Understanding The Future of Currency In A Digital World
Businesses across a wide range of industries have increasingly embraced cryptocurrencies, such as Bitcoin and Ethereum, for transactional, marketing, and investment purposes. Nevertheless, many businesses remain skeptical about the long-term viability of cryptocurrencies and have been hesitant to adopt these technologies. This has been particularly true in the wake of the recent collapse of several prominent cryptocurrency firms, including FTX, Celsius, BlockFi, and Voyager Digital. However, recent bank runs and failures of traditional regional banks, such as Silicon Valley Bank and First Republic Bank, have highlighted how the traditional fractional reserve banking system has its own set of risks. As a result, cryptocurrency has come back into focus as a potential alternative to traditional banking as a store of value and medium of exchange. It continues to be increasingly important for businesses of all sizes and across all industries to have an understanding of cryptocurrency technology.
Businesses of all types should have a basic understanding of what cryptocurrencies are and how they function. A cryptocurrency is a digital medium of exchange and store of value. Unlike traditional fiat currencies, such as the U.S. dollar, cryptocurrencies are decentralized and do not rely on banks or any governmental central issuing or regulatory authority to function or verify transactions. Cryptocurrencies use encryption techniques to verify transactions and regulate and secure the generation of units of currency. Cryptocurrencies use a secure technology called the blockchain, which is a public ledger that records transactions and ownership records that are duplicated and distributed across a decentralized computer network. Despite being conceived of as a form of currency, U.S. regulatory agencies do not treat cryptocurrency as a form of legal tender and instead apply varying classifications to them as securities, commodities, and property.
Cryptocurrencies often offer several unique advantages over fiat currencies. Many cryptocurrencies have lower transaction fees and faster processing times than many traditional payment systems. Transactions can often be processed rapidly and securely without the need for financial intermediaries such as banks and payment processors. Automated Clearing House (ACH) transactions can take several days for banks to process, but cryptocurrency transactions can be processed securely in seconds, minutes, or hours depending upon the cryptocurrency. This can be particularly beneficial for businesses operating internationally, as they can conduct large cross-border transactions with greater speed and efficiency and potentially lower transaction costs.
Cryptocurrencies offer a secure alternative to conduct transactions and reach consumers in developing nations with unstable banking and financial systems. By incorporating cryptocurrency as a payment method, businesses can help reach consumers who lack access to banking and credit cards.
In addition, embracing cryptocurrency can help companies tap into tech-savvy customer demographics and improve engagement. Businesses can help demonstrate their commitment to technology and innovation by offering cryptocurrency payment options. This can potentially translate into building brand and customer loyalty across new customer demographics.
Despite the many benefits of cryptocurrencies, businesses should be cognizant of some of the challenges of implementing cryptocurrency as a means of payment or investing in the asset class. For example, the tax implications of using cryptocurrency can be complex. The Internal Revenue Service (“IRS”) does not treat cryptocurrency as legal tender and considers it property or a digital asset for tax purposes. According to the IRS, general tax principles that apply to property transactions also apply to transactions using cryptocurrency. Therefore, any gains from cryptocurrency transactions can be subject to capital gains taxes, and any cryptocurrency transaction could become a taxable event.
About Holley Driggs, Ltd.
Holley Driggs, Ltd. is proud to be a Nevada-based law firm focused on making positive contributions to its local and regional communities through the dedicated leadership of its team of more than thirty experienced attorneys. With offices in Las Vegas and Reno, the general practice law firm represents national and international clients on a wide spectrum of business and corporate practice areas including commercial litigation, real estate, natural resources, eminent domain, employment law, bankruptcy, construction, gaming, and technology and intellectual property. The Firm’s shareholders also have broad experience in administrative law, estate planning, probate, and tax law. For more information, please visit www.nevadafirm.com or call (702) 791-0308 for the southern Nevada location or (775) 851-8700 for the northern Nevada location. To learn more about Holley Driggs, Ltd. and its practice areas, visit www.nevadafirm.com.