Often the subject of heated debate in infosec circles, the rise of cryptocurrency is one of the most intriguing developments in the payments industry right now.
Free from any banking or state authority, and designed for the world of online payments, cryptocurrencies are arguably the next step in the evolution of money and have the potential to completely alter the payments industry as we know it. Already, many large merchants including Apple, Amazon, Microsoft and Virgin are accepting Bitcoins, suggesting confidence in the future of the virtual currencies, or at least a willingness to take advantage of the benefits they offer while they are here.
But what about the everyday online merchant, is the time right and is it safe for smaller companies to take the plunge into the waters of crypto currency?
Thus far, cryptocurrencies are a payment option that many businesses are wary of, and for good reason. Only a few years into the short history of crypto currency, there are already real life examples of how it can go terribly wrong, most notably last year’s closure of the largest cryptocurrency exchange in the world, Mt. Gox. At the time it was responsible for 70 per cent of all Bitcoin transactions.
Following Mt. Gox’s closure, it was revealed that around 850,000 Bitcoins belonging to customers and the company were missing and likely stolen, an amount valued at more than $450 million at the time. Understandably many businesses are nervous of a currency without the same levels of regulations in place. With no insurance, how can you guarantee your money will retain its value, or be there at all?
In reality, however, the insecurity of the exchanges is no reason for online merchants not to use cryptocurrency to receive or make payments. Weak exchanges only make it risky to hold and invest in cryptocurrency, with simple in-out transactions there is virtually no risk at all – as validated by the Bank of England recently.
Contrary to popular belief, cryptocurrencies themselves are actually extremely secure. Unlike credit cards, which have had to continually run to keep up with the online payments industry, cryptocurrencies were built from the ground up in the world of online trading. Therefore, outdated security measures such as card code verification numbers are negated in favour of purpose built measures such as digi-key encryption and multi-signature protocols.
As well as being safe, there are multiple benefits for businesses using cryptocurrencies for payment transactions. Cutting banks and regulatory authorities out of the payment process makes money transfer far easier, quicker and cheaper, as bank processing fees and commissioning charges are bypassed.
Furthermore, cryptocurrencies offer exciting opportunities for businesses eager to take advantage of future online markets – especially as smartphone apps bring Bitcoins more easily into the hands of potential customers.
Investing and saving in cryptocurrency is, of course, a very different kettle of fish. Exchanges have matured since the time of Mt. Gox and, if cryptocurrencies do go mainstream, the gamble could well pay off. However, the risks are great as well as insecure exchanges, virtual currency is also volatile and exposed to speculation. Moreover, the success of the currency is dependent on regulators accepting it as a valid payment method, which is not guaranteed considering the possible illegal abuses of anonymous currencies.
So investing your life savings in virtual currency isn’t recommended just yet, however, there is no reason businesses of all sizes shouldn’t start using cryptocurrencies as a payment method.
Whether virtual currency is the next stage in the evolution of money or not, considering the very small risk and the very real advantages, there is a lot to gain from cryptocurrencies in the meantime.
Oliver Eckel is CEO of Cognosec