Cryptocurrencies and crypto assets have grown from being a niche asset class to a broad financial system with significant real-world implications. With the rapid growth of initial coin offerings (ICOs), cryptocurrency exchange platforms, and merchants that accept digital assets as payment, it’s getting harder for businesses to ignore cryptocurrencies. In fact, over 90% of businesses in the US have at least one employee who frequently deals with cryptocurrencies on their business premises. It’s not hard to see why so many businesses are jumping on the crypto bandwagon — they offer immense benefits. But just because so many businesses are embracing cryptocurrency doesn’t mean that you should too. Here we explain whether accepting cryptocurrency is right for your business and walk you through the risks involved.
What is cryptocurrency?
Cryptocurrency is a digital asset that uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular digital currency. Cryptocurrencies exist only in cyberspace and represent value that is stored in digital records, not physical money. In other words, cryptocurrency is a decentralized form of digital currency in which encryption techniques are used to regulate the generation and transfer of units of currency. There are many cryptocurrencies, with Bitcoin being the most popular.
Advantages of Accepting Cryptocurrency
You may be wondering what the benefits of accepting cryptocurrency are. Here’s a list of some of the advantages: -Lower transaction fees -Easier to process transactions -Increased accessibility -Faster transactions (for payments and settlements) -Potentially more transparency -Higher security than traditional banks -No chargebacks or credit card fraud risks -Larger market with low barriers for entry
Risks of Accepting Cryptocurrency
Cryptocurrency is a volatile and speculative asset class, so investing in it comes with significant risks. For example, the price of Bitcoin was around USD $7000 on January 1st 2019 but has since plummeted to the current USD $3200. This means that if you invest in Bitcoin now, your investment will decrease significantly over time when compared to what it would have been worth in 2009. Another risk is that cryptocurrency is plagued with volatility. Although cryptocurrency’s price can go up as much as 1000% in a year, it can also drop by as much as 50%. The price of Bitcoin fluctuates wildly because cryptocurrencies are not issued by central banks or backed by anything other than their own market demand and community opinion — making them extremely volatile assets. Furthermore, incorporating cryptocurrency into your business involves risk due to its lack of regulation and anonymity. Cryptocurrencies are anonymous, meaning that the identity of who owns which coins cannot be tracked. This leads to an increase in fraud attempts; for example, hackers stole some $500 million worth of Ethereum in November 2018 after one individual found a vulnerability with the smart contract system that allowed him to steal more than $50 million worth of tokens from investors. There have also been cases where investors have lost thousands of dollars because they sent their private key to someone else without realizing it. Lastly, there are significant tax implications associated with cryptocurrencies. As cryptocurrencies are treated like property instead of currency, they must be reported as such on a company
Is cryptocurrency right for your business?
The truth of the matter is that cryptocurrency is not right for every business. For some, it’s a great solution to accept digital assets in payment and get paid in a faster way. But for others, it can be too complicated and costly to integrate blockchain or crypto transactions into their financial systems. If your business falls into the category of those who can benefit from cryptocurrencies, that doesn’t mean you should take them all the way. The risk of accepting digital currencies is high as there are no guarantees that crypto prices will rise even at the best of times. Plus, there are also other serious risks involved with taking crypto payments such as hackers being able to steal your private keys and make fraudulent transactions on your behalf or getting hacked and losing customer information.
Bottom line
: Is your business the right fit for cryptocurrency?
If you’re wondering whether accepting cryptocurrency is a smart move for your business, here are some points to consider.
- If you accept cryptocurrencies as payment and don’t convert them into fiat currency, you will incur greater costs in the form of transaction fees.
- On the flip side, accepting cryptocurrencies could also increase your sales volume by attracting more customers who are willing to pay with digital assets.
- Cryptocurrencies can be volatile, so if you have an unpredictable budget or you have significant expenses, then it might not be wise to accept cryptocurrencies in payment.
- For example, cryptocurrency prices fluctuate all the time — but this means that they can change at any time. If you accept bitcoin as payment and price collapses after your customer makes a purchase from you, you might end up being out of pocket on the transaction fee that was required to process the order. In addition, it might be difficult for your customer to cancel their purchase due to this volatility.
