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Crypto 101 While still not officially recognized as money, cryptocurrency remains an important consideration for businesses. By Max Subra and Lynn MacDonald
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ryptocurrency (crypto) use in the United States has been growing over the last few years, especially among younger people, according to the Office of Financial Research. However, most people are not fully familiar with crypto. As interest continues to rise, it’s becoming increasingly important for business leaders to understand the basics of crypto and its potential impact. Cryptocurrency is a digital form of money, called a token, that is mostly bought
and sold online. “People use cryptocurrency for many reasons — quick payments, to avoid transaction fees that traditional banks charge, or because it offers some anonymity,” according to the Federal Trade Commission. “Others hold cryptocurrency as an investment, hoping the value goes up.” While some investors are attracted to price swings, volatility also increases financial risk for anyone holding cryptocurrency. Platforms such as Coinbase offer customers the option
Contributors ________ Max Subra is a business economics student and men’s soccer player at St. Cloud State University. Lynn MacDonald, Ph.D., is associate professor of economics at SCSU and co-director of the SCSU Center for Economic Education
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to pay with cryptocurrency. The option to pay with crypto is available, but only a limited number of businesses currently accept it, and acceptance varies by industry. For many companies, operational and regulatory uncertainty still limits adoption. Cryptocurrency exists only in digital form; there are no physical coins or notes to exchange. Digital tokens gain value strictly through the market — meaning their price depends on what buyers are willing to pay. Because of this market-driven structure, value can change quickly and crypto is not backed by the government nor FDIC insured. If you lose access to your digital wallet or send crypto to the wrong person, there may not be recourse for getting the money back. Although crypto transactions are not processed by banks, they are permanently recorded on public blockchains, and U.S. tax laws require reporting certain crypto transactions to the IRS. Once someone buys crypto, they keep it in their digital wallet. The wallet stores the keys that allow access to the crypto on the blockchain, and most wallets display balances similarly to online financial apps. If you decide to pay with cryptocurrency, you use the wallet to select the amount you want to spend. Then, the app will sell the needed amount of crypto at the current price to complete the dollar-denominated payment. This process means that, in most
cases, you are not truly sending a token (such as Bitcoin) to the merchant. Instead, your crypto is sold and the merchant receives dollars. Since regulations are still catching up, traditional banks do not record these transactions, although major crypto platforms now follow federal tax-reporting rules. Bitcoin is the most common cryptocurrency, with current valuations indicating that it is worth over $1 trillion and makes up about 50–60 percent of the entire crypto market. Its dominant market share reflects its role as the first and most widely recognized cryptocurrency. Around 1-3 percent of people worldwide (roughly 100 to 300 million people) own some Bitcoin. Estimates vary because many wallets are anonymous, making ownership difficult to measure. Bitcoin is considered a scarce digital asset because only 21 million Bitcoin will ever exist. This limited supply contributes to its appeal for some investors. Cryptocurrency can be used for investments and some transactions, though it does not currently meet the requirements to be defined as wmoney. Money must serve as a store of value, a widely accepted means of payment, and a unit of account. Cryptocurrencies fail on all three measures. Prices are generally not listed in crypto, acceptance as a means of payment is limited, and volatility makes it difficult for crypto to function as a stable store of value.