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E-Commerce Savior or Criminal Scapegoat?



One of the most disruptive, and confusing, innovations of the past decade is a white paper by unknown, pseudonymous author Satoshi Nakamoto describing the blockchain, a new method of accessing and storing digital information. His first application of the blockchain: cryptocurrency. Hailed by some as the solution for completely secure financial transactions and demonized by others as an invitation to open global criminal activity, cryptocurrency is a new form of digital currency based within a distributed network of encrypted computers. Whether you demonize it or praise it, cryptocurrency has the ability to impact the future of your business.


Each cryptocurrency structure is decentralized – meaning it can exist outside of the control of middlemen and exchanges. It is self-verified; so no bank is needed and no physical medium needs to be involved for a transaction to occur; no government needs to back a cryptocurrency, and no clearinghouse is needed. With that comes a lot of exciting pros, followed by some cons, but it’s important to consider both the benefits and the drawbacks of such a unique new form of exchanging currency.


Cryptocurrency’s blockchain basis uses a series of algorithms, functions, and equations that make up a “block” of actual text. The text is self-contained, storing all information necessary to view the history of given transaction. In short, the most recent transaction contains not only the sender, recipient, and the date, time, terms, and amount of the transaction, but those for all transactions in the chain that which precede it. The blockchain takes a massive amount of time computational time and effort to create and verify, making a “block” extremely secure once a transaction is complete. Person-to-person (or business-to-business) transactions are inherently more secure, as it cuts out third parties.


The future promise of cutting out financial intermediaries comes with a near-term drawback. Cryptocurrency is still in its early stages. While innovative applications are being developed on an almost daily basis, the practical need for a middleman is not completely eradicated. There is an irony to the fact that cryptocurrency eliminates the need for governmental banking authorities, yet at this stage needs a broker, agent, or exchange to convert the cryptocurrency to US dollars. Some online platforms have emerged to provide the exchange service, yet like any early market, that presents counterparty risk. While the eventual promise of cryptocurrency is a world without financial middlemen, current users must still ask “who can I trust to act as a broker?” Today, banks are made up of 100+ year-old brands and go to lengthy processes to get insured and regulated. With cryptocurrency brokers, their reputation is uncertain, and information is lacking. In general, the consumer at this point does not have a lot of control over its selection. Care should be exercised when selecting an exchange, broker, or expert in the cryptocurrency field prior to diving into this new technology.


Feel free to contact our Cryptocurrency expert, David Shields, if you would like to learn more about how cryptocurrency may impact your business.


David Shields

dshields@shieldslegal.com