Since the first cryptocurrency, bitcoin, was made in 2008, cryptocurrency has gone from an obscure oddity to a household term with individuals all around the world not only investing into it as well as currently using it in their personal life and business. At no other time in recent history has there been the chance to get in on a brand new form of currency before it’s turned out to be broadly accepted. This has opened up enticing new venture openings, in addition to other things.
Perhaps nowhere else will cryptocurrency have more of an impact than in commerce and business at large.
Cryptocurrency is a digital exchange currency that uses cryptography, a method of securing digital communications between third parties that is virtually unhackable. In fact, that’s the major reason for the widespread interest, aside for the investment potential.
Cryptography offers the potential for completely secure transactions between third parties in a digital age where hacking has become a prime threat — and a very difficult one to defend against.
How might cryptocurrency affect your business?
Cryptocurrency has several pros. However, it also has its cons. You need to understand both to know whether this digital form of currency is a good fit for your business.
However, in addition to knowing whether or not you should accept cryptocurrency, it’s a good idea to invest time in understanding it so that you’re prepared for potential changes due to more widespread use of the currency.
Pro: No Processing Fees
Traditional digital transactions from credit cards and bank accounts require a middleman to manage the transactions. Because of this, a processing fee is charged in exchange.
However, cryptocurrency doesn’t require this kind of intermediary, so you save on processing fees. Depending on the quantity and size of digital transactions normal for your business — and most importantly, the likely small portion that will initially be cryptocurrency transactions if you choose to accept the currency — this may not be much savings. However, it’s worth noting, especially as a potential tool for larger transactions.
Pro: Fast Transaction Speed (Currency Only)
Cryptocurrency transactions are known for being very fast.
Compared to the typical two-to-three days it takes a credit card transaction to clear, cryptocurrency transactions can be completed in as little as seconds. This makes it ideal for some businesses where transaction speed is key.
However, keep in mind that merchant wallet ACH transfers often take a few days to convert cryptocurrency to cash and transfer it to your business bank account, so while the currency is yours almost immediately you’re receiving the cash in the same amount of time as a typical credit card transaction.
Pro: Additional Payment Options
Perhaps the clearest advantage of all, cryptocurrency allows you to offer an additional payment option that many businesses have yet to jump on board with. This may not seem like a big deal, however, it could lead to additional sales you’re currently missing out on.
A 2016 survey from online bill payment provider Fiserv found that the average number of payment methods for households increased from 2.9 in 2014 to 3.6 in 2015. As additional payment methods become available, and digital safety becomes more of an issue, the willingness and desire to use cryptocurrency will likely rise.
Con: High Volatility
Perhaps the greatest disadvantage of all, the cryptocurrency market is known for being highly volatile. This can lead to a few problems.
First, if a particular currency crashes, you may be forced to wait to convert that currency until its price levels out or risk taking a loss on those transactions. And, if you invoice your customers on terms that allow deferred payment, that can cause a real headache.
Also, because the price of currency can vary wildly, you may be forced to change your pricing constantly or else risk taking a loss. If a currency rises or falls significantly and you keep your pricing the same, customers who pay with that particular cryptocurrency could be paying much more or less than they should.
Fortunately, some merchant wallets have the optional functionality to auto-update pricing based on fluctuations in currency pricing, to some degree avoiding this problem.
Con: Cryptocurrency Not (Yet) Regulated
Cryptocurrency isn’t currently regulated the way other currencies are.
As governments around the world work out how to treat the currency, there is an inherent risk in accepting it as a form of payment — not only with regards to accepting the transactions themselves but also how they’re taxed.
A Note On Cryptocurrency And Taxes For Small Businesses
While the way in which cryptocurrency is taxed may change, it’s a good time to talk about how cryptocurrency is currently handled during tax season for those looking to accept it as a form of payment now.
Fortunately, filing cryptocurrency earnings are pretty straightforward. That’s because revenue earned from cryptocurrency can and should be treated as a cash transaction. (It’s currently treated as either cash or property for taxation.) In fact, to make this process even simpler, most wallet accounts automatically convert crypto into cash in the first place.
However, it’s important to look to your country’s tax laws for advice on best practices to be safe. (Here’s a U.S. resource from the IRS on exactly that).
Should you accept cryptocurrency?
Ultimately, whether you accept cryptocurrency is based on your particular business goals, structure and the industry you’re in. If you’re business-to-consumer, consider accepting cryptocurrency. If you’re business-to-business, it may be a while before it will make any difference. That’s because most who are using cryptocurrency for digital payments are direct consumers and not businesses, which tend to be slower to adopt such changes.