Written By: Asmit Murmu
Cryptocurrencies are bound to be reduced to just being investment vehicles for speculation. And it does make sense when you consider their volatility. But make no mistake there is much more to them than just buying low and selling high. Well, that’s what we have set out to go over in this post. We will walk you through the use cases of cryptocurrencies within a business. Broadly, these functions can be split into the following heads:
- Raising Capital
- Payroll Services
- Native Payment Ecosystem
In the traditional finance world, intuitively there are two kinds of markets businesses can turn to for capital: private markets and public markets. Since each of them have their own distinct set of features, it would be best to discuss them separately. So private markets include the likes of VCs and angel investors. Typically, these investors only give funds to such businesses that are high risk, high scalability and technology-centric. This means there is a whole gamut of businesses which cannot possibly raise money with the same ease that a tech company can.
As for the public markets, businesses have to undergo a process called IPO (Initial Public Offering). As it stands, retail investors also have exposure to such markets, so naturally businesses have to go through a gruelling due diligence process lasting as long as 2 years before they get listed. Obviously, most businesses cannot wait so long to meet their capital requirements.
Cryptocurrencies can be thought of as an on-chain version of shares. Instead of going down the usual route, businesses can issue crypto tokens to investors and raise money. The upside is that businesses spend less time and money dealing with regulatory authorities. However, on the flip side, this might lead to compliance issues within jurisdictions where the legality of cryptocurrencies is still in the grey zone.
Traditional businessmen pay their employees in the national currency of the economy as provided by the central banks. This approach has a few issues. First and foremost, from an accounting perspective this increases the cost of transactions involved in payroll. Essentially, when businesses provide both salary and equity via ESOPs to employees, businesses have to allocate the two separately. But with cryptocurrencies, the line between the two (salary and equity) gets blurred. At their core, cryptocurrencies are nothing but capital goods, or simply securities. Hence, when employees get paid in cryptocurrencies, not only do they get their entitled salary, they also get equity in the business which motivates them to work even harder. It basically hits two birds with one stone! Not to mention, it also saves money on unnecessary accounting for the treatment of two different accounts with the business.
Native Payment Ecosystem
Businesses typically rely on banks to carry out transactions with their customers. However, increasingly over the last few decades, this system has given enormous amounts of power to the few top financial institutions. The result is these intermediaries have started interfering in the conduct of affairs within businesses. Famously, PayPal had cut off gambling companies from carrying out transactions although they were perfectly legal within their respective jurisdictions. But it would be wrong to assume that it’s only the morally questionable businesses that are targeted by institutions. Banks are notorious for going after “high risk businesses” such as the travel industry; furniture sellers, electronic retailers hosted by Amazon, eBay or Google; and magazine subscriptions.
Cryptocurrencies provide a medium of exchange for businesses with their customers free from any central authority. On top of that, it enables an entirely new form of relationship between businesses and customers by allowing customers also to have equity in the business.