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Currency in the Future of the Supply Chain

We're used to instant access over the web to information, communication, and purchases, all of which enhance the global supply chain. But we haven't yet achieved that kind of free movement for money, particularly when transacting business with someone who uses a different form of currency. The roadblocks to foreign currency transactions now have a solution in the form of digital currency.

The biggest name is digital currency is Bitcoin. As a direct peer-to-peer form of payment, Bitcoin allows money to move freely without any fees or delays imposed by a financial institution getting in the way of transactions. It's not quite instantaneous, as it does have to clear the blockchain, a public ledger of all transactions in the Bitcoin network, though that typically is a matter of 10 minutes rather than multiple business days.

Bitcoin has been around since 2009, following some other attempts at digital currency — attempts that never really gained traction beyond very small circles. Bitcoin also got its start in the circles of tech people who mined the caches of coins. Back then, it was relatively easy to mine them, as opposed to now when they require massive processing power and specialized mining rigs. However, they were worth next to nothing, with beginning values of just 8 cents in 2010. Bitcon became popular among libertarians and other advocates of consumer privacy for offering the anonymity of cash for their transactions. (In truth, all Bitcoin transactions can be traced, though the digital currency is linked with an account number rather than an individual).

With more people participating in the Bitcoin economy, the value of the digital currency took off, first hitting $1 at the beginning of 2011 and then skyrocketing up to $31 by the middle of the year. It subsequently dropped back down to $2 at the end of the year and took a whole year just to get back up to $13. But in 2013, it really started to hit its stride and hit several high points as it went on a roller coaster ride that went up higher and higher. It not only broke into the hundreds but got as high as $1,250. As the coins entered into circulation and were being snapped up as speculative instruments, Bitcoin gained both fame and notoriety, as in the connection to the Silk Road seizure toward the end of 2013.

But Bitcoin is not just for the die-hard libertarians, techno-geeks, or investors any more. Every day more businesses put up “We accept Bitcoin” signs on their stores and websites to extend more payment options to customers. What is merely convenient in retail, though, has the potential to become a real game-changer for companies who participate in the global economy directly.

Currently, banks add on significant processing time and clearing costs for businesses that operate in countries that do not share the same currency. The cost for foreign transactions can be borne by both the payer and payee. In addition to the outright cost in terms of fees, there is the disruption to a business's cashflow due to the additional days banks take to clear foreign transactions. Saving both time and money in clearing transactions is a clear advantage for companies pursuing growth in the global supply chain.

Most companies are still shy of integrating digital currency into their business operations at present, though that will likely change. A while back, I exchanged some emails with Brewster Kahle, digital librarian and founder of the Internet Archive. I asked him to explain why he described Bitcoin as “antifragile.” He said it fits that term “because it gets stronger the more the world shakes.” He offered further details as follows:

    Bitcoin, as a transaction system (rather than as a store of value), can be used with minimal support systems — in fact it has run as just a simple program on many people's machines, and still functions as it has scaled up. Also, the bitcoin community sees it as an experiment and therefore game to be pushed and tested — this is making the technology stronger. So this system is being tested in a very difficult hacker environment, and holds up well, and gets stronger as it is attacked.

Granted, the digital currency has had a number of setbacks, as well as dizzying swings of value, though it's been relatively steady lately, floating around the $500 mark. When it keeps a fairly consistent value, it will become more valuable as a means of exchange, which can expedite payments in the global supply chain.

21 comments on “Currency in the Future of the Supply Chain

  1. _hm
    August 20, 2014

    Main problem for free currency will be its safety. It needs effort to create it. But it can disappear in no time for some unknown reason.

     

  2. Ariella
    August 20, 2014

    @_Hm there have been a number of times that bitcoin was hit usually because of problems with the exchange services. Did you have one particular incident in mind?

  3. _hm
    August 20, 2014

    @Ariella: It is common sense approach. Will me or you will convert our hard earned money in bitcoin or other free currentcy?

    Answer is no. Who will use this currency? They are people who wants to earn or loot money with little or no effort.

  4. Ariella
    August 20, 2014

    @_Hm well, all that depends on your attitude toward money. The economic definition is merely a medium of exchange, a measure of value, and a store of value. Bitcoin meets all three as well as any government issued fiat. In fact, compared to some local currencies, it is a better bet as a store of value because they tend to lose value while it tends to gain if you look at its history. But the use of digital currency is not primarily in storing value but in a seamless medium of exchange that is not limited by national boundaires. That is what Ripple focuses on. I wrote about it recently here.  

  5. _hm
    August 21, 2014

    And which government backs it up with reserved gold or other commodity?

  6. prabhakar_deosthali
    August 21, 2014

    This artcile has been informative to me about tghis new digital currency Bitcoin.

     

    I am still not clear how is this money Minted? and who regulates the no of Bitcoins in circulation.

    Such a currency should have at leat one regulatory authority who must gurantee its conversion to any other desired currency when asked for.

    Otherwise it becomes like a stock market – totally in the hands of speculators!

     

  7. Daniel
    August 21, 2014

    Prabhakar, Bitcoin is totally flopped because of lack of regulations and supports from government side.

  8. Ariella
    August 21, 2014

    @hm in the USA the dollar has not been backed by gold, silver, or anything else of value for many decades. See http://www.history.com/this-day-in-history/fdr-takes-united-states-off-gold-standard

  9. Ariella
    August 21, 2014

    @Prabhakar_dosthali Bitcoin has no regulatory authority, which is part of its appeal for some users. I don't use it myself, though I've written about it several times. I went into greater detail about it, as well as another digital currency system, Ripple, in my article for CFO last year. See 

  10. Ariella
    August 21, 2014

    @Jacob Though I don't use bitcoin myself, I wouldn't call it a failure. I would say, it's still fairly early on, though it has actually grown in leaps and bounds since I wrote this: http://www.coindesk.com/is-society-ready-for-bitcoin/ 

  11. Ariella
    August 21, 2014

    The fact that bitcoin's popularity continues to rise is attested to the fact that more and more ATMs for the digital currency are cropping up, including one in Manhattan today. See http://upstart.bizjournals.com/news/technology/2014/08/21/today-in-bitcoin-manhattan-gets-its-first-bitcoin.html?ana=twt

  12. Daniel
    August 22, 2014

    “Though I don't use bitcoin myself, I wouldn't call it a failure. I would say, it's still fairly early on, though it has actually grown in leaps and bounds since I wrote this: http://www.coindesk.com/is-society-ready-for-bitcoin/ “

    Ariella, thanks for the link. But I think now a day's nobody is using Bitcoin for any transactions.

  13. Daniel
    August 22, 2014

    “The fact that bitcoin's popularity continues to rise is attested to the fact that more and more ATMs for the digital currency are cropping up, including one in Manhattan today.”

    Ariella, whether its supporting by any retail or reserve bank in US. The article says that the ATM is in a jewellery; whether merchandisers are accepting Bitcoin for trade.

  14. Ariella
    August 22, 2014

    @Jacob As I said, I don't use it myself, but I do know people who do. One recently told me he uses it to exchange his country's currency for American dollars. He uses Ripple's system to make the exchange and finds it faster and much more economical than doing so through traditional banking. I also hear about more and more businesses accepting bitcoin just about every week. Why would they bother if no one wanted to pay that way? Here's a fairly recent article on what you can now buy with bitcoin http://www.coindesk.com/information/what-can-you-buy-with-bitcoins/

  15. Daniel
    August 25, 2014

    “One recently told me he uses it to exchange his country's currency for American dollars. He uses Ripple's system to make the exchange and finds it faster and much more economical than doing so through traditional banking. I also hear about more and more businesses accepting bitcoin just about every week.”

    Ariella, thanks for the clarification and link. So far I hadn't used Bitcoin for any transactions.

  16. Ariella
    August 25, 2014

    @Jacob Neither have I. I have no vested interest in encouraging it. For everyday transactions, it doesn't make that much difference to the consumer, though it can save the merchant transaction fees and the headache of stopped payments that credit cards allow. But I believe it's truly transformative power comes in the form of international transactions. That's also what Alan Safiah told me in an interview I did with him last year. He said  Bitcoin could open the world with new merchants  because it makses microtransactions cost-effective. He asserts bitcoin will be part of charitable organizations' arsenals for poverty eradication in 3rd world countries, as it enable people to help themeslves. Then they would have money they need for clean water and to eradicate disease from their area.  

  17. Daniel
    August 26, 2014

    “it doesn't make that much difference to the consumer, though it can save the merchant transaction fees and the headache of stopped payments that credit cards allow.”

    Ariella, once it's get established, they can add such features.

  18. Daniel
    August 26, 2014

    “But I believe it's truly transformative power comes in the form of international transactions.”

    Ariella, normally Visa and master card payment gateways charge you a conversion fee up to 5% of the total transaction values while you making payment for international transactions. I mean making payment through other countries currencies; in digital currencies such conversion charges can be avoided.

  19. Ariella
    August 26, 2014

    @Jacob exactly, not only do they save the typical transaction fees but the additional fees for currency exchange. For those who are trying to sell products at low prices with very low markups, that can make a critical difference to the bottom line.  

  20. itguyphil
    August 27, 2014

    @Ariella,

    Agreed. Just ask Amazon!

  21. Daniel
    August 27, 2014

    “exactly, not only do they save the typical transaction fees but the additional fees for currency exchange. For those who are trying to sell products at low prices with very low markups, that can make a critical difference to the bottom line.  “

    Ariella, you are right in terms of business; but they can reconvert it in to their local currency?

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