I believe local, sustainable businesses could benefit by integrating cryptocurrency into their business payment model.
This article illustrates what crypto is about.
Where can cryptocurrency be used?
The dollar is a currency used in the U.S. The peso is a currency used in Mexico.
Dollars can be converted to pesos, and vice versa. Someone from the U.S. visiting Mexico may buy pesos with dollars; and when they return from Mexico, they can convert unspent pesos back to dollars.
What place, then, uses cryptocurrency? Cryptocurrency is currency that has the potential to be used anywhere there is internet access.
Cryptocurrency can be used to buy products. To understand how that works, let’s dig down to analyze the concept of money.
Money is a value storage device.
A tomato is not money. But it can be a temporary value storage device. For example, say a gardener grows a tomato. The tomato stores the value of the labor and resources that went into producing the tomato.
Now, say that the the gardener wants a cucumber. He can give the tomato to a fellow gardener, with its associated stored value, and receive in return a cucumber. This is called bartering.
But what if the tomato is ripe this week, and the cucumbers won’t be ripe to be picked until next week? One way around that difficulty is to use a precious metal as an exchange device.
A miner obtains the precious metal — say, silver — from the ground; a refiner purifies it; a coiner coins it. The silver coin thus contains the value of the labor and resources of the miner, refiner, and coiner.
So, the cucumber farmer can give a silver coin (with its stored value) to the tomato farmer, who gives him a tomato (with its stored value) in return. The next week, the tomato farmer can exchange the same coin for a cucumber.
This is the familiar process of buying and selling by exchanging money for products and services.
The transaction works with any currency. The coin can be a coin based on the dollar currency. It can be a coin based on the peso currency. It can be a cryptocoin based on cryptocurrency.
Why bother with Crypto?
Dollars work fine for running the economy. Why should customers buy cryptocurrency to use for buying produce?
To answer that, let’s investigate why we use banks.
One advantage of involving banks in financial transactions is that people don’t have to carry around a lot of cash. Cash can get easily lost or stolen. Credit and debit cards allow people to use their money without having to carry it around.
There is a cost involved in providing this convenience. Banks charge businesses for credit and debit card transactions. That is, when a customer pays a business for a $5 product or service with cash, the business gets the full $5. But when a customer uses a debit or credit card, the business gets something less than $5.
There are ways to use cryptocurrency that simulate a credit or debit card transaction, but without involving a bank.
Thus, cryptocurrency allows a business to operate without involving a bank at the time of the transaction. (Banks may be involved, however, at the first stage of buying crypto and at the last stage of converting crypto back to dollars.)
This can be desirable, for reasons that will be spelled, I hope, in a followup journal entry.
Cryptocurrency does for money what the internet did for news: it cuts out the middleman. In the case of news, the middlemen were the professional reporters, editors and publishers of the mainstream media. Now, anyone, through their use of social media, can become a broadcaster.
With cryptocurrency, it’s the banks that are marginalized.
What are the technical details of cryptocurrency?
Historically, a dollar was backed up by silver or gold and could be exchanged for an amount of silver or gold that was, by definition, worth a dollar. Nowadays, the dollar is a fiat currency, which is a cute way of saying that a dollar has value because experience tells us the economy functions as long as the population and the government agree that the dollar has value. Fiat means “decree”. The government has decreed the dollar has value.
Cryptocurrency is mathematically “mined” and implemented with Internet connected computers. Transactions are kept in a ledger called a blockchain.
Users can buy cryptocurrency with dollars, buy products with cryptocurrency, and convert cryptocurrency back to dollars as it suits them.
How do I buy and use cryptocurrency?
We suggest beginners use the Coinbase Exchange as the gateway to crypto use.
Coinbase allows you to buy, spend, and accept cryptocurrency. To set up and use Coinbase, it is helpful to have the following:
-a smartphone with an updated operating system
-internet wireless service and phone service on that smartphone
-an email account accessible from that smartphone
-a bank account with online banking
-a valid government identification.