Taking the cryptic out of cryptocurrency: Embracing digital money

The economy is increasingly becoming more digitized — and cryptocurrency leads the charge. For the businesses and entrepreneurs first in line, there could be some rich rewards.

By Louis Llovio
| 12:00 p.m. June 17, 2021
| 2 Free Articles Remaining!

Courtesy. Pablo Picasso drew this in 1971, and itâ€™s one of a series of 156 etchings. Emillions Art was paid for it in cryptocurrency

Finance

Cryptocurrency. It is all over news feeds, in newspapers and chat shows. It’s everywhere.

Elon Musk speaks, and prices skyrocket. He speaks again a little later, and they crash.

Carol Baskins, of Tiger King fame and the owner of Big Cat Rescue in Tampa, even got into the game creating what she calls “purr-ency.”

But pop culture aside, cryptocurrency is a serious topic and a growing legion of business owners, bankers and economists consider it the future of money. They see cryptocurrency as an alternative to how money has traditionally worked and the logical extension to what in, in recent years, is increasingly becoming a digital economy.

“When I say the world is heading toward crypto, I honestly believe that,” says Marlissa Gardner, founder of Emillions Art in Naples.

“Within the next five to 10 years, worldwide, we’re probably going to get rid of paper money. Do I know that? No. I don’t. But I feel it and I feel the shift in people’s interest.”

What is it?

Even as cryptocurrency becomes more popular and more people begin to adopt it, it’s still a mystery to many — even for some who are its most passionate adherents.

Cryptocurrency is a network of encrypted digital currency that can be used, like traditional money, to buy and sell goods. Unlike a dollar bill, it's subject to wild price fluctuations, especially on sites like Reddit.

Proponents say the technology behind crypto, blockchain, will change the way business is done across all sectors by removing the reliance on third parties — banks and brokers. What blockchain technology does is establish a record of transactions using a network of computers and using digital tokens to transfer value.

To date there are over 4,000 crypto currencies. Among the best known and most used are Bitcoin and Ethereum.

So cryptocurrency — while it is created, administered and underwritten by online networks — is much like any other currency. The big difference? It's not an official currency like the dollar because it's not backed by federal governments.

The easiest way to think of its real world usage is to imagine it as a foreign currency.

When you have a dollar and travel overseas, your dollar can buy the currency of the country you are visiting. How much you are able to buy — exchange —your dollar for, is the value of the dollar on the market at the time.

Basically, you buy a Yen for a dollar and how much Yen you get depends on how much the dollar is worth.

Cryptocurrency pretty much works the same way.

Let’s say that it costs you $500 to buy a token from Bitcoin. You then find a Rolex that a seller has priced at $10,000. With 20 tokens, you buy the watch.

Straightforward, right?

Well that’s where risk enters the equation.

The seller now holding the 20 tokens has a couple of options of how to use them. He can take the tokens to an online market and, just like if it was a share of a company’s stock, sell them for the current market value.

Or that person can just hold onto them in a digital wallet and, if it all goes well, watch the value go up over time.

Like Gardner, the Naples art dealer, Nick Friedman, co-founder and president of Tampa-based College Hunks Hauling Junk and Moving, is a crypto fan. College Hunks began accepting cryptocurrency for the payment for up-front franchise fees in May.

“Really, to me, that’s no different than if somebody wants to pay with Canadian dollars or if somebody wants to pay with pesos,” he says. “Because at the end of the day, somebody can wire us Bitcoin and we can convert it to U.S. dollars that same day.”

Why do you need it?

Gardner, meanwhile, sold a sketch by legendary Spanish artist Pablo Picasso last year for undisclosed number of IDON tokens, which is the cryptocurrency for Idoneus, a Swiss digital currency company for luxury assets. She regularly appears on television and writes about cryptocurrency and later this month is hosting a webinar for artists on how they can use Idoneus to sell their work.

One of the best features of using cryptocurrency for Gardner, whose works sometimes sells overseas for tens of thousands of dollars, is cost savings. Using cryptocurrency, she says, means avoiding transfer, wire and exchanges fees that come from moving monies among banks and across borders.

“That doesn’t happen with Bitcoin, or any cryptocurrency, because it’s the same,” she says, “So you can transfer from one wallet to another wallet.”

She says the process is seamless. “We don’t have to go through a bank, whatever bank you use.”

Another feature that cryptocurrency brings is protection, experts say.

That’s because of blockchains. Every transaction is noted and the blockchain for the particular network serves as both a permanent record of a purchase or sale as well as indisputable proof if there ever is a challenge.

This allows both buyers and sellers to have the faith in the process that the average person has when they spend a traditional dollar.

The future of money?

While cryptocurrency remains mysterious and the industry often resembles the Wild West instead of Wall Street, over time more and more people will adapt to bitcoin experts believe and, in time, it will become more accepted.

That's already begun.

Since the advent of Bitcoin in 2008, the adoption of cryptocurrency is increasing around the world. Statist, a global market research company, reports that the global user base of cryptocurrencies increased by nearly 190% between 2018 and 2020.

'Really, to me, (cryptocurrency) is no different than if somebody wants to pay with Canadian dollars or if somebody wants to pay with pesos.' Nick Friedman, College Hunks Hauling Junk and Moving

The U.S. Federal Reserve is already looking into the creation of the digital dollar and, last week, the government of El Salvador classified Bitcoin as legal tender.

One reason Gardner, and many cryptocurrency proponents, believe in the future of cryptocurrency is that most people are, in a way, already dealing with digital currency but don’t actually realize it.

Take a person’s paycheck for example.

In most cases, people have their paychecks deposited directly into their bank accounts. They then pay their cable bill online and buy gas, pay for groceries and rent a movie from Amazon using their debit card.

That person can spend their entire paycheck without actually touching a physical dollar, which means every penny they earned and spent was digital.

“Cryptocurrency, digital currency, is here to stay, and the underlying blockchain technology that run those applications, is going to transform lives and businesses for the good,” says Neil Pennington, senior advisor for strategy and innovation at Idoneus.

He throws in some caution, too.

“But like anything, somebody’s individual choice about whatever cryptocurrency they chose to use, they should be doing their own research and making their own decisions.”

Open the vault

David Yermack, is a professor of finance and business transformation, as well as chair of the finance department, at New York University’s Stern School of Business. Yermack, who earned his PhD, MBA and law degrees at Harvard University, teaches courses on Bitcoin and cryptocurrencies.

He spoke to the Business Observer about what cryptocurrencies are and what the future is for digital currencies. Edited excerpts:

In layman's terms, what is cryptocurrency and how does it work?

A: Cryptocurrency is a unit of computer memory stored on a network that is usually worldwide in scope. Accounts on the network are referred to as “digital wallets,” and the cryptocurrency can be “spent” by transferring it from one wallet —the payor— to another —the payee. For security, a code known as the “private key” is required to open a wallet and move the currency. The logic of the system is not very different from electronic bank transfers or services such as Venmo, except that those platforms typically transfer U.S. dollars.

Who backs up cryptocurrency and determines its value and who profits from it and how?

Most crypto networks are decentralized, so that no person or management team supports the currency. The software code behind the network provides the rules of governance. Value is determined in the free market by supply and demand, and the supply is usually regulated by the underlying software. Somebody can profit if they acquire crypto and then its price in the market appreciates due to higher demand.

What can I buy or invest in with cryptocurrency that I can’t with a dollar that’s in my pocket or sitting in my bank account? In other words, why is cryptocurrency necessary?

Crypto isn’t “necessary,” but it may have advantages over government issued currency, including lower transaction costs, greater security and quicker settlement of transactions. It may also provide greater privacy. Certain services require a specialized crypto asset, or “token,” in order to become a customer. Two examples would be the Brave internet browser, which uses the BAT Basic Attention Token, and the Interplanetary File Storage system of Protocol Labs, which uses the FIL Filecoin.

When I hold a dollar in my hand or that dollar is deposited in my checking account, I know that dollar exists and that it is worth a dollar, and I know I can walk into a store and spend that dollar. This is largely because of my faith in the financial system. What guarantees and protections are there with cryptocurrency and where does faith come in?

When you hold cryptocurrency, you are trusting the software and cryptography underlying the project. In other words, you are placing your trust in mathematics and statistics. Some people may feel that’s a better bet than trusting the leadership of central banks, which is chosen based on real-world political considerations, and other aspects of the financial system such as federal deposit insurance for banks.

Is cryptocurrency here to stay and do you see a majority of financial institutions, retailers and the public adopting it?

Cryptocurrency will not go away, and I think we are on the verge of seeing crypto being introduced by central banks — which has already occurred in China — and also by social media companies such as Facebook, Google and Amazon. I expect a competition over the next several decades between central bank digital currency, social media digital currency and the decentralized cryptocurrency projects such as Bitcoin and Ethereum.