Is Accepting Cryptocurrency Right for Your Business?
The thing about entrepreneurs is that they love new stuff, so you may have already started accepting cryptocurrency or you are checking it out. There are not that many small businesses that should feel pressured to do so, as crypto is still in its infancy for normal consumer transactions.
Why Accept Cryptocurrency?
If you are not receiving a significant number of customer requests to pay with crypto, you have plenty of time to investigate it. If you are beginning to get requests, there are other reasons to consider getting started:
- Faster payments at a lower cost – you avoid the delays of getting funds deposited when using normal credit card processing. Your funds with crypto are available immediately.
- Fraud and Dispute Prevention – with most services, once your crypto hits your account, which is immediately, it is real and not subject to disputes.
- Lower transaction fees – depending on the service and cryptocurrency accepted, fees are lower than credit card processing fees, sometimes lower than 1%.
- Avoid chargebacks – unlike accepting credit card payments, once your funds are deposited, they are not available to the processor or vendors for chargeback; they are secure.
- Go international – many small businesses throw away international business due to the complexity of transactions and the expense. With crypto, there are no borders.
If these benefits are of interest, there are no significant barriers to entry involved in accepting cryptocurrencies.
How Cryptocurrency Works
Unlike gold and silver with their inherent usage characteristics, cryptocurrency is not physical in nature. Its value is derived solely through supply and demand. Depending on the amount of a specific cryptocurrency and the number of people who want to buy it, the value will fluctuate.
Balanced supply and demand = relatively stable value.
Low supply compared to demand = rising value.
Higher supply compared to demand = falling value.
There are several services available to hold your cryptocurrency and facilitate transactions to move from dollars to crypto and vice versa. It is easy, fast, and all online. They refer to the location of the crypto and other currency as the user’s Wallet.
Digital wallets hold the crypto and dollars in this example, maintaining a running value for the crypto based on current markets where crypto is bought and sold. The wallet is where you can deposit dollars and convert them to crypto or convert crypto back to dollars. There are two types of wallets, hot or cold.
The hot storage is connected to the Internet allowing immediate transactions online. Cold storage would be on a storage device such as a thumb drive or USB drive for portability. While services employ varying levels of security, some people prefer not to leave all their cryptocurrency holdings in hot storage on the Internet to avoid the chance of hacking. They move some to cold storage and put it back in hot when they need it.
Tax Considerations for Cryptocurrency Accounts
Well, you know who else is involved; it is the IRS. If you hold crypto without converting it immediately to cash when received, any gains in value are considered taxable. Consult with your tax professional to see how to keep up with transactions, hold times, gains, and losses.
Whether you are ready now or not, at some point your customers will demand that you accept cryptocurrency in your business.