For every startup out there, be it in logistics, entertainment, artificial intelligence, healthcare, fintech or ecommerce, the option to utilize cryptocurrency and the many opportunities it presents can be an appealing prospect.
Without looking at both sides of the argument, we cannot truly claim to be properly considering things, so let's look at the benefits and risks attached when scaling with cryptocurrency.
A major reason for embracing virtual currencies is being able to access global resources without the usual limitations of international borders. Most payment systems, like banking or payment processing, are blighted by complicated and expensive international transactions.
Companies looking to expand on a global level can avoid these costs with blockchain-based currencies that have lower transaction costs as well as time-efficient processing.
Startups can also capture tech-savvy customers and investors by incorporating blockchain technology and virtual currencies into their business model.
Accepting cryptocurrency or integrating blockchain into operations positions the startup as an innovative, forward-thinking venture. It aids in customer acquisition and funding. Investors, especially in the tech and fintech industry, are more focused on companies leveraging emerging technologies like virtual currencies, as they are viewed as being able to dominate the industry in the future.
Startups can create a digital currency of their own; this currency can be used for share allocation or be used as a means of collecting revenue from investors.
It also creates an interesting value for customers. For instance, in the iGaming industry, sweepstake casinos have grown in popularity. What they do is enable customers to deposit funds and get virtual currencies native to that platform in return.
They use virtual currency to game. It’s important for the platform to ensure their players stay in the loop and keep apprised of special games and bonuses and what exactly this currency gives them access to.
Startups could also store their company's assets in an already existing stable cryptocurrency like bitcoin; this allows them to maximize its appreciation in the long term.
Government bodies globally are still considering regulations concerning digital currencies and blockchain technology. While some countries have accepted cryptocurrency use with few restrictions, others have completely prohibited it.
Start a business in this industry and brace yourself to deal with constantly shifting regulations. Not abiding by established local or international laws may lead to being fined or even ceasing operations, so businesses need to be stringent about monitoring regulatory frameworks.
Cryptocurrencies are known for exponential changes in price in short periods; crypto whales can cause irregularities in prices by injecting large volumes of funds to create artificial demand and vice versa.
This can affect startups' ability to manage cash flow or engage in feasible financial planning. The best course of action to overcome the risks posed by this price instability would be to first seek cover by selling earnings made in cryptocurrency for fiat currencies or resorting towards using stablecoins set to an asset like the U.S. dollar.
Some security gaps may arise due to the decentralized structure of their infrastructure. Data breaches and hacks are common risks in cryptocurrency, and startups that focus on virtual currencies are preferred targets for hackers. Companies should spend a lot on high-tech cyber security systems to guard their digital wallets, exchange accounts, and other assets protected by a blockchain.
The anonymous aspect of cryptocurrencies can facilitate some illegal activity, and the market has witnessed many notorious scams and frauds.
This may keep a large number of potential customers or investors away from digital currencies. The reputation of virtual currency usage needs to be built and maintained by startups with the utmost care to inspire trust and transparency amongst customers and investors.
The risks and rewards of integrating virtual currencies into a startup's scaling strategy can be conducted after thoroughly analyzing the competition. While access to new financial tools and reduced transaction costs are surely motivating factors, other issues like volatility, regulatory challenges, and security concerns pose significant risks.