Conscious (and Cautious) of Cryptocurrency: Tips to understanding virtual currency.

• Author: Barbour, Tracy
• Position: FINANCE

Glen Kratochvil, president of Alaska Computer Guy, bought his first cryptocurrency in 2014. He purchased Bitcoins as a personal investment.

Today, his company--an IT support and computer services provider--allows customers to pay with several cryptocurrencies. The Anchorage business gladly accepts Bitcoin, Ethereum, DigiByte, credit cards and, of course, cash.

Kratochvil's gravitation to cryptocurrency is simple: not everyone has a credit card, many people don't use checks anymore, and more people use third-party payment systems such as Apple Pay. Plus, accepting cryptocurrencies is generally more cost-effective for business owners. For instance, Alaska Computer Guy's transaction fees with Bitcoin are less than one half of one percent. That's significantly less than the 2 percent to 3 percent businesses typically pay in credit card processing fees. "Cryptocurrency is tremendously cheaper," Kratochvil says. "I think that it is going to revolutionize the financial industry."

Alaska Computer Guy is among a small but growing number of businesses that accept cryptocurrencies in Alaska. Lately, cryptocurrencies have been causing quite a bit of controversy--positive and negative--as they gain popularity worldwide. They're stimulating interest among would-be investors in Alaska and increasing concerns among financial industry regulators.

What Are Cryptocurrencies?

Simply put: Cryptocurrencies are a type of digital record created and stored electronically in a blockchain, a distributed database that keeps a permanent record of digital transactions, according to the Alaska Division of Banking and Securities, a division of the Department of Commerce, Community, and Fxonomic Development. When crypto-currency is used to pay for goods or services, each transaction is securely encrypted and recorded in a blockchain, which serves as a ledger.

Unlike traditional currency, cryptocurrencies have no physical form and typically are not backed by tangible assets. They are not insured or controlled by a central bank or other governmental authority; cannot always be exchanged for other commodities; and are subject to little or no regulation.

Types and Uses

Among cryptocurrency, Bitcoin and Ethereum have the largest market capital by a significant lead. Bitcoin--the most recognizable cryptocurrency--uses peer-to-peer technology to operate with no central authority or banks. The management of transactions and the issuance of Bitcoins are carried out collectively by the network. Bitcoin is open-source; its design is public.

Ethereum is an open-source decentralized application platform with features capable of supporting "smart contracts." These applications, which run on a custom-built block-chain, can run exactly as programmed without any possibility of downtime, censorship and fraud, or third-party interference. In the race for market dominance among cryptocurrencies, Ethereum is considered to be an evolution of Bitcoin, according to Benjamin Craig, executive vice president and chief information officer for Northrim Bank. "It reconciles faster, is scalable, and allows you to build applications, to include tokens, on top of it," he says.

Alaskans are employing cryptocurrencies in a variety of ways. "I believe there is a small but growing number of Alaskans using cryptocurrency as a direct payment to each other or third-party commercial entities, but the technology still has a steep adoption curve for cryptocurrency consumers and businesses," Craig says. "I also believe that Alaskans are buying cryptocurrency as an investment, or using it as a low-cost and fast way to send money both to US and international recipients."

According to Craig, person-to-person money transfer is one of the most underappreciated aspects of cryptocurrency. Historically, financial institutions such as banks and credit unions relied on industry alliances to send money abroad. "These systems have not changed in decades. Corporations like Western Union, PayPal, and even retailers like Wal-Mart have more recently implemented their own money transfer systems, but these, too, are expensive, reliant on proprietary infrastructure, and require recipients to be on their network."

Craig adds: "Cryptocurrencies like Ripple and Steller are specifically targeting these challenges, touting nearly instantaneous, extremely low-cost payments across the globe--with no dependencies on legacy or...