Everyone has heard of Bitcoin, but not everyone knows that it is one of many “cryptocurrencies” already in use, nor about the important technology behind this trend—blockchain. What does this mean for businesses and what should marketers know about cryptocurrency to help them prepare their strategies?
Many pundits are predicting that cryptocurrencies, and their underlying blockchain technology, will have a massive impact on marketing, finance, and commerce in the near future.
In the early 1990s, many marketers made a big mistake by downplaying the importance of the internet to their craft and to business as a whole. While it’s easy to look back now and realize how off base they were, are we making the same mistake again? Many are saying that blockchain will have as big an impact on the future of business as the internet has over the past 25 years or so. Now is the time to begin understanding these developments and contemplating how they might affect your business in the future.
What marketers should know about cryptocurrency:
1. What is cryptocurrency?
Cryptocurrency is a digital means of payment (or “digital money”) that is not controlled by any single entity, such as a bank or government, so it offers the parties in a transaction more anonymity than conventional online payment methods do. As long as the buyer and seller in a transaction agree to use a particular cryptocurrency, the payment experience is simple, and eliminates fees and the middleman.
While Bitcoin, created in 2009, was the first cryptocurrency—and still the best known—there are more than 1,000 different cryptocurrencies vying for market share. Other relatively popular ones include Ethereum, Litecoin, Dash, and Monero.
2. How does cryptocurrency work?
Most cryptocurrencies are based on a relatively new technology known as blockchain. Blockchain is essentially a huge encrypted ledger of transactions simultaneously stored and updated by a large number of peer-to-peer computers in a completely decentralized network, based on a set of cryptographical rules. By never relying on a single certification authority, blockchain ensures that every unit of a cryptocurrency can only be spent once and that no transactions can be forged. You can learn more about blockchain here.
Units of cryptocurrency are created by a process called mining, in which miners use powerful computers to solve complex “cryptographic puzzles” (which are actually complex mathematical equations) in a race, or competition, with other miners. The more people mining a particular currency, the more difficult and expensive it becomes to mine more units (in terms of the amount of electricity required by the power-hungry computers). Read more about the mining process here.
3. Why is blockchain so important?
While blockchain is mainly used by cryptocurrencies today, its underlying concept offers potential for many more types of valuable—and paradigm shifting—business uses. Because no one can modify or erase data stored in a blockchain, it is always a “single source of truth” regarding whatever information is stored within it. For example, the truth about products, companies, and processes can be easily recorded and later verified using blockchain technology in a way that both consumers and marketers will benefit. Here are some possible applications:
- Online ad delivery verification – A blockchain records the details of every ad delivered to every consumer ID, adding verification and fraud detection capabilities unavailable today.
- Customer data management – A blockchain tracks the use of customer data, providing consumers with complete transparency into how their data is being used, while providing greater data security for the brands using it.
- Corporate accountability and transparency – A blockchain stores and discloses the truth about how companies manage their supply chains, legal issues, environmental responsibility, marketing practices—anything that consumers care about and might be skeptical with what companies are telling them.
The possible applications of blockchain are endless, and its uses are currently in the very early stages. Marketers and business executives should be mindful of the latest blockchain developments to find ways to adopt this new technology for competitive advantage.
4. How will cryptocurrencies affect my business?
It is too early to predict what the biggest impact of cryptocurrencies will be in the coming years, but here are some possibilities for marketers to think about now.
- Frictionless transactions – By using cryptocurrency, customers enjoy a faster and easier buying experience: cryptocurrencies can eliminate fees and delays associated with going through a middleman. Meanwhile, merchants enjoy immediate cash flow, full transaction value (no fees to a middleman), and eliminate the possibility of chargebacks and fraudulent credit card transactions—cryptocurrency transactions are just like using cash in these regards.
- Greater customer privacy – Unlike online payments made by credit card, PayPal, or bank transfer, cryptocurrency transactions do not have to reveal the customer’s identity. While today, marketers automatically add new customer data to their CRM database after every purchase, many purchases made using cryptocurrency hide this data. Therefore, marketers will have to find new ways to encourage customers to part with their data. For example, customers could opt in to loyalty programs that collect their personal data in exchange for discounts, rewards, or exclusive offers.
- Less exposure to data breaches – When conducting cryptocurrency transactions, the merchant or vendor will not store any personal payment details that could be stolen in a data breach. Given how many companies are falling prey to hackers, reducing the risk of data theft will continue to grow in importance.
- The rise of micropayments – The payments industry experimented with micropayments for many years, but the idea never went mainstream, despite many companies trying and failing. The idea is that consumers would agree to pay small amounts of money for things like consuming content (e.g., reading an article, watching a video), playing a game, or using a service—an approach publishers and vendors could use to earn revenues, without having to bombard consumers with ads. Widespread adoption of cryptocurrencies may finally make micropayments a reality (despite current issues with using Bitcoin for micropayments).
5. Should I begin accepting cryptocurrencies now?
The two biggest reasons to consider accepting cryptocurrencies now are:
- Attract new (typically younger) customers who prefer to pay using cryptocurrencies such as Bitcoin (for privacy or other reasons) and/or who are attracted to more tech-savvy businesses.
- Start accumulating direct experience with this new payment method. It is still early enough in the game that you may receive some press coverage if, in your industry, accepting Bitcoin is a novelty.
However, you’ll need to consider the current volatility in the value of cryptocurrencies, and what this might mean for your business. The facts that cryptocurrencies are not backed by any government, are still nascent, only enjoy limited circulation, and are seen as a high-risk investment vehicle have led to great volatility in their value.
While a growing list of major companies are accepting Bitcoin—Microsoft, Amazon, Apple App Store, 1-800-Flowers, Kmart, CVS, Home Depot, Victoria’s Secret, Dell, Expedia, and CheapAir.com, for example—these large businesses may be in a better position to weather volatility storms than many smaller businesses. Whether or not this volatility will disappear with maturity, and how long it might take, is yet to be seen.
Last modified: March 9th, 2018