Cryptocurrencies, specifically Bitcoin (BTCs), are drawing enormous attention these days, because of their highly volatile nature as an investment.
But cryptos, as they are frequently called, also hold value as a business tool, one that could be highly relevant for CEOs in the near future.
First, a little background: cryptos actually started as a proposed currency rather than as an investment vehicle. Buying and holding BTCs to capture appreciation is a far more recent phenomenon, which emerged with the idea of mining BTCs to keep the number of them more manageable. Mining is a way to facilitate the buying and selling of cryptos. With the emergence of mining, demand began exceeding supply, which turned the proto-currency into a speculative asset.
This switch may actually have had the effect of limiting BTC use as an alternative currency, outside of the dark web, where its cash-like lack of transparency had utility. One need look no farther than gold and silver, once currency standards, to see how speculation limits the utility of precious metals as day-to-day currencies.
Cryptos have one key advantage over fiat currencies in that they are not beholden to the whims of national governments, and could provide an additional hedge against currency risk, if their volatility remains unconnected to dollar/euro/yen/yuan volatility.
Sufficient quantities of a cryptocurrency would need to be available to buy and hold/trade for that to occur. Right now the cryptos that survive the current market winnowing may be in better position to offer that value.
Cryptos tied to real-world assets will offer more resiliency (and convertibility.) BitMinutes, for example, are tied to the prepaid airtime minute, which has become a de facto currency in the undeveloped world. There are others, such as the Digix Gold Token (DGT), which is tied to gold, CEDEX, tied to diamonds, and ATLANT, tied to real estate. All of these portend an asset-backed crypto wave of the future.
The early adopters of the true business use of cryptos reside in the Financial Services industry, where forward-thinking companies are going to figure out how to make the blockchain-based smart contract work as a vehicle for counterparty messaging and settlement. Tokens will play a role in making those processes work smoothly across borders, and between people/parties that don’t know/trust each other.
Take the basic money transfer service. Today fiat money (dollars, say) are handed to an intermediary bank, even electronically, who takes a flat fee and/or a percentage of the amount in return for sending the funds across a border to a corresponding bank. If an exchange of currency is required, an exchange fee is also extracted. With a blockchain-based crypto as the vehicle of exchange, both intermediaries could be eliminated, with the token simply moving from one account to another. The blockchain structure provides the reconciliation and trust.
As for CEOs, here are some things to consider when it comes to utilizing cryptos to operate your own business in a more efficient manner:
Stay ahead of trends. The CFO in particular should have a crypto/token watch committee. The CTO needs to stay abreast from the software technology and integration perspective. Plus, consider whether independently created tokens a more efficient path to leveraging and capitalizing on the advantages of smart contracts? Your treasury departments need to lean on the IT department to stay sharp about this.
The CMO, on the other hand, has to keep a finger on the pulse of the consumer, especially global corporations. We expect cryptos to become more in demand in the developing world first with the advent of mobile phone-based applications. This is already happening in places like Kenya and the Philippines. Tokens, like BitMinutes and the others mentioned above, have the capacity to break down barriers between mobile eco-systems, unlocking liquidity and make acceptance easier to do, with less “currency risk.”
The more proactive companies may want to consider forming a task force, which might explore how other industries are applying this technology or survey the existing customer base about their needs and how the use of cryptos might meet those needs.
Could more transactions be cleared using cryptos? If a corporation’s counterparties start accepting cryptos to pay invoices, then a treasury department needs to consider which fiat or crypto currencies it makes the most sense to hold. At some point, employees may opt for salary payments in cryptos if the value of working in cryptos like bitcoins or others becomes accepted. This would be especially relevant for multi-national corporations who have to compensate both vendors and employees in a basket of currencies. This pushes some of the currency risk onto the employees, but some may be willing to accept that for the flexibility of receiving payment in a universal currency.
All of this hinges on the continued growth of crypto acceptance as a method of payment for goods and services. The speculative surge has not helped the cause for the adoption of crypto technology as a transactional vehicle. The extreme volatility of cryptos has gotten in the way of building complete trust in the tokens as a form of exchange. However, as more and more examples emerge of their practical use in building businesses and making existing ones more efficient, the adoption of this technology will become widespread and a strong ally of the CEO.