By John Oxford
A little less than a decade ago, we purchased much of our music at Tower Record stores, rented many of our movies from Blockbuster and often sought small electronics from RadioShack. These retailers are now just a shell of their former glory, and the major disrupter to these and many similar business models was the impact of technology coupled with convenience to the consumer.
Although the shift in retail purchasing and mass consumer preference is by no means “new” news, a crazy little thing called cryptocurrency has the potential to transform financial transactions the same way Netflix and iTunes transformed the movie rental business.
Recent headlines on Bitcoin have raised the profile of cryptocurrencies and their future viability as a form of money. While cryptocurrencies are still in their infancy as compared to most main stream currencies, they are real and, if adopted and properly regulated, have the ability to be a major disrupter to the financial transaction industry. They also have the ability to be very dangerous. But let’s back up.
What is cryptocurrency? Cryptocurrency is digital currency that uses encryption technologies to process its transactions, the most famous of which is the previously mentioned Bitcoin. Cryptocurrency is not a fiat currency, which means it is not based on or regulated by any central government.
In short, it’s digital money based on your trust of the system that runs it. And one system is called the block chain, a ledger of transactions which is operated by miners—people like you and me that run software which operates the block chain and rewards us for giving up our computer capacity with new Bitcoin.
It’s a little more complicated, but that’s the general idea. The system runs itself with no inflation, rate controls or government intervention—in theory. The beauty of cryptocurrency is that it can be quickly exchanged at near zero cost into digital wallets from person-to-person, person-to-business and vice versa just about anywhere in the world where an Internet or cellular connection exists. It makes moving money simple, inexpensive and very convenient.
While the transaction ability is near genius in its simplicity, the security is still concerning. Digital wallets are open to hacking and cryptocurrency is ripe for tax evasion and opportunistic money launders. And let’s not forget that cryptocurrency is not FDIC guaranteed so, if you are hacked, Google “Mt. Gox” and cringe, your digital money is gone with little chance of getting it back, tracing where it went or being reimbursed.
Why should anyone care about cryptocurrency? Financial transaction agents such as Western Union stand a real chance to becoming obsolete due to the cost and ease of sending cryptocurrency should it become safer and a more readily adopted means of moving money in an increasingly globalized world.
Banks will need to adjust how they transact cryptocurrency should it become regulated enough to be accepted and insured. Retailers will need to adjust to a new currency that, if it can be trusted to hold value, could be an easier means of transacting business, especially over the Internet. And individuals may find that with the proper digital wallet app and connection, the transfer and exchange of cryptocurrency is extremely fast, efficient and cost effective.
Even more intriguing than cryptocurrency, technology such as the block chain may actually be where the most promise lies in creating a better system to move money. And the financial services industry, while hesitant to adopt this new technology due to safety and soundness, is very much taking notice.
In reality, the adoption of cryptocurrency, as new age and cool as it appears, is still a long way from being full accepted due to trust, general safety concerns and lack of regulation … and the fact it’s just plain hard to understand. Just like any potential technology disruptor, cryptocurrency definitely deserves attention and, should it become safer and properly regulated, possibly our acceptance.
However for now, I’ll take the good ole’ Members of the FDIC for my money, but that’s just my two bitcoins.
John Oxford, CFMP, is director of corporate communications & external affairs at Renasant Bank, Tupelo, Miss.
Online training in digital, mobile and social media from ABA.
