Cryptocurrency allows for direct transactions with no third-party processors. The government doesn’t regulate or back cryptocurrencies. Cryptocurrency can be used to pay for your business, but it may also lower transaction fees.
This article was written for entrepreneurs and small-business owners who are interested in cryptocurrency payment.
With wild price fluctuations almost every day, cryptocurrency is everywhere. This medium of exchange has been around for more than 10 years and is finally making its way into the mainstream. Cryptocurrency can now be traded 24/7. According to data from Skynova, more than 30% of small businesses in the United States now accept it.
Is cryptocurrency the right choice for your small business? Before accepting cryptocurrency, there are many important considerations that you should consider. We will discuss all aspects of cryptocurrency small businesses should take into consideration and examine how blockchain startups are pushing the space forward.
What is cryptocurrency?
Cryptocurrency, a digital currency that uses peer-to-peer Blockchain technology to exchange money, is decentralized. This means that crypto is not regulated by any central bank or government. Without the need for third parties to process payments, buyers can transfer funds directly to sellers.
“Cryptocurrencies cut the middleman in transactions,” stated Chris Poelma the CEO and board director at PCS Software Inc.You don’t want to store your money in a place that is dependent on you or an organization to protect it. Instead, you keep it safe through encryption which only you have the key. We hear more stories about hackers and data breaches. Consumers looking for a safer way of doing business will find cryptocurrencies more appealing.
Many reasons might lead small businesses to accept cryptocurrency. It is at the forefront of technology, can be attractive to customers who use it, and eliminates fraud. Is it the right choice for you?
Advantages of accepting cryptocurrency
Cryptocurrencies offer many primary benefits over the traditional point of sale (POS) systems.
Fewer transaction fees
Without a central intermediary, transaction fees are dramatically reduced. Accepting credit card payments through credit card processing companies can often charge small businesses fees of between 25c and 4% for each swipe. These fees add up quickly, so smaller shops often require credit card minimum purchases on their POS systems. These costs can be reduced to less than 1% by accepting crypto.
Crypto’s decentralized structure also protects merchants against fraudulent chargebacks. Transactions are like cash and cannot be reversed by third parties. To protect your business from fraudulent chargebacks, learn more about credit cards receipt signatures.
The use of crypto allows small businesses to grow and open up to international customers who were previously unable to access their products or services. One small electronics retailer reported that it was able to sell $300,000.00 worth of merchandise in just 40 countries through cryptocurrency.
Convenience for customers
Customers will appreciate the convenience of accepting cryptocurrency. This allows customers to pay in a variety of ways and also provides additional protection for their personal information.
Disadvantages of accepting cryptocurrency
There are downsides to cryptocurrency. These are the potential risks associated with accepting cryptocurrency.
To accept cryptocurrency, you need to set up a digital bank on currency exchange. This could prove prohibitive for small businesses that are not familiar with the technology. Cryptocurrency can be an overwhelming field of information with a steep learning curve. This can make it difficult to manage a business.
Serge Beck, founder, and CEO of Optherium, a blockchain ecosystem company, stated that cryptocurrency acceptance would be difficult for small businesses. “The volatility of cryptocurrencies, even without technical hurdles, is still a barrier to entrepreneurs holding digital currencies.”
Price volatility is the greatest risk associated with digital currency. This makes its value highly unpredictable. Bitcoin, for example, was initially valued at pennies in 2009. However, its value soared to over $65,000 per coin by February 2021.
Areiel Wolanow is managing director at consulting firm Finserv Experts. He stated that “you will need to make some arrangement for translating your cryptocurrency into your currency of choice.” “Cryptocurrencies can be volatile so you’ll want to do it quickly and frequently.”
A merchant service company like Coinbase or BitPay can help small businesses protect themselves against volatility by instantly exchanging digital currency for cash value. These services allow cryptocurrency payments to be made instantly for current currency value.
Wolanow stated that the only reason a business would hold onto cryptocurrency is to make speculative investments. However, this amounts to gambling with your income stream.
While cryptocurrency transactions are free from cyber threats such as stolen credit card numbers and theft, it is still not 100% secure from cybersecurity threats. There is currently no way to prevent cybercriminals from getting into users’ wallets. This is especially dangerous as cryptocurrencies, unlike fiat currencies such as the U.S. Dollar and the Euro, are not insured or backed.
Some cryptocurrency companies are trying to change this. Coinbase is one example. It holds less than 2% digital currency online from customers. In the event of a breach, it fully insures the losses. FDIC insurance is required for all fiat currencies on Coinbase. This includes up to $250,000 of conventional bank deposits.
These protections do not apply to your personal wallet if it is hacked. While you are responsible for protecting your personal account, you can rest assured that your funds will be safe if the company is attacked.
The security of wallets is also a topic that companies are working on. Beck says that Optherium uses a biometric verification system to identify users based on facial structure. This allows them to grant access to wallets, which significantly reduces the ability of thieves to steal assets. This allows users to reconstitute their wallets if access is lost.
Uncertainty in regulatory matters
Accepting cryptocurrency has another problem. The regulatory landscape is likely to change rapidly. It is currently being regulated by lawmakers. They will likely change as regulations become effective, and business owners will need to adapt.
Poelma stated that cryptocurrencies are still relatively new and there is a lot of uncertainty about how the government will regulate them. “Indeed new regulations could be passed as soon as you read this. Cryptocurrency will not be accepted by all businesses until they are confident that they understand how to report gains on cryptocurrency transactions and pay the appropriate taxes.
As cryptocurrency adoption grows, new problems and challenges will arise, and so will the regulation of cryptocurrency.
How to accept cryptocurrency
There are several steps to follow if you want to accept cryptocurrency. The process is very similar to setting up a credit card processing business.
First, decide whether you want to use a payment processor or accept payments manually. To accept payments, a processor will make the process easier.
You can also accept cryptocurrency payments manually to your small business, but this is more difficult. To enable customers to send you money, you will need to first create an account on a cryptocurrency exchange such as Coinbase. You can then add functionality to your website, such as a QR Code, so customers can send cryptocurrency to your exchange account.
You will need to withdraw crypto from your exchange account by either moving it to a digital account or exchanging it in dollars. The funds can then be transferred to your bank account.