Special Feature
Part of a ZDNet Special Feature: The Future of Money

Businesses are banking on cryptocurrency. But there are two big challenges ahead

Gartner predicts that 20 percent of large enterprises will use digital currencies by 2024 -- if chief financial officers can figure out how.

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Bitcoin is booming.

Image: PhonlamaiPhoto/Getty

Cryptocurrency is polarizing topic, but there's no denying its growing popularity. In addition to a handful of big-name companies that now accept Bitcoin and its ilk, we now have countries viewing crypto as legitimate currency -- specifically, El Salvador, which in 2021 became the first country in the world to formally recognize Bitcoin as legal tender.

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Couple this with the growing adoption of the blockchain, and it's little wonder that money experts are predicting more companies to jump aboard the Bitcoin bandwagon in the coming years. Gartner, for example, forecasts that as many as one in five large enterprises will use digital currencies by 2024, either in the form of stored value or collateral or for actual payments.

Avivah Litan, VP analyst in the Gartner IT practice, says mainstream acceptance of cryptocurrencies on traditional payment platforms such as PayPal, Visa and Mastercard -- as well as the growing interest in central bank digital currencies (CBDCs) among major financial institutions -- will push organizations to incorporate digital currencies into their applications.

"There's just a lot more innovation of adoption of digital currencies from many different use cases, such as CBDCs, including China's already rolled-out Digital Yuan," Litan tells ZDNet.

There is also "explosive growth in NFTs" -- which are tied to cryptocurrency payments -- such as NFT coins and play-to-earn games. The NFT market reached $22 billion in trading volume in 2021, according to data from DappRadar.

"Depending on the use case, companies can earn higher yields from cryptocurrency trading and investments, can engage in more efficient payment mechanisms and reach broader populations, and generate brand interest and revenue via NFT issuance and trading," says Litan.

It's important to note that, while cryptocurrencies are a form of digital currencies, the two terms are not interchangeable. Digital currency typically refers to any form of currency that doesn't have a physical form that is accepted as a cash alternative. Bitcoin, Ethereum and other types of cryptocurrencies fall under the digital currencies umbrella, although cryptocurrency specifically refers to digital assets stored on the blockchain and not issued by a central authority.

Adopting digital currencies isn't simply a case of businesses adding an additional payment option to their payment applications, either. Organizations will first need to identify specific use cases for digital currencies, says Gartner, and then figure out the appropriate IT stack in which to incorporate them.

This will fall on the shoulders of the chief financial officer (CFO) who, while increasingly allured by the potential uses of digital currencies and blockchain tech in the enterprise, will have a messy web of issues to untangle.

Some companies might want to buy cryptocurrencies to boost returns on their reserves. Economic pressures -- including record levels of inflation -- could push more CFOs to explore some digital currencies as a potential store of value for a portion of their reserves, the tech analyst said.

That's not without its complications.

"If the CFO is buying cryptocurrency, they're going to have to pay a lot of high fees. They have to worry about the volatility, the regulation, the tax, the scalability, the lack of protections," says Litan.

"If you're getting yield on your money from loaning US dollars to an exchange, those are unsecured creditors, so there's a lot of counterparty risk. There's certainly a lot of security threats. Smart contracts are being exploited...accounts are being taken over."

SEE: Cryptocurrency scams pose largest threat to investors

There is also the uncertain legal and regulatory landscape to traverse. This varies by country, and Litan notes that there are "lots of grey areas still in the US" -- in contrast to other countries like Switzerland, which is "much clearer in terms of their regulations".

Deciding who to trust with your investments is another consideration: "There are some players that are much more compliant than others, and some of them will only take institutional investors. So, if you're a plain old consumer, or [don't have a] lot of money, you can't get that kind of protection."

Other exchanges and handlers are less explicit in how they comply with regulations, warns Litan: "They can give you high returns, but you don't even know how to get your money out." 

When it comes to deploying their own digital currency applications, the availability of viable off-the-shelf solutions and services should help make things a little bit easier from a technological standpoint. Indeed, Gartner suggests that this already-healthy ecosystem is what's helping to drive the wider adoption of digital currencies.

Gartner notes that figuring out how to best exploit the potential of digital currencies -- including lower costs, faster transaction processing, reducing the risk of fraud and reaching new global customers -- will demand much of CFOs' time and energy between now and 2024.

Litan says this means most organizations won't have to develop their own, customized blockchain application stack because banks, payment platforms and FitTech firms "have already done the heavy lifting in this area, which should provide large enterprises with a minimum of friction in deploying their own digital currency applications."

Regulatory guidance is also becoming clearer and more well-rounded, which will no doubt increase confidence in digital currencies among CFOs. Meanwhile, the establishment of CBDCs not only serves to demonstrate the legitimacy and sophistication of digital currencies, but also offers a means for CFOs to "pressure-test" use cases in a safe environment.

Perhaps the most tantalising prospect of the more widespread adoption of digital currencies is a chance to overhaul ageing payments infrastructure. "When you look at our old legacy payment networks, they haven't been overhauled in decades," says Litan.

"Whether or not it's going to be Bitcoin or a stable coin or CBDC isn't really the main point. The main point is this is a much more modern architecture, peer-to-peer…These things are really moving forward."

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