Cryptocurrencies are notoriously volatile and poorly understood in mainstream markets. Yet there is little doubt that digital money and the blockchain will have a central role in future business. Estimates suggest more than 15 000 businesses globally already accept Bitcoin as payment.
High-profile brands that accept cryptocurrencies include the likes of Gucci and Chipotle. CFOs, who are charged with managing the financial affairs of a company, are increasingly considering what crypto will mean for their businesses. Global Sage research found that 52% of finance leaders believe decentralised currencies will prove ‘extremely’ viable as a long-term payment solution.
Let’s look at cryptocurrencies and what their adoption means for CFOs.
What are cryptocurrencies?
A cryptocurrency is a digital currency where transactions are verified by a decentralised system using cryptography rather than by a centralised authority such as a central bank or government organisation. Cryptocurrency is a digital token that is secured and transferred cryptographically and securely using blockchain technology.
Some examples of cryptocurrencies include Bitcoin, Ethereum, Litecoin and Ripple. Also looming in the future are central bank digital currencies, or CBDCs. These digital currencies have the backing of the central bank in a country
Cryptocurrencies are an emerging technology, and it is unclear how the market will play out. However, major cryptos like Bitcoin have shown their staying power despite their inherent pricing volatility. Businesses that utilise cryptocurrencies may be able to attract new customers and position themselves as cutting-edge businesses.
CFO challenges in using cryptocurrencies
While some businesses are experimenting with cryptocurrencies, others are more cautious due to various concerns. Our research found three significant hurdles when it comes to the adoption of cryptocurrencies: sustainability, skills, and security.
- Regarding sustainability, cryptos have a reputation for consuming a great deal of power, which doesn’t align with environmental, social, and governance (ESG) concerns. Mining Bitcoin, for example, requires energy-intensive computing, is costly, and only sporadically rewarding with crypto tokens.
- Companies across the board recognise an ever-growing digital skills From data science to cloud computing, organisations of all sizes struggle to recruit and retain the digital talent they need. In cryptocurrency and blockchain, those skills concerns are particularly acute.
- Finally, 20% of CFOs in Sage’s research refer to security concerns regarding the major challenges of adopting cryptocurrencies. Industry experts suggest awareness and education will be crucialin helping finance departments adopt and then protect crypto assets. For CFOs, a lack of regulatory oversight in the crypto market is another concern.
What does embracing crypto mean for CFOs?
Embracing cryptocurrencies creates a new operational and financial challenge for CFOs. They need to carefully consider how these assets will sit on the balance sheet, given the wild swings in the value of cryptocurrencies. Any move towards crypto will be slow and cautious.
However, in the longer term, digital currencies may streamline transactions and help reduce transaction costs. They may also improve auditability and transparency across multiparty transactions. Smart contracts and digital currencies could one day enable higher levels of automation across the value chain.
While cryptos are still an emerging technology, they have come a long way in the past decade. We are seeing governments and regulators take them more seriously, which could foster higher adoption.
Nonetheless, not all CFOs will want to rush to accept crypto payments or use digital money as a store of value. Still, forward-looking finance leaders should familiarise themselves with the underlying technology and concept. Despite the challenges, digital assets certainly look like they are here to stay.
By Jordaan Burger, Vice President Finance, Asia-Pacific, Africa, Middle East, Sage.