As a business, when thinking about payment methods, your mind will automatically go to cash, credit cards, and bank transfers – as well as more recent options like PayPal and Apple Pay. This is unsurprising, as they offer both a low level of risk to your business, and a high level of convenience to your customers.
Indispensable though it may have become, PayPal really hasn’t been around that long. And once upon a time, accepting payments through an intermediary service – which is, essentially, what the likes of PayPal and Apple Pay are – was considered risky and expensive.
The same adjustment process is currently underway with the new kid on the block: cryptocurrency.
The purpose of this post is to dig a little deeper into the brave new world of cryptocurrency, and to find out whether or not it could be a good fit for your business.
What is Cryptocurrency?
Cryptocurrency is a digital asset. Its value for business, though, is that it has been designed with cryptographic protocols that make transactions extremely secure and very difficult to fake, all without the need for an intermediary like a bank.
Crypto is different from other forms of currency because, rather than the central banking system we are familiar with, it makes use of decentralized control. That means that it is not controlled by a central authority and cannot be directly affected by interference, or controlled by the government.
Cryptocurrencies use a peer-to-peer network to prevent double payments – a problem often encountered with digital currency in the past. The first and most well-known cryptocurrency is Bitcoin, which was invented by Satoshi Nakamoto in 2008.
Though they might have heard about Bitcoin on the news or read an article on the web, many people are still unfamiliar with the concept of digital currency. One of the most common misconceptions is that it is only for investing; with the majority of people unaware of the day-to-day transaction capabilities of crypto.
To use cryptocurrency, you need to have a cryptocurrency wallet. This can be in the form of a software or application which is used to store public and private keys, as well as unique identifiers that mark ownership of tokens.
These wallets are a similar concept to bank accounts, only they are decentralized and unregulated. Most digital wallets are dedicated to a specific currency (like Bitcoin), so they are only compatible with storing and spending the single currency they were designed to hold. This type of digital wallet is usually owned by individuals and investors who work with a single cryptocurrency.
There are, however, other wallets available, and they can accommodate multiple currencies at the same time. These are much more convenient for businesses, who might decide they want to work within a range of different currencies.
Digital wallets for cryptocurrency can come in the form of a “soft wallet” or a hard wallet. A soft wallet is easy to understand because is it often the same as the platform used to buy your crypto coin of choice.
When you open an account through an exchange like Coinbase you have also created a wallet. You can exchange one type of digital coin for another or for your local currency (like BTC to $USD) within the site. Your digital wallet will still have a secure key you use to complete transactions and two-factor authentication (2FA) for log-in.
You can also keep a soft wallet on your phone or computer with apps like Jaxx or the Coinbase mobile app. If you use online banking, you can use a soft wallet just as easily. Each platform has different features and abilities so you can decide which is best for your business and its transaction needs.
A hard wallet is a physical device like a flash drive that is used to manage private keys. Since your private key is stored offline, it is safe from hackers or anyone with unauthorized access to your soft wallet. I know we’ve all had some unreliable flash drives quit working. The beauty of a hard wallet is the user’s ability to create a code that can recover lost keys plus a pin for access.
This is a great way to hold large amounts of bitcoin or other crypto, especially as a long-term investor or if you hold large amounts of crypto. Otherwise, soft wallets are the best way to use cryptocurrency in your business if you complete multiple smaller transactions or don’t need massive or long-term storage.
Different wallets also offer different storage options. The Ledger Nano X and Trezor Model T offer storage for up to thirty different crypto coins on top of BTC and offer easy set-up.
Cryptocurrency and Businesses
In the past several years cryptocurrency has gained immense popularity, not just among individuals, but businesses, too. The decision to use cryptocurrency is slightly more involved for businesses compared to individuals, since there are more people and business assets involved, but that doesn’t mean that it isn’t worthwhile.
In fact, businesses actually have more options for involving themselves with cryptocurrencies, including a few that individuals might not have access to.
Many businesses are now turning to cryptocurrency as a possible payment method, because they are beginning to take notice of the vast number of benefits it offers – in terms of cost, speed, and security to name just a few.
What’s more, businesses today are becoming increasingly conscious about keeping up to date with new technologies – especially ones that can improve how their business operates, while offering customers an even greater range of payment options.
Why Should Your Business Use Cryptocurrency?
As with any new technology, what works perfectly for one business could be completely wrong for another. It’s therefore important to evaluate and weigh-up the pros and cons of adopting cryptocurrency – or any new technology, whether it is software or new hairdryers – before actually implementing it in your business.
Some of the main aspects that businesses look at include: costs, the time it takes to process a transaction, whether or not it is easily accessible for both the business and its customers, and the security of the transactions when using this payment method.
Here are some of the reasons why cryptocurrency is ideal for businesses to adopt as a chief method of payment:
1. Save on Transaction Costs
Banking costs can make a severe dent in business profits, particularly when card processing fees are involved. All traditional banks charge businesses a fee for processing card transactions – the most common form of payment – which can have a devastating effect on profits, especially for small businesses.
Since cryptocurrency is a decentralized entity and there is no regulatory or governmental body to manage the system, there is no one to collect these types of fees.
By using cryptocurrency for monetary transactions, businesses are able cut out these middleman bank charges and fees, and save what amount to large sums of money on an annual basis.
2. Quicker Transaction Times
With traditional bank payments, there is often a long waiting period before funds are cleared. Even if the payment leaves the customer’s account right away, it can take several days for the business to be paid for their goods or services.
There is no waiting period like this when using cryptocurrency. Transactions are cleared in real time, sometimes within a minute or two.
Thanks to this quicker transaction time, businesses can work with instant payments – which often has the positive side effect of improving customer service. This also helps in managing business finances in a more accurate and effective way.
As well as faster transactions, businesses also benefit from increased security with regards to fraud and chargebacks, as discussed below. Do take note that some currencies might take a little longer than others to process.
With new advancements and the increasing popularity of cryptocurrencies, purchasing it and getting it funded by the US banks is actually getting easier. The reduction in the purchase period – from 3-5 days, to ‘instant’ – means there is now no volatility risk of the currency a business deals in.
3. Fraud and Chargeback Protection
There can be no argument that security is a top priority for businesses when it comes to money coming in and going out of company accounts.
Since cryptocurrency transactions are supported by blockchain technology, transfers are final and cannot be reversed or canceled after a transaction has been made. This means that, at least for businesses, security is much greater than traditional banks have been able to provide.
Transactions cannot be overridden or canceled as the funds are almost instantly added to the blockchain, through a process called mining.
What’s more, since cryptocurrencies do not offer loans and debt is a non-existent concept, it is impossible to spend what you do not have. This it enormously beneficial in preventing both fraud and chargebacks, and makes monetary transactions simpler and more clear-cut.
4. Worldwide Access
One of the greatest benefits of cryptocurrency is that it has the potential to be a global currency. This means that there are no boundaries to using one’s digital assets, as has often been the case for those attempting to use traditional forms of currency inside or out with specific geographical locations.
Cryptocurrency eliminates the obstacles of cash flow on a global scale. This makes business easier for global companies, while also eliminating the high costs associated with exchange rates and the inevitable waiting times for processing international transactions.
Cryptocurrency thus creates a bigger audience for your business, at more affordable rates.
5. Increasing Conversion Rates and Reaching New Markets
Since the user-base of cryptocurrencies continues to grow dramatically, with up to thousands of new digital wallets being created daily, cryptocurrency no longer belongs to a niche community. The digital payment market is expected to reach 726 billion by 2020.
Many people are now opting for cryptocurrency as their main means of transaction, because it offers increased security at a lower cost. This opens up new opportunities for businesses who choose to use cryptocurrency as a payment method, broadening their market of potential customers and potentially increasing conversion rates.
To give you some context, at any given moment, as many as 25% of consumers abandon their online shopping cart because their preferred method of payment is not available. Adding cryptocurrency as a payment option for customers could both have a positive impact your conversions and increase sales.
Bitcoin ATM locations are even beginning to appear to make it easier for customers to purchase bitcoin or altcoins to use in transactions.
How Your Business Can Start Accepting Bitcoin
Since Bitcoin users often go out of their way to support businesses that offer Bitcoin payment options – there are even continually updated lists of retailers who accept cryptocurrency payments – this has the potential to be a lucrative opportunity.
To start this process, you need to first create a Bitcoin wallet. The wallet acts as an address, to which customers will send their money when paying for goods. Think of it as an email address, because it works in much the same way: enter an address, punch in the amount to be paid, and press the ‘send’ button.
Alternatively, you could make use of a QR code – customers can then scan the code with their smartphone, which sends them directly to your address.
If you process a large number of transactions over the course of a single day, or direct payments are not easy to implement in your current business set up, you could opt to use a payment processor instead.
Payment Processors and Exchanges
Two of the most popular payment processors are CoinBase and BitPay. These processors do charge a processing fee. However, it is much cheaper than the rates charged by banks or by PayPal. Certain processors even have the functionality to convert your cryptocurrency into your local currency at the end of the day, if you don’t want to keep your assets in digital form.
You can also open an account at a larger exchange like Binance if you want the flexibility to trade your cryptocurrency for others that might not be listed elsewhere. Binance lists over 150 different crypto coins and offers similarly low transaction fees when trading one for another. You can even opt to store some of your funds in their own Binance Coin (BNB) and use it for even lower transaction fees.
Once you are all set up, you can start advertising that you accept Bitcoin in store, online, or anywhere else your customers interact with your business. You should also speak with your accountant to determine how any accounting or book-keeping activities might need to change with the incorporation of cryptocurrency payments.
So, is Cryptocurrency a Good Option for Small Businesses?
While corporate giants might be able to incorporate cryptocurrency payments seamlessly, small businesses seem to be a little more skeptical. But, as we have discussed, cryptocurrency can be a huge cost saver when it comes to bank fees. Cost-saving is, of course, a huge benefit for small businesses – especially those with relatively small margins.
On the other side of the (bit)coin, small businesses do have a much smaller customer base – so careful assessment is required. Depending on the type of business and its captive market, the chances there are cryptocurrency users among them could be quite small.
In terms of transaction speed, many small businesses may not have large amounts of capital lying around, so the possibility of receiving funds immediately can make a huge difference when it comes to covering daily costs of operation.
One way in which cryptocurrency might not be a good option for small businesses is the high volatility. In case of a huge crypto-crash, small business owners who keep profits as digital assets could potentially lose everything in a matter of seconds. It’s worth remembering, though, that some wallets can convert cryptocurrency to cash automatically after each transaction (or at the end of the day), which offers some insurance against volatility.
To determine whether or not your small business should accept cryptocurrency, a general rule of thumb is as follows: business-to-consumer type businesses should offer a crypto payment option, while business-to-business operations should hold off for a while until there is more certainty around the future of cryptocurrency. This may change in the future with the new Facebook Libra coin, but for now it’s a good adage to live by.
The Disadvantages of Cryptocurrency
While the general consensus on cryptocurrency is quite positive, there are a few dangers and disadvantages to consider.
As with all other online payment options, you need to practice a level of care and precaution when making cryptocurrency transactions. The first disadvantage to consider is the possible lack of security with some crypto wallets. Digital wallets, which are necessary to receive funds, have unfortunately proven to be less secure that most users would like.
Second, the cryptocurrency space is notorious for being extremely volatile, even though payouts are based on a dollar conversion rate. Although ways to make digital assets price-secure are emerging, this concept is still in the development stages. Although this might be attractive to investors, it is not a great selling point for business owners – especially those with low-profit margins or high operating costs.
Third, laws may vary from country to country, since each country has the right to their own sovereignty. This means that your country can govern how cryptocurrencies can be used within its border, as well as how they will be taxed. So, even though operating costs are much lower with cryptocurrency, local taxes can make it an expensive exercise.
Last, while the idea of cryptocurrency being an unregulated entity (and all the benefits that go along with that) may be attractive to many, it does mean there is some level of uncertainty for businesses. There is no telling what will happen in the future, and whether limitations on investments or tax increases on cryptocurrencies might be implemented.
As it stands in the United States, the IRS classifies cryptocurrency as property rather than income when it comes to income tax. This can make taxes and accounting a little more difficult, so it’s worth finding someone who is familiar with cryptocurrency and taxation – and doing some research yourself – before committing to crypto payments for your business.
Overall, cryptocurrency provides an incredible opportunity for business that want to expand their market and grow their company. With benefits like lower costs, faster transactions times, and increased security, there is really no reason why more businesses shouldn’t be using cryptocurrency as a payment option.
Cryptocurrency has been proven to have a positive effect on the bottom line of many large businesses, which is a fantastic USP. But they aren’t the only ones to benefit: cyrpto is also a very attractive option for entrepreneurs who want to reduce their costs and build up a successful business.