Cryptocurrency in the Manufacturing & Distribution Industries
Published on by Bryan Gayhart in Firm News, Manufacturing, Wholesale / Distribution
The news is full of headlines about cryptocurrency, ranging from significant price fluctuations of major cryptocurrencies like Bitcoin, to the emergence of volatile alternative coins, and the growing interest from major corporations in cryptocurrency investments, as exemplified by MicroStrategy co-founder and Executive Chairman Michael Saylor’s advocacy for Bitcoin investment within Microsoft. These developments underscore the emergence of cryptocurrencies as a potentially disruptive force across various industrial sectors.
First, a caveat
Before we begin, let’s be clear: this post is an overview of cryptocurrency’s potential uses cases, risks, and benefits for manufacturers and distributors – it is not intended to be, nor should it be considered financial advice. Please consult with your financial advisor to determine whether cryptocurrency could be an appropriate part of your business financial strategy.
What’s the appeal of cryptocurrency?
Cryptocurrency and blockchain technologies are fundamentally grounded in the principles of enhanced efficiency, security, and traceability. This inherent nature positions these technologies as potential solutions for the manufacturing and distribution industries, which often grapple with supply chain inefficiencies and high transaction costs.
In this post, we’ll provide a high-level overview of potential cryptocurrency use cases, potential benefits, and challenges associated with integrating cryptocurrency and blockchain technologies within the context of manufacturing and distribution operations.
Potential use cases for manufacturers and distributors
Supply chain transparency
Smart contracts and blockchain-based cryptocurrencies enable real-time tracking of goods, facilitating automated compliance with contract terms.
Payments
Bitcoin and other cryptocurrencies provide borderless transactions – which are not only often faster but can also reduce reliance on traditional banking systems.
Decentralized finance
Decentralized finance (or DeFi) is a platform that can provide companies with alternative financing options: so instead of a traditional bank loan for a new piece of equipment, you could potentially have a cryptocurrency-backed loan through peer-to-peer lending.
Potential benefits for manufacturers and distributors
Cost savings
Traditional financing arrangements typically include fees and multiple rounds of back-and-forth communication. That’s not the case with peer-to-peer lending on a DeFi platform.
Efficiency
Transactions typically happen faster thanks to blockchain automation – and cryptocurrency facilitates cross-border trade without currency conversion complexities.
Transparency
The immutable blockchain records may improve accountability and reduce fraud.
Potential challenges for manufacturers and distributors
Regulation
Cryptocurrency is a new frontier – and it’s not unfair to compare it to the wild west. There’s uncertainty around regulations for cryptocurrency and blockchain technologies. And uncertainty creates potential risk.
Volatility
Dramatic price fluctuations can pose challenges for financial planning – for example, Bitcoin prices in 2024 ranged from a low of around $40,000 per coin to a high of over $100,000 per coin, a remarkable percentage change of 150%.
Limited technical expertise and infrastructure
While technical expertise and infrastructure are gaining ground year over year, it’s still limited – and that poses a challenge for companies looking to fully embrace either.
Marketplace resistance
Overall marketplace unfamiliarity with cryptocurrency and its potential risks and benefits can make a foray into cryptocurrency challenging. Unfamiliarity and perceived risk may cause company decision-makers to avoid engaging with cryptocurrency strategies. Before cryptocurrency has the potential to become a mainstream strategy, substantial education on strategy, risks, and benefits is needed.
A look at the big picture
Cryptocurrency and blockchain technology offer transformative potential to address longstanding challenges within the manufacturing and distribution sectors in supply chain transparency and in revolutionizing financing and payment systems – but there’s substantial risk as well.
To fully leverage these opportunities, organizations must educate themselves, navigate regulatory complexities, invest in the necessary technological infrastructure, and foster collaborative relationships within the broader ecosystem.
If your organization is currently exploring the applications of these technologies or has already commenced their implementation, we’d love to talk with you about what you’re doing, and also potentially identify other financial strategies that can boost your manufacturing or distribution industry business bottom line. Contact us today to set up a free consultation – as always, we’re here to help.
