It’s difficult to ignore the rise of cryptocurrency. Whether you bought Bitcoin, invested in one of the 1,000-plus alternatives or just watched from afar, you can’t fail to be staggered by the growth in this sector – with the aggregate market cap of all cryptocurrencies shooting up by more than 3,000% in 2017. Those numbers are particularly eye-popping when compared to more traditional investments such funds or commodities.

But how do you understand the rise in cryptocurrencies – and what could this mean for you and your business?

Cryptocurrencies Explained

Cryptocurrencies are a form of digital payment that allow users to make secure transactions. They’re not regulated by banks or governments – another attraction to people who grew to mistrust financial institutions after the banking crisis of 2008. Transactions are recorded and stored using a technology known as block chain.

The strength of cryptocurrencies – the fact they are decentralized and secure – has also been seen as a potential drawback, with people attracted to this as a method of payment for illegal activities. However, the growth last year has helped to shake off that slightly shady image and there are an increasing number of ways in which the likes of Bitcoin can be used as a payment method.

What Does This Mean For Your Business?

Cryptocurrencies could provide opportunities for businesses. This could, for example, mean avoiding processing fees for transactions, with a platform that bypasses the bank as a middle man and sidesteps the need to pay extra to send money.

Not only that, but cryptocurrencies offer the benefit of speed. Bitcoin might be the most famous player in this sector, but it’s far from the fastest. The likes of Litecoin and Ethereum can verify transactions in mere seconds, meaning payments can happen in near-real time, avoiding the need for waits of two to three days for credit card payments to clear.

There’s also the ‘reputation factor’. As it’s mostly ‘big players’ accepting cryptocurrencies at the moment, offering this form of payment to customers allows you to look cutting edge in the eyes of customers.

However, it’s important for businesses to go into this with their eyes open. The volatile price movements seen in this market mean that it’s tough to track the ‘real value’ of such currencies. That makes it especially tough to list a price in cryptocurrency, in particular, and means that businesses dealing in this need to keep a close eye on events (and be wary of a ‘flash crash’).

It’s also worth stating that the lack of regulation for cryptocurrencies – again, a strength for advocates – could pose a risk, with some preferring to have the ‘safety net’ of a bank involved in their transactions. This looks set to change in 2018. South Korea has already introduced new rules to try to clamp down on the misuse of cryptocurrencies, with the EU and others also looking to impose some form of rules to this sector. While some argue that this might harm the sector, others feel it will give businesses and investors the confidence they need to use cryptocurrencies – and the technology that underpins them – without fear.