The cryptocurrency was developed to revolutionize the global economy and eliminate centralization in the world of money and currencies. Initially, governments and central banks opposed the idea. However, they seem to be warming up to the nascent sector though not directly.
Most central banks are looking into developing central bank digital currencies (CBDC) to compete with cryptos that seem relentless in their quest to go mainstream. In that context, a growing number of firms around the world have adopted bitcoin (BTC) and other digital assets for various investment, operational, and transactional purposes.
As is the case with every frontier, there are underlying dangers that come with cryptocurrency although the incentives are strong. Businesses need to consider various insights to determine whether and how to use cryptocurrency in their operations.
Why Consider Using Cryptocurrency In Business?
Over 2,300 US businesses accept bitcoin, based on one estimate from late 2020. Notably, that number does not include the bitcoin ATMs installed around the country. The use of cryptocurrency for doing business presents many challenges and opportunities.
Hence, the companies that are contemplating using crypto in their operations need to have two things: a list of many questions that they should consider and a clear understanding of why they are undertaking the action.
If a company wants to participate in crypto, it is critical to think ahead, prepare, and engage keenly and thoughtfully.
What Can Crypto Do For A Business?
Here are some of the rationales behind why some firms are now adopting cryptos.
- Cryptocurrency might help the business gain access to new demographic groups. Users normally represent a more cutting-edge clientele that mostly values transparency in their transactions. Another recent study found that nearly 40% of clients who pay with crypto and other digital currencies are new customers of the company. Their purchase amounts are nearly twice those of those who pay using credit cards.
- Introducing cryptocurrencies may help initiate internal awareness in the firm about the new technology.it might also help position the business in this critical emerging space for a future that may feature central bank digital currencies.
- Interestingly, cryptos might provide access to new capital and liquidity pools via traditional investments that have now been tokenized, and to new asset classes.
- Cryptos come with various options that are not available with fiat currency. For instance, programmable money might enable accurate and instant revenue-sharing while simultaneously promoting transparency to facilitate some back-office reconciliation.
- Many firms are discovering that major vendors and clients want to engage using cryptos and digital assets. In that context, businesses may need to be positioned to disburse and receive crypto to guarantee smooth exchanges with the major stakeholders.
- Digital currencies offer a new way for enhancing many traditional treasury activities like managing opportunities and risks of engaging in digital investments. It also helps strengthen control over the capital of the business and enables simple, instant, and secure money transfers.
- Cryptos serve as an effective alternative and balancing asset to cash that may depreciate over time as a result of inflation. Being an investable asset, some of the cryptos like bitcoin have performed exceptionally well in the past five years. But, the volatility risks need to be considered before integrating crypto payments into any business.
Ways Of Using Cryptocurrency In Business
Companies and businesses need to determine whether they want to hold crypto on their balance sheet or just adopt crypto-enabled payments. To determine the right path for any business, you need to make a careful and exhaustive determination of the best fit for the business objectives.
The owner has to look at possible benefits, risks, drawbacks, system requirements, costs, and much more before opening their business to accept cryptos. What ways are available?
Hands-Off Payments System
Some firms around the world have turned to crypto just to facilitate their payments. One way to facilitate the payments is to change in and out of cryptos to fiat currency just to receive and make payments without having to touch it. In this case, the business has adopted a ‘hands-off’ strategy that keeps cryptos off the books.
Enabling cryptocurrency payments without introducing them onto the business’s balance sheet is an easy and quick entry point into the world of digital assets. It may need minimal adjustments across the entire spectrum of corporate operations and might serve the short-term and immediate goals, like reaching a new clientele and grow the volume of every sales transaction.
The businesses that adopt this limited use of crypto normally rely on third-party operators. These operators act as agents for the company. They accept and make payments in crypto via conversions into and out of fiat currencies. It appears to be the simplest option to pursue which is to cause minimal disruptions to a firm’s internal functions because the ‘hands-off’ approach keeps crypto away from the corporate balance sheet.
These third-party vendors charge a fee for their services and they handle the bulk of the technical issues that arise and manage risks, compliance, and controls challenges on behalf of the business. But, this does not mean that the firm is absolved from all responsibility for compliance, risk, and internal controls issues.
Businesses must be careful with issues like the know your customer (KYC) and anti-money laundering (AML) needs and regulations. Moreover, they have to abide by all restrictions that are set by the Office of Foreign Assets Control (OFAC). OFAC is an agency that administers and enforces trade and economic sanctions set by the United States government.
Enabling Payments ‘Hands-On’
In case a business is ready to move beyond just enabling crypto payments and wants to widen adoption within its operations and treasury functions, it might discover more benefits. The ‘hands-on’ route also comes with several technical matters that must be addressed before the company’s systems operate optimally.
To prepare itself for crypto adoption, the corporate treasury has to consider a variety of preliminary issues that include:
- What steps the treasury took to acquire the essential know-how to monitor, receive, and manage crypto payments.
- What the business aims to achieve by adopting the use of cryptos and other digital currencies.
- What measures the company has set up to invest in cryptos as a new asset class.
- Whether Treasury believes the business should maintain custody of the cryptocurrency itself or outsource to third-party vendors.
- What adjustments Treasury foresees in expectation of the eventual issuance of digital currencies by different central banks.
Treasury is majorly involved in these decisions and the changes that need to be implemented because the traditional treasury groups maintain the financing relationships for the firm. Some of the traditional treasury institutions include investment partners, banking groups, and third-party working capital service providers.
Furthermore, treasury determines what types of financial and banking services corporates will require possibly in a wider and bolder digital asset ecosystem.
When embarking on a wider ‘hands-on’ adoption of cryptos, companies can use third-party vendors or custodians to maintain custody of the cryptocurrency on a blockchain and offer all forms of wallet management services that facilitate tracking and valuation of the crypto and digital assets.
Businesses may also integrate into their in-house systems and manage their private keys. In this case, legal counsel is needed to determine whether any license is needed to activate the transmission of digital currencies.
Today, most firms are using crypto in a ‘hands-on’ method using a third-party custodian. Given this tendency, the self-custody approach offers more complexity and needs in-depth experience. In case a business follows this approach, it will have more accountability for the work needed to support its transactions.
The Road Map To Crypto Adoption
Cryptocurrency is currently perceived as an integral part of the evolution in the financial world. When a business decides to engage with cryptos, it triggers changes throughout the organization, and changes in mindset also develop. As is with cases of all other technology changes or upgrades, there is a need for an implementation strategy.
The plan includes new strategies, short-term and long-term objectives, and various partners that will help in the seamless adoption and integration of cryptos into the company’s daily operations. Top executives have to identify effective champions internally and externally for the effort across the business.
Before adopting crypto investments, the company needs to determine:
- Whether decisions and actions the business takes today will support and allow for scaling and flexibility of operations later.
- How it can integrate security needs of operating in the digital asset space with the already existing security and cyber efforts.
- How the business will implement the introduction of cryptos. Should it begin with a payments-only method or does it go straight to the hands-on approach?
- What resources and expertise the firm needs to adopt digital currencies and cryptos.
- The implementation road map is a critical consideration.
- How the company plans to evaluate progress during the implementation process and determine what the final state looks like before launch.
Adopting and integrating cryptos into a business appears to be a complex endeavor. Hence, before engaging in a massive launch, some firms pilot crypto uses just like they do when testing other new technologies. One popular pilot strategy is an internal intradepartmental pilot.
Such a test is based on treasury since treasury is responsible for the internal funding of the firm, its departments, and subsidiaries. In many cases, the test starts with the acquisition of some crypto. Then, the treasury uses it for various peripheral payments, and it follows that thread as the cryptocurrency is received, paid out, and revalued.
If cryptocurrency is integrated with a business perfectly, the risks are mitigated. Eventually, the business acquires new customers, and its financial systems function efficiently.