A growing number of companies around the world are using digital assets like bitcoin for different investment, transaction, and operational purposes.
Cryptocurrency has potentially significant implications in the business world. Bitcoin is the most popular, with just above 42% of the market share among more than 10,000 cryptocurrencies. The value of Bitcoin today hovers around $40,000, and some analysts think the value could go to $100,000.
Related Post:Digital Wallet for Crypto: Your Complete Guide 2022
Regardless of how you feel about bitcoin and crypto as investments, it’s undeniable that there are implications for business.
The following are some of the things business owners should know and understand about crypto to remain competitive and well-informed going forward.
The Basics of Crypto
Cryptocurrency is a digital medium of exchange, allowing for direct transactions without a third-party processor. Currently, these currencies aren’t regulated or backed by a government.
The medium of exchange relies on peer-to-peer blockchain technology since it is decentralized. A buyer can transfer funds directly to a seller without the need for the third parties that are typically required for payment processing.
These transactions cut out the so-called middleman in a transaction.
You aren’t storing your money somewhere where you require that another organization safeguards it. You’re holding onto it via encryption, and only you have a key to it.
There are stories every day about hacking situations and data breaches, so some business owners may see an appeal to crypto because of the security it can offer.
Crypto digital assets are created using software that allows for security ownership and trading.
Bitcoin and the majority of other available currencies are supported by blockchain. Blockchain maintains a ledger of transactions that can’t be changed.
Many cryptocurrencies are created through mining, which is what bitcoin uses. This energy-intensive process uses computers to solve puzzles to verify whether or not a transaction is authentic. The owners of the computer get a reward for their work, as newly created cryptocurrencies.
For people new to it, there are a lot of ways to buy cryptocurrency, the most popular of which is through a centralized exchange.
Some online brokers also include access to crypto as well as stocks.
After someone decides to buy crypto and they figure out which currencies to invest in, they have to decide how to store it.
One option is on-platform storage, where a thirdparty manages storage. You don’t have to keep your own private keys, and all of the information is available when you log in. The downside is that if there is a breach or someone hacks your particular credentials, your crypto is at risk.
Noncustodial wallets are a more secure option, and they’re divided into hot and cold wallets. Hot wallets are someone connected to the internet, and cold wallets are physical offline devices. They can’t be reachable by anyone who doesn’t physically possess them.
Bitcoin is increasingly seen as legitimate, as are some other cryptocurrencies. In Japan, for example, bitcoin became recognized as a legal form of payment.
Government validation isn’t the only factor that appears to be driving bitcoin prices higher.
New investments such as funds made up of cryptocurrencies are appearing, and some startups are raising funding by issuing initial coin offerings. What that means is that instead of selling stock, they’re selling bitcoins.
Hundreds of startups at this point are offering investors crypto in exchange for capital.
That means there are investors who are stuck with coins they aren’t able to cash out, though.
The Financial Industry Regulatory Association is urging investors in ICOs to make sure their trade clearly outlines how they’ll get their money back, whether or not they can cash in tokens for a refund, or whether they can resell the coins in a secondary market.
Since the market isn’t regulated, recovering investments due to fraud or theft is limited.
Should Your Business Accept Crypto?
There are plenty of high-profile businesses that accept crypto payments, including PayPal, Microsoft, and Overstock. Less tech-driven companies that are adopting it include Home Depot and Whole Foods.
While big-name companies make headlines when they decide to start accepting crypto, there are also thousands of small businesses around the world that take these payments.
For an existing business, accepting bitcoin or crypto payments can be appealing because they’re faster, cheaper payments. Crypto payments can also open up the availability of new business models.
When you bring access costs down, it’s possible to see new businesses that didn’t exist before.
Upsides for businesses thinking about accepting crypto include:
- Lower transaction fees—since there’s not a middleman, you can significantly reduce transaction fees. For a small business that takes credit card payments through processing companies, you could see a fee of around $0.25 for each card swipe and 2-4% of the total transaction. The costs add up fast, which is why small businesses and retailers often have to purchase minimums for card payments on their POS systems. If you’re a small business that takes crypto, you might be able to reduce the costs to less than 1% of the value of every transaction.
- The decentralized element of crypto allows merchants to protect themselves against fraudulent chargebacks. Transactions, like cash, are final because a thirdparty can’t reverse them.
- Some small businesses may find an increase in sales when they accept crypto. For example, maybe you can begin to sell to international consumers who otherwise couldn’t access your services or products.
- Customers may prefer to work with businesses that accept crypto.
While there are pros for businesses, there are also possible risks and downsides that you have to consider.
- There are technical considerations that can become barriers. When you accept crypto, you have to set up a digital wallet on digital currency exchange. If you’re not familiar with the technology as a small business owner, there can be a learning curve. There’s a lot of information to learn about before you get involved in crypto in any way, and if you’re already stretched thin running a business, this can become prohibitive.
- Crypto is incredibly volatile. There can be massive swings in the price, so the value is inherently unpredictable. You’ll have to figure out how to translate your crypto into your currency of record because of the volatility. You’ll want to have a system for doing this regularly and quickly. There are merchant service companies that offer these services and help businesses protect against volatility. The only reason you’d hold crypto as a business is for speculative investment.
- There are reduced security threats in some ways when dealing with crypto. For example, it eliminates the potential for stolen credit card numbers. Even so, it’s not completely immune from cybersecurity threats.
- If you accept crypto as a business, you have to deal with not only the uncertainty surrounding its value but also the uncertain regulatory environment. Lawmakers are working on regulations to govern crypto, and then when those are fully in place, you’ll have to adapt to whatever they are.
Also Read: Online Gambling In Australia
How Can You Accept Cryptocurrencies?
Maybe you’ve weighed the pros and cons and decided accepting crypto is something you want for your business.
If so, you have to take a few steps to get it all set up.
You’ll have to first decide whether you’re going to manually accept payments or if you want to use a processor. If you use a processor, it can make it easier.
If you do it manually, you have to create an account with a crypto exchange, and that’s the place customers will send payments.
Then you can add the function to your website so customers can send crypto to your account on the exchange. You from there will have to take steps to withdraw the crypto from the exchange account by moving it to a digital wallet or exchanging it for dollars.
You don’t need a third-party processor, and that is the cheapest option. Bitcoin, as an example, is free to receive and send.
Creating a workflow for payments is time-consuming, though, and you need some technical knowledge to do it.
Something else that you have to specifically think about is the types of cryptocurrencies you’ll accept since there are thousands. You might want to accept Bitcoin and then something else or a few other currencies.
You should speak to your accountant before you jump into crypto payments because you need to know the tax implications, especially if you plan to hold onto the crypto that you receive as payments. You’ll also want to think about how information from your POS system gets to your accountant. If you use a cloud-based system, you’ll need to make sure the crypto payments tool you choose integrates with it.
Operational considerations that you’ll have to address as a business owner will also include the training your staff will need and whether you’ll be prepared to answer the questions of your customers. You’ll have to think about whether there are elements of customer service that will have to be revamped as the process for issuing refunds.
Finally, you’ll also want to be able to answer how your payments tool for crypto will work with your current system or practices for inventory and reporting.