Cryptocurrencies such as Bitcoin are current hot topics as technology looks to disrupt the way we pay for goods and services. There are plenty of opportunities for consumers and businesses, but also a few threats. We spoke to Franca Ciambella, Managing Director at Consilium Law Corporation, to find out more.
How are cryptocurrencies changing the way we transact?
Cryptocurrencies are showing us a new way to spend because they are a type of money that exists only electronically. They can be used to buy things online or on the high street in a similar way one might use a credit card. Accessing and obtaining these cryptocurrencies is not very difficult because there are companies selling them on the internet, and you even get them on ATMs. These currencies can also be more convenient for some people as a quick and cheap alternative to international exchange. Paying in these currencies avoids the extra delays and charges associated with conversion of currency.
Because these are virtual currencies, is there a greater danger from hackers or cyberattacks?
The answer is a resounding yes. There have been at least three dozen heists of cryptocurrency exchanges since 2011. Many of the hacked exchanges were later shut down. More than 980,000 bitcoins have been stolen, which today would be worth about $4 billion. Nearly 25,000 customers of Mt. Gox, once the world’s largest bitcoin exchange, are still waiting for compensation more than three years after its collapse into bankruptcy in Japan. The exchange said it lost about 650,000 bitcoins. Claims approved by the bankruptcy trustee total more than $400m.
How will blockchain technology change the way businesses deal with each other and customers?
Blockchain technology is transforming peer-to-peer interactions in the digital world, so it will overhaul and disrupt processes across almost all industries and businesses. Blockchain uses smart contract technology, which are essentially self-executing digital contracts. This dispenses with the need for middlemen and reduces costs for both businesses and the consumer. Businesses that use blockchain will be able to save money and build trust, while the consumer is able to create digital agreements that are safely stored in a transparent yet secure system. This differs from contracts written on paper – which are open to destruction, discarding and loss.
Will it make international money transfers cheaper and safer?
While there are clear benefits to using blockchain technology for international money transfers, there are also major disadvantages presently. In the long term, the view is that more money transfer providers will offer seamless cryptocurrency-to-fiat conversions at lower fees and that such international money transfers done over the blockchain will become as commonplace as the use of the credit card. The negatives currently are that, firstly, the cryptocurrency isn’t as simple to understand as regular cash, secondly, the financial institutions haven’t yet embraced the cryptocurrency as a superior option to a fiat to fiat option, and thirdly, exchange rates make currency conversion expensive.
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