The Future of Online Business: Adopting Cryptocurrency as a Payment Method
Disclaimer: The following information is not financial advice. It is recommended to seek the guidance of a financial professional for personalized financial advice.
As a businessperson, you have multiple options for receiving payments from your customers. Credit and debit cards, along with traditional payment processors like Stripe and Square, are some of the most commonly used methods. However, alternative financing options like loans from banks and credit unions are also available.
While cryptocurrency may seem like a new and unconventional form of digital currency associated with underground activities, it has gained acceptance among prominent figures in the financial world. Moreover, significant companies like Microsoft and IBM have invested heavily in this field.
How Cryptocurrency Commerce Works
A cryptocurrency is a form of digital currency that is only available online and is used for storage and exchange on the Internet. When a business decides to accept cryptocurrency as a payment method, it is included in the cryptocurrency commerce framework.
At its core, cryptocurrency is a set of binary data that is monitored using blockchain technology, which operates as a digital ledger and tracks every transaction. Cryptocurrency is safeguarded by digital cryptography, a secure messaging system that ensures data protection against theft.
In simpler terms, cryptocurrency is encrypted data that act as currency for purchasing goods and making profits through buying and selling. Furthermore, it is decentralized, implying that there are no government or banking entities involved in facilitating transactions, storing currency, or determining its value.
Utilizing peer-to-peer technology, cryptocurrency sellers can directly transfer digital currency to buyers. When engaging in cryptocurrency commerce, you can use a digital wallet to send crypto to merchants who accept your chosen form of digital currency.
Over the past decade, the popularity of cryptocurrency has grown exponentially, resulting in a diverse range of digital currencies with varying degrees of value and popularity.
Cryptocurrency can generally be classified into two categories:
Coins: These digital currencies are often limited in supply to create a perceived value.
Tokens: These digital assets are sold through exclusive contracts and increase in value as a result of this process.
Why Small Business Owners Should Consider Cryptocurrency Commerce
When considering using cryptocurrency commerce for your business, it's important to keep in mind the benefits it offers to customers. One of the most significant benefits is lower transaction fees. If you accept credit or debit card payments, you're likely familiar with the high costs of third-party processing. These fees can reduce your profits or cause you to increase prices, which may discourage customers from shopping with you. On the other hand, the transaction fees for processing payments through digital crypto payment processing services are much lower compared to traditional transactions, making them a cost-effective option for small businesses.
Expanding the payment options for customers can help increase sales and expand your customer base. By accepting a range of payment methods, including PayPal, pay-in-installment services like Affirm, debit and credit cards, and cryptocurrencies, you can cater to customers with specific payment preferences.
By accepting cryptocurrencies, you can attract customers who prefer using them, making your products or services more accessible to them. Additionally, since many shoppers worldwide use cryptocurrencies for safe online shopping, accepting them can attract international customers to your business.
Enhanced Customer Satisfaction
With the rise of cryptocurrency usage, more people are opting to invest in and pay with digital currency. Customers appreciate the added security that crypto offers for their personal data and finances while shopping online. Utilizing crypto for commerce is a modern and safer way for businesses to provide a positive shopping experience for their customers.
Protection Against Chargebacks
Unlike traditional transactions, the peer-to-peer technology that supports crypto payments prevents the payer from reversing the transaction after it has been sent. On the other hand, customers can dispute traditional charges with their bank, or banks can cancel a transaction. Accepting crypto as payment can protect small e-commerce businesses from having to chase down payments that have failed.
Faster Transaction Processing Times
In addition to secure transactions, crypto's peer-to-peer technology provides almost instant processing, resulting in quicker payment compared to traditional transactions. Furthermore, crypto can be converted into cash much faster, offering a significant advantage for businesses.
The Hidden Dangers of Cryptocurrency Commerce: Tips for Minimizing Risks
Accepting cryptocurrency payments as a business can be a risky move, so it's important to consider potential risks beforehand. The main risks to keep in mind are:
Cryptocurrency value volatility:
Since cryptocurrency lacks regulation, it's prone to sudden changes in value. These fluctuations can happen quickly and unpredictably, making it a riskier payment option for businesses.
Potential revenue loss:
Accepting cryptocurrency payments could result in revenue loss if the value of the cryptocurrency drops soon after payment acceptance. However, businesses can take measures to protect themselves from such negative impacts, including regularly monitoring changes, converting cryptocurrency to cash quickly, and keeping records of these changes.
By understanding and taking steps to mitigate these risks, businesses can make informed decisions about whether or not to accept cryptocurrency payments.
Understanding the Tax Implications of Cryptocurrency Commerce
When accepting cryptocurrency payments, businesses may face tax-related challenges due to the volatility of cryptocurrencies. Accurately documenting taxable income becomes difficult because cryptocurrencies can experience sudden and significant value fluctuations. As a business, you must meticulously record the value of cryptocurrencies at the time of payment and when converting them to cash. You should monitor your crypto's value during this period and note if you have made a profit, loss, or broke even. It is essential to keep track of this information as you may be liable to pay capital gains taxes under specific circumstances. If you hold onto your cryptocurrency payment and its value increases, you may owe taxes when you cash out.
The Challenges of Using Crypto to Pay for Business Expenses
It's not yet possible to use cryptocurrency for most business expenses, which can create some difficulties. For example, you may still need to use the traditional currency to pay for your brick-and-mortar store rent, fees for your online shop, and other business expenses.
If you decide to accept cryptocurrency payments, you will need to convert them into cash to pay for these expenses, which can add extra steps and time to your payment cycle. Furthermore, if the value of your cryptocurrency payment decreases before you convert it to cash, you may have a shortage of traditional currency to pay your expenses. This situation can be troublesome to manage since you will have to look for other sources of funds.
The Importance of Cybersecurity for Businesses
Both traditional and cryptocurrency transactions are susceptible to cybersecurity threats, which can result in data breaches and financial losses for your business and customers. Nonetheless, digital wallet applications have built-in robust online security measures, such as data encryption, and limit the percentage of crypto stored online to minimize potential losses. To boost security, multi-factor authentication can be enabled, which requires additional credentials beyond your password to log in.
In contrast to traditional currencies that are backed by governments or banks and insured by regulatory authorities such as the FDIC, cryptocurrency transactions lack such regulatory protection. This lack of oversight means that if there is a data breach, you could lose some or all of your crypto holdings. However, some crypto wallet companies are taking the initiative to develop their own insurance policies to safeguard their users' assets.
Challenges with Refunds in Cryptocurrency Transactions
Refunding customers in cryptocurrency transactions can be a complex process since there is no middleman involved. Only the recipient can send the amount back to the customer, and there are no third-party platforms available for customers to initiate refunds or cancel transactions.
If a customer is not satisfied with your products or services or encounters any issues, you may consider issuing a refund. However, you need to check your transaction records to identify who sent you the cryptocurrency and the currency's value at that time.
Once you have gathered this information, you can calculate a new amount that reflects the current value of the currency. This will ensure that you return an amount that is equal to the previous value of the cryptocurrency.
Pros and Cons of Cryptocurrency Transactions
Before deciding to implement cryptocurrency into your business, there are several factors you need to consider. It is important to keep in mind that there may be potential drawbacks to accepting cryptocurrency as a mode of payment.
One of the challenges you may face is dealing with the technology involved in accepting cryptocurrency. Initially, integrating cryptocurrency into your business may be complex, as it involves setting up a digital wallet and linking it to a bank account. You will also need to provide a widget or link that allows customers to pay with cryptocurrency.
While this may require technical skills, some e-commerce platforms such as Etsy have already integrated cryptocurrency into their systems. They provide payment portals for sellers who want to accept cryptocurrency as a mode of payment. Additionally, digital wallet applications such as Coinbase have made the process of creating a wallet easier for business owners, regardless of their technical knowledge. However, it still requires effort to set up.
Meeting Tight Requirements
In order to manage the market volatility of cryptocurrencies, it is crucial for business owners to maintain proper documentation of various details such as the date of purchase, the value on the date of purchase, the date of payment, the value on the date of payment and more for each crypto purchase. This documentation helps in tracking the cryptocurrency transactions accurately and efficiently.
One way to simplify the documentation process is by accepting cryptocurrency only for larger customer purchases. By doing so, the number of transactions to be tracked regularly is reduced, thereby minimizing logistical difficulties.
The Environmental Consequences We Need to Address
The technology that powers cryptocurrency transactions, known as a blockchain, requires a substantial amount of energy. As an example, Bitcoin, which is one of the most extensively utilized cryptocurrency networks globally, consumes 121 Terawatt-hours of electricity each year, surpassing Argentina's total electricity consumption, according to the BBC.
The rising popularity of cryptocurrencies is increasing the amount of energy required to create blocks and distribute them. This results in a significant dependence on fossil fuels, which contributes to environmental problems such as global climate change, pollution, and electronic waste.
Therefore, if your small business places a premium on environmental sustainability, it may be necessary to reconsider whether adopting cryptocurrency commerce aligns with your objective of reducing reliance on fossil fuels.
At present, the United States government and other authorities globally are developing and enforcing laws that would regulate cryptocurrency for banks and the stock market.
The absence of regulations has made it feasible to charge lower transaction fees. However, this situation may change in the future, rendering cryptocurrency unprofitable for small businesses.
Alternatively, regulations may reduce risks that affect both businesses and customers. However, it remains uncertain whether such laws will be implemented.
Essential Tips for Accepting Cryptocurrency Securely
If you've decided to integrate cryptocurrency into your e-commerce website, there are several crucial steps you must take to ensure secure acceptance of crypto payments online. Here are some of the essential steps you should follow:
Choose a reputable digital wallet or cryptocurrency payment processor. Some of the most trusted platforms include BitPay, CoinBase, CoinPayments, GoCoin, and PayPal.
Provide relevant identification documents, business address, and bank account details to verify your identity and remove transaction limitations.
Decide on your preferred currency conversion, taking into account crypto-to-traditional currency conversion rates, the currency used in your country of operation, and conversion rates from a foreign currency to your country’s currency.
Set up a unique payment link or QR code that can be used by both online and in-person customers at the point of sale. You can also use your digital wallet’s online payment widget or integrate it into your website.
Provide resources for your customers, such as guides on how to use cryptocurrency for payments and information on safety measures. You can publish this information on your website or link to your payment processor's site.
As a small business owner, keeping up-to-date with technological advancements in e-commerce is essential to stay competitive, attract customers with diverse preferences, and stay ahead of the curve. Crypadvise offers excellent solutions for creating and managing an online store that can make the process of adding cryptocurrency commerce to your site much easier.