While cryptocurrency is not recognized as legal tender by most governments, its use as a medium of exchange is slowly gaining acceptance worldwide. More and more merchants allow payment via Bitcoin and other cryptocurrencies, with exchanges like Coinbase seeing transactions in the hundreds of millions every year.
Before you decide whether you should hop onto the crypto bandwagon, you need to make a number of considerations. Cryptocurrency is said to be more secure than credit cards and other cashless systems, but there is still a chance that digital wallets can be hacked. But before launching into the merits and demerits of adopting crypto, you need to understand what it is.
Cryptocurrency Basics
As the name suggests, cryptocurrency is a form of currency that is purely digital and is encrypted to guarantee its security. It is a form of currency to the extent that it facilitates the exchange of goods and services. Unlike fiat currency, it does not have a physical representation, and its value is not anchored on a precious commodity.
The fact that the federal reserve or any government does not centrally regulate it means that it doesn’t qualify as legal tender. Instead, it is held in many digital wallets in hard drives distributed around the world. Cryptocurrency transactions are recorded in an open digital ledger known as a blockchain.
Not every seller will accept bitcoin or other digital currencies currently, but the acceptance of such forms of payment is steadily gaining traction. Some providers of web hosting services accept cryptocurrency, and PayPal recently availed digital wallets to its customers.
Taxing Cryptocurrency
One other key consideration you should weigh before opening the door to crypto users is cryptocurrency taxation. The fact that this form of currency is not governed centrally doesn’t mean the Internal Revenue Service (IRS) lets digital currency transactions fly below its radar. Au contraire, the IRS recently published guidelines on how it expects crypto transactions to be filed.
Among the key points in those guidelines is the fact that the IRS treats cryptocurrency as property when it comes to federal tax. You are expected to pay income tax on the fair market value of any cryptocurrency you receive as payment from your customers.
It’s wise to reach out to crypto bookkeeping services to offer assistance in this department so that you’re sure you’ve covered all IRS requirements. The last thing you need is to divert your hard-earned revenue to the payment of fines.
Pros
Adopting cryptocurrency as a mode of payment holds many advantages for business owners.
- Lower transaction fees– Before you get the money remitted to you by your customers via conventional electronic payment systems, you often endure several deductions in fees and commissions. PayPal, for instance, charges a four percent commission for all receipts. Credit card transactions will ordinarily cost you two to four percent of the amount transferred.
With cryptocurrency, you stand to greatly reduce these fees as fewer intermediaries handle your customers’ remissions.
- Fast Transactions– Depending on the amount being remitted and the origin of the payment, cross-border transactions will usually be subject to annoying delays that can wreak havoc on a small business’s cash cycle.
The beauty with cryptocurrency being a peer-to-peer system is that international transactions can be completed in minutes as opposed to the days you would have to wait for a bank transfer to reflect.
- Transactions are Final– You will have less to fear in terms of fraudulent chargebacks with crypto as there is no intermediary to initiate them.
Cons
All these benefits notwithstanding, cryptocurrency presents business owners with a few challenges and risks.
- Security Issues– By adopting cryptocurrencies, you don’t eliminate the risk of cyber theft entirely, though crypto is touted as completely secure. You simply exchange one form of threat for another.
While you lower the risk associated with stolen credit card details, you stand the risk of the computer storing your digital wallet being hacked and your coins stolen. The cryptocurrency exchanges holding these digital wallets have been breached in the past, and millions in digital currency siphoned away.
- Always Changing- One of the biggest risks with holding cryptocurrency is that it is highly volatile. Bitcoin, for instance, was valued at less than $4,000 at the end of 2018, but by the end of that year, its value doubled. You can mitigate the potential of big dips in value by converting your crypto to fiat currency as quickly as you can. But in doing so, you also miss out on potential gains if the cryptocurrency rises in value.
- Not Widely Accepted– Cryptocurrency is not centrally regulated, but countries are in the process of coming up with legislation to ensure it’s not used for illegal activity. New regulations introduced by your home country may jeopardize your operations.
Before You Roll the Dice
Before you put up the ‘We Accept Bitcoin’ sign, you need to decide if crypto’s potential benefits outweigh the risks. You also need to consider current trends and what your customers’ preferences will be in the future. If you see more and more customers requesting to pay in virtual currencies, you may have to bite the bullet sooner than later.
