Benefits of cryptocurrency: From transactions to transformation

Since its introduction in 2009, Bitcoin's price has increased exponentially, making millions of dollars for its earliest adopters. For these fortunate investors, the benefits of owning cryptocurrency have been clear.

Today, digital assets offer a variety of advantages for investors, including those businesses holding crypto on their balance sheets. This guide breaks down the benefits of cryptocurrency ownership for businesses and helps companies and individuals decide if cryptocurrencies are still a good investment.

Why is cryptocurrency important?

Cryptocurrency represents a profound change in the way people use money. As the world gravitates toward online shopping, the need for purely digital currency becomes more apparent. While fiat currencies like the U.S. dollar are often available in digital form, crypto allows people from any jurisdiction to transact safely without third-party mediators due to its inherent decentralization.

Cryptocurrencies utilize blockchain technology to power decentralized networks, enabling person-to-person (P2P) transactions without intermediaries. By eliminating the go-betweens typically involved in traditional payment systems, crypto allows users to transact with anyone, anywhere, at any time, without fear of denial by a central authority.

Crypto is available for trading 24 hours a day, 365 days a year, setting it apart from other assets. Always-on trading increases market liquidity and smooths the investment process for businesses that operate after hours.

Perhaps the most significant feature of cryptocurrencies like Bitcoin (BTC) and Ether (ETH) is the inherent security of their networks. These networks use sophisticated cryptography to secure payments, protecting assets from theft and manipulation. Further, with every cryptocurrency transaction recorded on a blockchain, there is a transparent record available to all users.

Ultimately, cryptocurrency revolutionizes the way people use money. From its emergence as a global financial tool to the impeccable security of its decentralized networks, digital assets have made an indelible mark on the future of finance and are likely here to stay.

Benefits of cryptocurrency

Understanding the opportunities and challenges of digital asset ownership is essential to businesses curious about purchasing crypto as an investment. Companies can benefit from holding crypto in several key ways:

Inflation protection

As inflation continues to rise, traders must rethink their investment strategies. Cryptocurrency often acts as a hedge against inflation, with its value tending to rise when the dollar falls.

Transactional speed

Cryptocurrency transactions are often faster than traditional payment methods. As the industry grows, new coins and tokens further improve transaction speeds. Additionally, developers are creating second-layer crypto networks to accelerate transactions on first-layer blockchains like Bitcoin.

Cost-effective transactions

Crypto transaction fees, commonly called gas, have significantly decreased in recent years, often costing just a fraction of a cent. Traders can frequently buy and sell crypto without the hidden fees associated with traditional investments. Some low-cost altcoins include Solana (SOL) and Stellar (XLM).

Decentralization

Cryptocurrency's decentralized nature means blockchain networks are inherently inclusive. Without a central authority, crypto traders can transact freely without fear of frivolous or politically biased denials. This increases confidence and participation in the system.

Diversity

At the time of writing, there were more than 10,000 cryptocurrencies available, allowing businesses to create a robust portfolio of coins and tokens tailored to their investment strategies. A diverse basket of crypto products can help mitigate volatility experienced by a single asset. Many traders diversify their portfolios with stablecoins, utility tokens, and even meme coins.

Accessibility

Crypto trades 24 hours a day, making digital assets easily bought and sold. Centralized cryptocurrency exchanges are always open, and decentralized exchanges (DeFi platforms) have become more common. With few gatekeepers, almost anyone can use crypto, making it more accessible than traditional currencies.

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Cryptocurrency and the world economy

Today, cryptocurrency has evolved into a worldwide industry with significant economic influence extending far beyond the digital realm. In 2024, its impact is global, from large-scale mining operations in countries like Kyrgyzstan to the acceptance of Bitcoin as legal tender in nations like El Salvador. Cryptocurrency now affects the prices of physical assets, such as microchips and essential services, including electricity.

Crypto adoption is also increasing in developing economies with limited traditional financial services. One feature that makes crypto attractive to underserved communities is its potential for peer-to-peer (P2P) transactions. Decentralized P2P transactions enable small businesses to operate in areas where financial institutions have yet to expand. With few banks willing to invest in disadvantaged communities, people in rural or impoverished economies often seek alternative ways to save and transact. Cryptocurrency provides a financial lifeline to individuals and businesses in these lower-income areas.

Ultimately, crypto's impact on the global economy is profound, and it continues to attract businesses and individual traders as a preferred investment vehicle.  

Is crypto a good investment?

For traders who bought Bitcoin in its early years, crypto has proven to be a fantastic long-term investment. However, not everyone was so fortunate.

Buying crypto in 2024 is a different story. The number of crypto projects solving real-world problems continues to skyrocket, and the availability of tokens on regulated exchanges is growing alongside them.

Still, deciding whether you should invest in crypto is personal and largely depends on an individual’s investment goals and risk tolerance. Before incorporating digital assets into an investment portfolio, it's crucial to weigh the risks against the benefits of cryptocurrency trading.

Bitcoin (BTC) remains the top cryptocurrency, boasting the largest market cap of any crypto project, but there are plenty of alternatives available, including Ethereum (ETH), Solana (SOL), and Dogecoin (DOGE).

Of course, every crypto investment will vary in price and performance, and these examples may not be suitable for all investors. Ultimately, each trader must decide for themselves whether to invest in cryptocurrency and which projects to support.

The impact of cryptocurrency on businesses

Cryptocurrency has become integral to the businesses that accept it as payment. Companies offering goods and services in exchange for crypto often see an immediate sales increase by targeting the global crypto community.

In some cases, businesses hold cryptocurrencies as long-term investments. Strategies incorporating cryptocurrency have bolstered the valuations of several publicly traded companies, such as electric vehicle manufacturer Tesla and Block (a payment processor).

Some companies, like MicroStrategy, own significant amounts of Bitcoin. In 2024, MicroStrategy owned more than 1% of Bitcoin's total supply. By holding large amounts of the top cryptocurrency, the company's valuation rises and falls with the Bitcoin market. This allows shareholders to gain exposure to digital assets without directly owning them.

New technologies like cryptocurrency are reshaping the world's financial landscape, positioning businesses that adopt them to potentially reap significant benefits.

How does cryptocurrency affect accounting?

Given the diverse applications of crypto, its impact on accounting can vary from business to business. However, companies that transact with cryptocurrency in any form must keep accurate records of every transfer, including the date and time of purchase and sale. Properly tracking crypto transfers helps account for all gains and losses when tax season arrives.

In the U.S., cryptocurrency investments are generally treated like property for tax purposes, meaning capital gains taxes are owed when a digital asset is traded or disposed of. However, if an individual is paid in cryptocurrency, it may be taxed as regular income.

As tax laws vary by jurisdiction, traders must research the tax regulations where they reside. Staying informed helps ensure compliance with the Internal Revenue Service and local tax authorities.

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Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.