Anyone who follows the financial industry has heard of cryptocurrencies by now. And because of the potential for cryptocurrencies to disrupt the current payment ecosystem, the business world began paying attention to this new technology a few years ago. With all the talk surrounding cryptocurrencies, many of our clients are wondering if their business will be affected by them. So what is a cryptocurrency and how will it affect your business? Let’s find out.
What are cryptocurrencies?
A cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, all while operating independently of a central bank. Each transfer of funds is entered into a peer-to-peer (P2P) database that no one can change without fulfilling specific conditions. Now that we know what cryptocurrencies are, lets discuss how they operate.
How do cryptocurrencies work?
The technology that allows cryptocurrencies to function is known as the blockchain. The blockchain is a continuously growing list of records, called “blocks”, which are linked and secured using cryptography. Each block typically contains three things: a cryptographic hash of the previous block, a timestamp, and transaction data.
When a new transaction occurs, the requested transaction is sent out to a P2P network consisting of computers known as nodes. Using algorithms, the network of nodes attempts to verify the validity of the transaction. If all the nodes agree that the transaction is valid, a new record of the transaction (a block) is created and added to the current blockchain in a manner that is permanent and unalterable. This means that, by design, a blockchain is inherently resistant to modification of transaction data.
Do you need to be worried about cryptocurrencies within your business?
The short answer is no, you don’t need to be worried about cryptocurrencies within your business. However, the technology that is running all cryptocurrencies has the potential to revolutionize the payments industry. How?
A few months ago, Visa’s blockchain team was looking at options to make transactions run faster and more securely, on the back of blockchain technology. To do this, Visa partnered with a blockchain technology company, Chain. This is what Chain had to say about their new partnership with Visa:
“Visa is working with Chain to build Visa B2B Connect using Chain Core, an enterprise blockchain infrastructure that facilitates financial transactions on scalable, private blockchain networks. Building on this technology, Visa is developing a new, near real-time, transaction system, designed for the exchange of high-value international payments between participating banks on behalf of their corporate clients. Managed by Visa end-to-end, Visa B2B Connect will facilitate a consistent process to manage settlement through Visa’s standard practices.With Visa B2B Connect, Visa aims to significantly improve the way international B2B payments are made today by offering clear costs, improved delivery time, and visibility into the transaction process—ultimately reducing the investment and resources required by banks and their corporate clients to send and receive business payments.”
As you can see, this example is just the tip of the iceberg as far as what will soon be possible with blockchain technology. As other industries and companies begin to utilize blockchain technology, it’ll be fascinating to see all the new fintech ideas that result from its use and modification.
In closing: No, you don’t need to be concerned about the effect of cryptocurrencies on your business. In fact, you should be excited to see the new ways this technology will be utilized to improve banking transaction processes and efficiency.