Crypto Currencies and Bitcoin
Simply put, a cryptocurrency is a digital asset that operates as a means of exchange. Cryptocurrencies, including Bitcoin, have been around for a few years. They offer an alternative to the standard fiat currencies and provide advantages in speed and security.
They are not issued by a central issuing authority, such as a Reserve Bank, and in most cases don’t have a physical form. They are used mainly outside existing banking and governmental environments and are exchanged in exchange sites over the Internet.
Individual coin ownership and transaction records are recorded in a digital distributed ledger, secured by top-level cryptographic security, usually in a blockchain environment.
One point to be aware of, cryptocurrency transactions are, in general, not reversible. The only way of getting your transfer back is if the receiver sends it back.
Bitcoin was the earliest cryptocurrency, first appearing in 2009, and there are now over 6,000 cryptocurrencies. Bitcoin has a maximum issue limit of 21 Million coins, a limit that will be reached shortly.
Using cryptocurrencies is a faster and cheaper alternative to traditional currencies, especially in cross-border transactions. They remove the need for foreign exchange and the consequent clearance periods, exchange rate gains and losses, and the inevitable associated fees. They are more secure because Bitcoin transactions are recorded in the blockchain distributed ledger, which cannot be altered by a third party.
Cryptocurrencies are held in “wallets”. Each wallet has a public and a private key used for receiving and sending transactions. Transactions can be added to the ledger using the private key, in effect spending cryptocurrency. The other side of the transaction is to use the public key as the wallet address to which the funds are sent.
In some situations, cryptocurrencies enable anonymous transactions. Transactions are merely a transfer of Bitcoin between two wallets. This can be important where it is necessary to conceal the identity of the sender or receiver. This aspect has caused concerns in regulators and traditional banking circles since it potentially assists with money laundering by executing untraceable transactions.
It should be noted that anonymity is only partial. The sender and receiver associated with a transaction cannot be identified, but a record of the transaction is publicly available from blockchain records.
Some eight countries currently have an outright ban on holding or trading in cryptocurrency. A further fifteen have a softer ban implemented by administrative and regulatory hurdles to “discourage” the use of cryptocurrency. In many other countries, local regulations have been put in place to make sure users of cryptocurrencies do not use them to avoid taxation, evade economic sanctions, or otherwise circumvent financial securities regulations.
A straightforward example is that although cryptocurrencies are legal in Russia, it is unlawful to issue invoices and receive payment in anything other than the local currency, the rouble. As in Thailand and possibly China, restrictions on cryptocurrencies are often a precursor to the country creating its own cryptocurrency,
There are, of course, transaction fees for processing Bitcoin transactions. These can be based on BitCoin’s volume being exchanged or other criteria such as faster transaction speed. Generally, they are very much lower than the fees charged by fiat currency agents.
Also, fees are used as a source of income by BitCoin miners.
Despite the mistrust of traditional financial service providers and central governments, cryptocurrencies have gradually gained acceptance, and many now support Bitcoin payment. PayPal, for example, has recently announced support for Bitcoin as a payment vehicle.
For Managed Service providers (“MSP”), particularly those operating in cross-border environments, Bitcoin provides considerable advantages and the possible opening of new markets.
MSPs and Bitcoin
Customers are now much more comfortable with using cryptocurrencies to pay for goods and services. They are now able to pay for most digital services and for some e-commerce goods in cryptocurrency. Indeed, web hosting companies were among the first to offer hosting plans denominated in Bitcoin.
MSPs should seriously consider adding BitCoin hosting plans to their offerings. That will increase their attractiveness as service suppliers, particularly other cross-border organizations.