In 2010, a programmer named Laszlo Hanyecz made history by participating in the first-ever cryptocurrency commercial transaction: he used 10,000 bitcoin to purchase two pizzas. Today, this event is celebrated as “Bitcoin Pizza Day” and the value of those pizzas has skyrocketed to over $170 million. While bitcoin and other digital currencies have become increasingly mainstream in the worlds of technology and investing, businesses that accept them as payment still remain a bit exotic. However, with the evolution of cryptocurrency following typical technology adoption curves, businesses may soon need to join the growing number of early adopters who accept digital currencies as payment.
Deciding whether or not to accept cryptocurrency as payment for goods and services is a personal business decision that depends greatly on goals and appetite for risk. In this article, we will explore the pros and cons of accepting cryptocurrency and the steps involved in setting up a business to accept payments in digital currency.
Pros of Accepting Cryptocurrency:
1. Payments are irreversible: Unlike transactions processed through a traditional third-party payment processor, crypto payments are irreversible. This means businesses have added protection against baseless fraud claims, as only the business receiving payment can issue a refund.
2. No payment processing fees: Digital currencies do not flow through banks or other third parties, eliminating processing fees that come with traditional payment methods, such as credit cards. Although businesses will pay fees for converting digital currency to fiat currency, merchant services providers like Coinbase offer immediate digital currency-to-cash exchanges for a fee.
3. Opens businesses to new markets: Accepting cryptocurrency can open businesses to new markets both domestically and overseas. The tight-knit cryptocurrency community tends to support businesses that enter the industry, making overseas sales more feasible and affordable by eliminating high fees and transaction costs that come with traditional currencies.
Cons of Accepting Cryptocurrency:
1. Regulatory and tax uncertainties: Currently, Internal Revenue Service (IRS) treats cryptocurrency as property for federal income tax purposes. This means business owners must maintain careful records of transactions and recognize any capital gains or losses associated with exchanging cryptocurrency for fiat currency.
2. Crypto price volatility: Although some entrepreneurs view cryptocurrency’s price volatility as a value proposition, others find it terrifying. Businesses must consider whether they are willing to take on the risk of fluctuations in cryptocurrency prices when they decide to accept it as payment.
3. A risk to consider: Businesses with regulatory schemes in place that affect payment processing may find it difficult to accept cryptocurrency payments. It is important to understand the impact of accepting digital currency payments on existing regulatory requirements.
Steps to Accept Cryptocurrency:
1. Establish a Crypto Wallet: This is like a bank account that businesses use to send and receive digital money. Careful consideration should be given to wallet security because keeping crypto offline, or “cold,” is more secure than keeping it online, or “hot.”
2. Choose a Payment Processor: A payment processor converts cryptocurrency into fiat currency, like Coinbase or BitPay.
3. Determine Payment Acceptance Process: Finally, businesses must figure out how to accept cryptocurrency payments such as through a website or physical location.
In conclusion, whether a business should accept cryptocurrency as payment depends on the business owner’s goals and appetite for risk-taking. Cryptocurrency payments are irreversible and exempt from payment processing fees, which can open businesses to new markets. However, regulatory and tax ambiguities and price volatility may deter some businesses from accepting it. Despite these factors, cryptocurrency remains an emerging market that businesses should consider when deciding whether to accept it for payment.