If you’re considering accepting cryptocurrency, here are some benefits and disadvantages to offering this payment option.
[Read more: How to Accept Bitcoin Payments]
Cryptocurrency introduces different security issues
Credit card fraud is on the rise; Experian reported that about 60% of credit card holders experienced attempted fraud in 2023. And, unfortunately, small businesses are often the target of payment fraud and data breaches. Many people laud cryptocurrency as more secure.
Unlike credit card payments, data isn’t stored in a centralized hub where data breaches commonly occur. Instead, their information is stored in a crypto wallet. The blockchain general ledger is used to verify and record every transaction, making it very difficult, if not impossible, to steal someone’s identity.
However, the anonymity that cryptocurrency was initially known for may be slowly changing. Eswar Prasad, Economics Professor for Cornell University and Author of "The Future of Money: How the Digital Revolution is Transforming Currencies and Finance," told Yahoo Finance that bitcoin is becoming more centralized as it becomes more mainstream. “Anonymity is no longer the big selling point of these digital currencies anymore,” he said. Whether this shift will impact consumer adoption remains to be seen.
[Read more: What Small Businesses Need to Know About Blockchain]
Cryptocurrency transactions are irreversible
Once a cryptocurrency payment goes through, it is permanent. This can be a double-edged sword for small businesses. “Transactions can be refunded only by the party receiving the funds. Businesses that accept Bitcoin should be prepared for the possibility of customers requesting refunds, and keep track of how much money each customer has paid,” wrote Inc.
On one hand, cryptocurrency’s irreversibility helps business owners better manage their cash flow. There are no chargebacks to worry about, and if someone requires a refund, the retailer has to manually pay them back. This forces your team to keep immaculate records.
However, this process can also create inefficiency in your business operations and additional work for your employees. If you have a ton of refunds during the holiday season, for instance, your team will need to divert time and attention toward returning payments individually.
Bitcoin can lead to lower fees
Merchants are responsible for paying transaction fees, as well as setup fees for many payment processors. PayPal, for instance, charges close to 4% per transaction (and sometimes more). Cryptocurrencies charge much lower fees, if any. Some bitcoin exchanges offer fees under 1%.
Likewise, if your business serves customers overseas, cryptocurrencies can help avoid international currency payment fees. Cryptocurrencies aren’t tied to a country of origin or national bank. As a result, businesses don’t wait for payments to clear a foreign bank or pay the costs.
Regulation for crypto assets has been under consideration for some time, but there was a heightened sense of urgency after a series of bank collapses that were tied to crypto asset activities.
Ian Shine, World Economic Forum
There are tax implications
The IRS considers cryptocurrency to be “property” for tax purposes. If you accept cryptocurrency, you must report it as gross income based on its fair market value when it was received. “In other words, each time you sell, buy, or use Bitcoin, you're subject to a capital gains tax,” wrote Inc.
The IRS rules for accepting cryptocurrency also mean that you must keep track of the value for each cryptocurrency on the day it was received and the day it was sold. This can quickly get complicated, especially when managing several transactions daily. You may consider accepting cryptocurrency for items over a certain dollar value rather than for daily sales.
Cryptocurrency regulations are still changing
Rules governing the use of bitcoin range widely.
“Regulation for crypto assets has been under consideration for some time, but there was a heightened sense of urgency after a series of bank collapses that were tied to crypto asset activities,” wrote the World Economic Forum.
The uncertainty surrounding regulations of crypto introduce a new level of risk for you and your customers. It might be worth waiting to see how the federal government plans to regulate this payment method before investing in infrastructure to accept bitcoin.
How to mitigate risks when adopting cryptocurrency
If you decide to move forward and offer crypto as a way to pay at your establishment, take precautions to mitigate risk for your company and customers.
Make sure you use a reputable payment processor with built-in security features like two-factor authentication and encryption. Some experts recommend converting crypto to cash quickly: A merchant service like BitPay or Coinbase can be used to immediately exchange digital currency for cash, reducing exposure to price volatility. And you should monitor your transactions to help ensure you detect suspicious activities promptly.
In addition, regular training and education can help employees prevent unauthorized access or identity theft attempts. Keep everyone up-to-date on cryptocurrency regulations and threats. Maintain detailed transaction records to manage refunds and comply with tax regulations.
When you’re just starting out, you may want to consider accepting cryptocurrency only for transactions above a certain value to minimize risks for smaller purchases. Likewise, only accept multiple established cryptocurrencies to spread risk and appeal to a broader customer base. Over time, you can expand your crypto acceptance to meet demand.
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