Malware
While headlines of Bitcoin and cryptocurrency have dominated the feeds for the past couple of years, not all of them have been positive. Criminals have begun utilizing cryptocurrencies for their nefarious practices, due to the anonymity involved when sending or receiving them.
Of the worst types of malware that’s arisen in the last couple of years, ransomware tops that list. The WannaCry ransomware incident in 2017 infected over 200,000 computers across 150 countries. These types of viruses have the potential to stop business and even shut down entire industries.
What exactly is ransomware? The experts at Panda Security paint a sensationally accurate picture:
“As you scroll through your social media feed, a window pops up: ‘Your hard drive has been encrypted. You have 48 hours to pay $200 or your data will be destroyed.’ You see a link and instructions to ‘pay in Bitcoin.’ An ominous looking timer counts down the seconds and minutes for the two-day window. Nine, eight, seven … . ”
There’s no way to get your data (or operations) back, unless you have a complete backup of your entire system. You have to know beforehand that these are threats to make sure that you are safeguarded against them; a primary tenant in protecting business income, according to Stephen Robert Morse, writing for Smallbiz Ahead.
““The first step … is to consider where potential threats may arise,” he writes. “Natural disasters, power failures, theft and vandalism are possibilities. Lawsuits and data breaches also pose a significant threat to businesses today.”
Don’t let cybercriminals get the best of you, and protect yourself from malware and data breaches before it’s too late.
4. Bursting Bubbles
While many indicators may suggest that the blockchain and cryptocurrency is the future technology and currency and all of that, it’s extremely important to remember that nothing is set in stone yet. If you’re a small business that is looking at accepting BTC or other crypto payments, for example, it can be hard to calculate costs, taxes, and transaction fees with such volatility on the market — and this is the last reason you might be affected by this new wave of tech.
Because bitcoins and tokens haven’t necessarily reached widespread circulation, they are currently considered speculatory. A lot of different alt-coins (coins other than Bitcoin) are expected to die off in the coming years too. As such, it’s important to be extremely cautious with funds and investments in this space. Some have claimed that BTC prices are high because they’re in a bubble. This is yet to be seen.
The point is that it’s still too early to tell exactly what’s going to happen in the world of crypto. One thing is for sure: just like the internet boom in the 1990s, the crypto boom is in full effect. There were winners and losers both at the end of that boom — but everybody uses the internet nowadays. We’ll all be using the blockchain in the future, too. Those who learn how to harness it earlier, rather than later, will see the greatest returns.