There is a new day dawning in the world of finance and, in fact, is upon us. Blockchain, cryptocurrencies, and other financial innovations are finding their way into the mainstream of doing business.
Make no mistake: Blockchain technology is transformational. It has the power to provide a much more transparent and secure process for tracking information. It will change supply chain management around the globe for the better. While bitcoin (the first cryptocurrency) gets all the hype, there are industries working feverishly to take this new technology and incorporate it into their businesses.
Walmart, for instance, is going to require some of its suppliers to use blockchain technology to track products all the way from farm to store. Using blockchain, which is basically a shared public ledger without any central authority, companies can “see” on the blockchain where the product originates and how it passes down the supply chain and into the hands, ultimately, of consumers. No more complexities of a mostly disconnected group of different companies trying to work together to keep accurate records on multiple systems and coordinate information across the globe. No more silos of information that are difficult to track. The blockchain becomes one big massive and secure collaboration of all the pieces of the supply chain. Food safety, for one, will be exponentially better with the advent of blockchain.
As with most innovations and new developments there is a lot of chatter out there and more than a few myths that need to be dispelled. Here are just a few myths and the facts about each:
Cryptocurrencies are unregulated.
In fact, cryptocurrencies are being regulated both at the state and federal level. The SEC, CFTC, IRS and FinCEN are all making sure that there is clarity and enforcement of rules and regulations of ICOs, coins and tokens, as are state regulatory bodies.
Bitcoin will get shut down.
In order to “shut down” any cryptocurrency that is legitimate and being used as a store of value on the blockchain, the Internet would need to be shut down by a government. Because they are decentralized, cryptos can never really be shut down. However, there are some countries that are banning the use of cryptocurrencies. However, they cannot shut them down.
Only criminals and shady people use cryptocurrency.
Money laundering has been around for centuries, and it is just not the case that criminals are using cryptocurrency any more than other currencies. Most exchanges are regulated and are able to identify the people buying the cryptocurrencies offered on the specific exchanges. The KYC (Know Your Customer) rules require proof of identity and other information before any person can conduct business on the exchanges. While criminals might try to take something valid and useful, like crypto, and use it for their own purposes, the dominant use of crypto, just like dollars, is legitimate.
Bitcoin is blockchain and blockchain is Bitcoin.
Blockchain is the underlying technology upon which bitcoin and other cryptocurrencies can be used as a mechanism of value. Blockchain is a public, distributed ledger technology that will transform many industries, regardless of cryptocurrency. Using secure blocks of data that are permanent and verifiable, many industries are establishing new business dynamics on the blockchain technology. It will be used to improve their supply chains, their ability to track and use information, and will make other operational processes more efficient.
Crypto transactions are anonymous.
Most exchanges require personal information before a person can trade cryptocurrencies being offered on that particular exchange. While in the very early stages bitcoin transactions were anonymous, today most blockchain transactions can be tracked easily.
You don’t have to pay taxes on your cryptocurrency.
Cryptocurrency transactions are taxable by law. Any gains on your cryptocurrency must be reported to the IRS. The IRS has stated that cryptos are property. So, you must look at the rules around property—like real estate and stocks. The onus is on the taxpayer to declare gains and losses in compliance with the rules established.
Cryptocurrency is a Ponzi scheme.
Named after the Italian scammer Charles Ponzi in the 1920s, many people think cryptos are a way to con investors out of money. That is not the case. While a few ICO (Initial Coin Offering) scams have garnered a lot of media attention, this new economy and way to conduct business peer-to-peer is transforming industries around the globe. It’s important to research the coins and tokens before investing money in them, just like you would a stock or other investment.
Cryptocurrencies will put the banks out of business.
The banks, if they can make money from cryptos and blockchain, will! As a matter of fact, there are many banking organizations that are working towards use of the blockchain to make the global financial system more efficient. Remember, if banking customers want to trade in bitcoin or other currencies, as long as there is profit in it for the banks, they will figure out how to make money with this new technology.
Stores are never going to accept cryptos.
Actually there are stores accepting cryptos now, including Overstock.com, Expedia, Shopify and hundreds of others. Every day there is an announcement of new retailers accepting crypto.
The Blockchain is free.
The blockchain technology, like most technologies, is not free. It is actually rather expensive and since it’s still in its early stages, not very efficient. It takes a lot of computing power to run the multiple servers that are solving algorithms and establishing immutable “blocks” of data that create the blockchain. And, whenever a transaction is done on the blockchain, the user must pay for “gas” that is called ‘ether’ to accomplish the transaction.
It all sounds a little like the Old West, doesn’t it? And, maybe it is for the moment. Lots of changes and innovations and challenges ahead for all of this, no doubt. But it’s easy to see the trend and to see that it is a growing one. Stay ahead of it if you can. Embrace it. Learn all you can about it. Separate fact from fiction. Keep growing and building.
Scott and Jill Carter are entrepreneurs and the authors of the recently published book, You Got This! To learn more, go to http://yougotthisnow.com/