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Competency

Evaluate technology used in digital transactions

Student Success Criteria

View the grading rubric for this deliverable by selecting the “This item is graded with a rubric” link, which is located in the Details & Information pane.

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Scenario

You are the financial advisor for a large antique coin and gold distributor. Some of your large customers are requesting the distributor begin accepting cryptocurrency, which is possible because of blockchain technology.

The distributor has been accepting credit cards and money transfers for many years. The fees associated with transactions have continued to increase. The fees have become so large that the distributor has been forced to pass along the cost to customers.

Customers outside the United States have also requested to use cryptocurrency since currency exchange rates can fluctuate greatly depending on world events.

The distributor asks that you prepare a presentation to stakeholders in the distributorship, discussing the acceptance of cryptocurrency, which uses blockchain technology. Be sure to support your recommendations with credible resources. Using the assigned readings in this module is a good starting point. Research databases are listed in the Resources area below.

Instructions

You are tasked with preparing a presentation that will discuss blockchain technology, which could allow the distributor to accept cryptocurrency. The presentation will discuss the types of cryptocurrency, the advantages, the concerns, and the risks related to using cryptocurrency in the business. The stakeholders may not be familiar with this technology so be thorough in your description of the technology.

In Microsoft PowerPoint, Prezi, or another presentation tool create the presentation. The presentation should be at least 6 slides and should accomplish these objectives:

  • Define blockchain and cryptocurrency technologies and how they work together
  • Evaluate the types of cryptocurrency technologies appropriate for the distributor
  • Explain how blockchain and cryptocurrency technologies create a competitive advantage for the distributor
  • Examine the risks associated with accepting cryptocurrency
  • Recommend that the stakeholders approve or deny the request to use cryptocurrency in a clear recommendation statement or call to action
  • Begin with a title slide
  • Use formatting tools to create visual interest and support the message visually
  • End with a References slide

NOTE – Be sure the document displays proper grammar, spelling, punctuation, and sentence structure.

Blockchain and Cryptocurrencies versus Other Currency Types

Blockchain technology is a digital ledger that provides the record-keeping for cryptocurrency and other types of digital exchanges. Cryptocurrencies, like bitcoin, exist in the digital world only, and no paper documentation exists to back the digital records.

Any mass transition to cryptocurrency would create havoc for the businesses that need to accept this payment method. The methods of tracking, collecting, and exchanging cryptocurrency are very different than standard currency methods used for exchange today – cash, checks, and credit cards. Cash, checks, and credit cards are all based on paper or coin currency. Even compared to gold, silver, or precious gem exchanges, cryptocurrency is not something that can be put in a safe or stuffed in a mattress.

Blockchain technology and cryptocurrency is more complex in:

· exchanging/accepting

· tracking

· refunds

Paper, coin currency, and credit cards are more complex in governmental control.

Blockchain technology is by design complex. The cryptocurrency, which uses blockchain for record- keeping, can be difficult for many people to understand.

Blockchain technology is a digital record in the form of a ledger. That ledger is kept on multiple computers in a peer-to-peer sharing system. The placement of the ledger across computers provides a unique backup strategy but also may concern users. Cash or coin currency is physical. Cash can be held and counted. Even if the cash is stored in a bank, the user knows the cash can be withdrawn at any time.

Understanding how cryptocurrency works can be challenging for a non-technical user. Exchanging and accepting cryptocurrency requires much more for most businesses than a bank account or merchant account.

Accepting cash for most businesses is a simple process. Credit cards require a little more technology to be accepted. Usually, to accept a credit card, businesses need a merchant account and some equipment to read the credit cards for processing. Once the business has the equipment and account, the process of accepting cards is simple as a swipe.

Cryptocurrency, in comparison, requires typically a sign-up process which is relatively simple. Bitcoin, which is the most common type of cryptocurrency, can be exchanged or accepted through an app. The business would need to generate an address for the bitcoin to be transferred to. Each bitcoin transaction is sent to a generated unique address that is created by the receiver of the funds. That address is only good for that one transfer. Then someone at the business would need to verify the bitcoin has been transferred via the app.

Converting the bitcoin back to paper currency, if needed, is also offered via the app. The process of exchanging or accepting bitcoin or other cryptocurrency is more complex than cash or credit card for businesses. As technology advances, the process may become simpler.

In business, how does cryptocurrency compare to cash and credit cards in the complexity of tracking? Cash is easy to track. The business takes the cash out and counts it. Credit card balances and transactions can also be viewed online.

For cryptocurrency, tracking can be more complex. Since the ledger is digital and spread around the Internet in a peer-to-peer computer network, tracking may be a little slower depending on the application and cryptocurrency. Bitcoin, the largest cryptocurrency, requires people called miners to track, verify, and record transactions. Bitcoin miners are paid with bitcoin for their efforts. For a business, this complex process can be confusing and concerning.

Refunds with cash are simple. If cash is paid, cash is returned. Credit card refunds are also simple. A business can refund money back to credit cards the same way the card is charged. Sometimes the refund takes a few days to process back as a credit on the card.

Refunds with cryptocurrency do not happen because a return address is not available. The two parties in the transaction can create another address to send the cryptocurrency back. The process is much more complex than the return process for cash or credit cards.

Cash and credit cards are much more complex in government regulations. Cash is subject to exchange rates if money is moved from country to country. Cryptocurrency is not owned or associated with a country so there are no exchange rates that can go up or down. Governments can also print more currency and manipulate the value of cash. Credit cards are based on the same values as cash. Cryptocurrency is not affected by governments or regulations by governments. Credit cards and cash are monitored and regulated by governments.

In summary

Blockchain and cryptocurrency are:

· More complex in exchanges and acceptance

· More complex in tracking

· More complex in refunds

· Less complex in government control

Blockchain Ledger

Blockchain technology is a digital ledger that provides the record-keeping for cryptocurrency.

Bitcoin

Bitcoin exists in the digital world only, and no paper documentation exists to back the digital records.

Transition

Mass transition to cryptocurrency would create havoc for businesses.

Collecting

Cryptocurrency is not something that can be put in a safe or stuffed in a mattress.

Blockchain and Cryptocurrency Technology Risks

As with any new technology that a business wants to implement, the risk associated with the technology must be evaluated. Blockchain technology is the digital ledger system used by cryptocurrency and is stored on a group of peer-to-peer networked computers. Those computers are all over the world and provide redundancy of the records by storing the ledger on multiple computers. This system of records for a business owner may seem confusing and very insecure.

Some of the risks associated with blockchain and cryptocurrency technology are:

· No regulation by government or industry

· No insurance

· Poor public reputation of cryptocurrency

· No records because of anonymous transactions

· Anonymity of customers

· Theft from hacking, phishing, spoofing, and social engineering

Blockchain and cryptocurrency are unregulated by a government or an industry. Bank deposits are protected and secured by a bank or financial institution, which are constantly under the review of government regulators. Laws in most countries govern how these financial institutions operate. Audits are done constantly, internal and external, to verify the bank is managing their assets wisely. Banks have failed in the past, which does pose some risks to a business.

Blockchain and cryptocurrency are not protected by insurance unless purchased separately. Bitcoin, which is the most common cryptocurrency, management companies offer insurance that investors can purchase. Bitcoin, since it is a publicly-traded company on the stock market, considers cryptocurrency purchased as an investment. Unlike cryptocurrency, the US government insures deposits up to $250,000 per depositor through the Federal Deposit Insurance Corporation (FDIC). Deposits in the bank can earn interest but are not treated as an investment which means the principle is not at risk. The value of cryptocurrency can go up or down as the value of the investment changes. Businesses should evaluate carefully the risk of investing in cryptocurrency and consider third party insurance for protection.

Businesses must keep accurate and verifiable records of income, expenses, sales, and money transactions. Businesses must often report to local, state, and federal agencies on these areas. These agencies can also demand audits, which would need to include documentation. Documentation of cryptocurrency does not show the source of the transfer. How are sales taxes at the state level calculated and paid based on payments from an untraceable location? The guidelines from the governmental agencies have not been updated to reflect these new digital technologies.

In the cryptocurrency world, customers can be anonymous. Even if a business gets the customer’s name, the transaction or transfer of money cannot be traced. Businesses must strive to do business with legitimate, well-respected customers. Criminals, under-age customers, people from other countries, and other people with risky backgrounds can exchange currency with a business without being revealed. Businesses must evaluate the risk of doing business with the unknown and non-verifiable customer.

Cryptocurrency faces some of the same risks as other types of currency but the impact is greater because the money is sent to an anonymous address. Spoofing or phishing has been used to get access to users’ cryptocurrency wallet. Since the transfers are untraceable, there is no chance of getting the funds back. Hacking of computers to gain access to cryptocurrency wallets or payment gateways is also possible. For a business, this risk is incredible. Businesses are often victims of scams like spoofing, phishing, or social engineering.

In summary

Businesses must evaluate the risk of cryptocurrency, including:

· Lack of regulation

· Absence of insurance

· No record of transactions

· Anonymity of customers

· Theft

Risks

· Some of the risks associated with blockchain and cryptocurrency technology are:

· No regulation by government or industry

· No insurance

· Poor public reputation of cryptocurrency

· No records because of anonymous transactions

· Anonymity of customers

· Theft from hacking, phishing, spoofing, and social engineering

Unregulated

Charlie wants his parents to accept Bitcoin at their jewelry store, Marklesons. After researching this, Charlie’s brother Will disagrees because blockchain and cryptocurrency are unregulated by a government or an industry. His parent’s money once deposited in the bank are protected and secured by the bank which is reviewed, by government regulators.

Uninsured

Will also opposes the use of Bitcoin in the jewelry store because the digital currency isn’t insured. Unlike cryptocurrency, the US government insures deposits his parents make up to $250,000 through the Federal Deposit Insurance Corporation (FDIC). Deposits in the bank can earn interest but are not treated as an investment which means the principle is not at risk.

Documentation

The Marklesons have to keep accurate and verifiable records of income, expenses, sales, and money transactions in their jewelry store. They must report to local, state, and federal agencies on these areas. These agencies can also demand audits, which would need to include documentation. Documentation of cryptocurrency does not show the source of the transfer.

Anonymity

In the cryptocurrency world, customers can be anonymous. Even if the Marklesons get the customer’s name, the transaction or transfer of money cannot be traced. These owners want to do business with legitimate, well-respected customers. Criminals, under-age customers, and people with risky backgrounds can take advantage of anonymity. Businesses must evaluate the risk of doing business with the unknown and non-verifiable customer.

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