How CFOs can embrace cryptocurrencies for his or her companies

An increasing number of companies are beginning to use and settle for cryptocurrencies.

This shift means a cost innovation that boards would possibly as soon as have thought sat on the margins of the enterprise is now on the core of operations.

CFOs, who’re charged with managing the monetary affairs of an organization, should assist their organisations embrace the transfer to crypto.

Estimates recommend greater than 15,000 companies globally now settle for Bitcoin, which is the perfect recognized and most generally used cryptocurrency. What’s extra, the development could be very a lot upwards.

Sage analysis, in a report referred to as The Redefined CFO, suggests nearly half (44%) of UK finance leaders imagine that decentralised currencies will show ‘extraordinarily’ viable as a long-term cost resolution.

In case you’re a CFO at a medium-sized enterprise who is considering embracing cryptocurrencies – and also you see them as potential cost resolution in your organisation – on this article, we spotlight some key areas you’ll want to contemplate.

Right here’s what we cowl:

What are cryptocurrencies?

Within the easiest phrases, a cryptocurrency is a digital foreign money the place transactions are verified by a decentralised system utilizing cryptography, fairly than by a centralised authority, equivalent to central banks and authorities organisations.

Digital foreign money doesn’t exist in a bodily sense.

Not like kilos, {dollars} or euros, you’ll be able to’t maintain a couple of Bitcoins in your pocket. As an alternative, cryptocurrency is a digital token that’s secured and transferred cryptographically and securely utilizing blockchain expertise.

Holders of crypto – whether or not that’s people or companies – retailer the foreign money in a digital pockets. This digital pockets will be {hardware} or web-based and may reside on a cell machine, a pc desktop, or will be saved protected by printing the non-public keys for entry on paper.

Estimates recommend there are at present greater than 18,000 cryptocurrencies.

The worth of those digital currencies varies broadly, as does their complete market capitalisation.

Whereas new cryptocurrencies can turn into outstanding shortly, there’s a couple of that your online business must be extra conscious of than most:

  • Bitcoin: The world’s first decentralised cryptocurrency, which launched in 2009. The largest and hottest digital coin, with a complete market cap valued at simply over $400bn (as of 21 June 2022). Bitcoin operates by itself blockchain community.
  • Ether: The second-biggest crypto by market cap (simply over $140bn as of 21 June 2022). Together with all cryptocurrencies apart from Bitcoin, Ether operates on the Ethereum blockchain.
  • Litecoin: Launched in 2011, Litecoin was among the many first cryptocurrencies to comply with within the footsteps of Bitcoin. With a market cap of just below $4bn, Litecoin is the 18th most precious cryptocurrency (as of 21 June 2022). Researchers recommend there are a rising variety of retailers that settle for Litecoin.

How are companies utilizing cryptocurrencies?

Recent information tales break each week about main manufacturers shifting into cryptocurrency. Take luxurious vogue model Balenciaga, which in Could 2022 stated it’s going to quickly start to simply accept each Bitcoin and Ethereum on-line and at choose shops.

The corporate described its transfer in the direction of crypto as pondering “long run”.

In the meantime, Spanish airline Vueling introduced it’s partnering with cryptocurrency cost supplier BitPay and world cost options supplier UATP to settle for Bitcoin funds by early 2023.

The corporate stated its dedication affirmed its place as “a digital airline”.

These companies be part of Microsoft, which permits customers to pay for companies utilizing Bitcoin, and leisure, journey and meals firms – equivalent to Starbucks, Pavilion Inns & Resorts, and airBaltic – which might be pushing crypto developments in a broad vary of areas.

The shift to crypto isn’t one thing that’s confined to blue-chips manufacturers. Smaller firms are getting concerned, too.

Bank card firm Visa says greater than 30% of small companies within the United Arab Emirates, Hong Kong, Singapore and Brazil plan to supply prospects the choice to pay utilizing crypto within the coming months.

Nearly a 3rd (32%) of small and medium-sized enterprises (SMEs) globally say accepting new types of cost is a high precedence for 2022, in accordance with Visa.

Greater than half (59%) of SMEs plan to shift to utilizing solely digital funds inside the subsequent two years. In truth, nearly three-quarters (73%) of SMEs surveyed stated new types of digital cost are elementary to their development.

Whereas curiosity in crypto continues to rise, there’s nonetheless some option to go till digital foreign money goes mainstream.

Sage’s report, The Redefined CFO, discovered simply 13% of UK finance leaders say their organisations at present settle for cryptocurrency as cost. Nevertheless, a 3rd (33%) say they’ve plans to take action through the subsequent yr.

This continued shift to new types of cost creates new calls for for CFOs. Making a call to simply accept cryptocurrency is simply the place to begin.

For finance chiefs at smaller companies, there’s a bunch of key points they’ll want to contemplate.

What are the challenges of utilizing cryptocurrencies?

Whereas many companies are starting to dabble in cryptocurrencies, different organisations are shifting extra tentatively resulting from a spread of considerations.

Sage’s analysis factors to 3 important hurdles relating to the adoption of cryptocurrencies:

  • Sustainability
  • Expertise
  • Safety.

Sustainability points

1 / 4 of CFOs imagine cryptocurrencies don’t align with environmental, social and governance (ESG) insurance policies.

Sage’s analysis suggests the considerations surrounding ESG insurance policies are comprehensible. Boards are underneath stress to point out their dedication to environmental objectives, each by way of assembly regulatory necessities and satisfying prospects.

Crypto isn’t recognized for being environmentally pleasant.

Sage’s analysis highlights how mining Bitcoin requires energy-intensive computing to confirm transactions. The common transaction consumes 2116 kWh of electrical energy as of April 2022.

Corporations trying to embrace digital currencies in the long term might want to discover methods to beat this important problem.

Expertise hole to fill

Relating to expertise, Sage’s analysis suggests 23% of CFOs imagine that discovering the fitting expertise to handle and course of cryptocurrencies is a big hurdle.

Corporations in all sectors recognise the scale of an ever-growing digital expertise hole. From information science to cloud computing, organisations of all sizes are struggling to recruit and retain the digital they want.

Within the case of a nascent space equivalent to cryptocurrency, and the intently associated space of blockchain, these expertise considerations are significantly acute.

Proof suggests monetary establishments which might be establishing cryptocurrency-focused departments discover it robust in an more and more aggressive market to search out the specialist expertise they require.

Safety considerations

Lastly, simply over a fifth (21%) of CFOs in Sage’s analysis discuss with security-related considerations relating to the main challenges of adopting cryptocurrencies.

Pushing into rising areas of expertise at all times brings considerations, particularly in organisations which may really feel they lack the expertise to maneuver with surety.

Safety dangers have been additionally highlighted in the FBI’s latest Web Crime Report, the place the “felony use of cryptocurrency” sat among the many high three reported incidents in 2021.

Business consultants recommend consciousness and schooling will probably be essential in serving to finance departments undertake after which shield crypto property.

What does embracing crypto imply for CFOs?

Embracing cryptocurrencies creates a contemporary administration problem for finance chiefs.

Whereas deciding to simply accept digital foreign money creates important operational points, CFOs should additionally consider carefully about how these property will sit on the stability sheet.

As has been seen in latest months, the worth of crypto continues to fluctuate spectacularly.

Some finance chiefs are cautious of including an asset to the stability sheet when its worth may change significantly. As many as 84% of finance executives imagine holding Bitcoin poses a monetary danger to the enterprise resulting from its inherent volatility, in accordance with analyst Gartner.

CFOs must also contemplate how wider developments related to crypto and blockchain may result in additional adjustments in finance preparations.

Asset supervisor Amundi, for instance, suggests a completely decentralised cryptocurrency system may result in world cost techniques which might be quicker, cheaper and extra inclusive than present techniques.

There’s additionally a collection of points that can must be thought-about over an extended timeframe.

New rules are more likely to be utilized to utilizing and accepting cryptocurrencies.

On the similar time, new digital currencies will proceed to emerge. Whereas Bitcoin is at present essentially the most well-known crypto, it’s under no circumstances assured to turn into the primary digital foreign money in the long term.

In some ways, it’s helpful to consider the transfer in the direction of crypto as a part of a wider shift within the function and obligations of the trendy CFO.

Digital currencies aren’t the one contemporary innovation bringing new challenges and alternatives to finance chiefs. CFOs should additionally take note of the rise of the metaverse.

This wave of rising applied sciences means finance leaders should be adaptable and versatile.

Whereas conventional ability units stay essential, fashionable CFOs must be rather more than consultants in accounting and stability sheets. As Sage’s analysis suggests, efficient finance chiefs will boast a strong appreciation for rising expertise.

Curiously, Sage’s analysis reveals that just about half (45%) of CFOs have invested in crypto personally, with simply 2% having little interest in investing in or utilizing digital currencies for funds.

It will seem, due to this fact, that CFOs are conscious of the dimensions of tech-led change that’s showing on the horizon.

Now, they only must seize the alternatives.

Closing ideas on CFOs and cryptocurrencies

Cryptocurrencies have moved from the fringes of the financial system to the mainstream in simply over a decade.

With big-name manufacturers already accepting digital foreign money, the following decade is more likely to see much more motion in the direction of cryptocurrencies.

Whereas Sage’s analysis suggests CFOs are conscious of the challenges this shift is more likely to deliver, finance chiefs should guarantee they – and their companies – are able to stability function and revenue to ship long-term worth from cryptocurrencies.