One of the biggest questions facing businesses today is whether or not they should accept cryptocurrency as a valid payment method from customers. While cryptocurrency is innovative and revolutionizing the types of currency available to businesses, it’s a volatile currency that comes with a significant amount of risk. To help you decide whether to accept cryptocurrency, you should have a general understanding of how cryptocurrency works, along with its advantages and disadvantages.
How is Cryptocurrency Changing the Game?
As a digital exchange currency, cryptocurrency uses cryptography to transfer the currency from one party to another over the internet. Unlike regular money that is regulated and managed by whichever government issues it, a computer network that runs open-source code manages cryptocurrency. People can only find cryptocurrency digitally, contrasting more traditional currency that has physical bills and coins.
Additionally, cryptocurrency differs from the traditional way currency holds value. Instead of relying on public confidence in the government that issues the currency, it mainly holds value through supply and demand. As companies view traditional currency as more stable, it’s accepted by almost all businesses as valid payment, while only select businesses will accept cryptocurrency as appropriate payment.
Since cryptocurrency differs so much from traditional currency, businesses often look at it with a skeptical eye. However, more and more companies are starting to accept Bitcoin and other popular cryptocurrencies due to the way it holds value and its open-sourced nature. Cryptocurrency could lead to a currency revolution, and many businesses want to be a part of it.
Should Businesses Accept Cryptocurrency?
When cryptocurrency first hit the market, businesses didn’t know what to make of it. Should they accept XRP or Bitcoin? What about Ethereum? How would they even go about accepting it if they did want to use it as a valid currency in their store or office?
All of these questions, among many others, made it so that only the boldest companies went forward with accepting cryptocurrency at first. Now, those numbers have increased with many major companies, like Whole Foods, Starbucks and Nordstrom, all accepting cryptocurrency as a valid form of payment.
As cryptocurrency is so innovative and has a steady group of users who are devoted to using it, it’s a type of currency that businesses should consider accepting. However, businesses should only take it after they run a cost-benefit analysis on its application in your company. It’s crucial to carefully weigh the advantages and disadvantages of cryptocurrency before you make a decision.
Advantages of Cryptocurrency
To help you determine if you should accept Ethereum or other cryptocurrencies at your business, here are some of the benefits of using it:
Lower Processing Cost
When cryptocurrency was first introduced to businesses, its acceptance often came with large processing fees, making it an unattractive option to both customers and the company accepting it. These fees were often due to problems with scaling that led to the overload of peer-to-peer processing networks.
Now, these issues have been ironed out, and the technology has improved. With the improved technology, cryptocurrency companies are offering a more diverse set of payment processors, resulting in more competition and lowered processing costs. In fact, the costs associated with processing cryptocurrency payments have gotten so low that they actually can be around 70% less expensive than traditional payment processing. For companies that process a large volume of sales, cryptocurrency’s cheaper payment processing could save them lots of money.
No Middle-Man for Cross-Border Transactions
Another advantage of accepting cryptocurrency is that it cuts out the need for middlemen across borders. For those who have to regularly change out foreign currency and convert it to their own, cryptocurrency is a breath of fresh air, as there will be no need to convert it. Additionally, instead of having to use lengthy wire transfers or check payments to facilitate a purchase, customers in other countries can quickly make payments in only a few minutes.
Great for Crowd-Sourced Payments
When it comes to products or services funded via a group, cryptocurrency is unmatched. Cryptocurrency makes it easy for people to pool their money for a single purchase. Companies that regularly crowdfund love using it. Companies that offer crowd-sourced payments appreciate that cryptocurrency offers complete transparency. Due to all of the payments going into a smart public ledger, anyone can access them to ensure honesty.
More Attractive to Younger Tech-Savvy Crowds
Beyond the benefits to your transactional processes, cryptocurrency has a broader appeal to younger generations who are more familiar with the currency and are seeking an alternative to the current system. Cryptocurrency offers simple transactions that let the user remain anonymous. With the lack of privacy in many people’s lives these days, an anonymous payment system is incredibly attractive to many.
Disadvantages of Cryptocurrency
Accepting Bitcoin as payment can provide several advantages, but it also has some drawbacks. Some of those disadvantages are:
A business accepting cryptocurrency does take on the risk of the currency’s fluctuation in value and instability. Cryptocurrency can be quite volatile in part because it’s so new and unproven.
Say, for example, you’re a business accepting Bitcoin as payment. A customer comes in and pays for a product, spending the equivalent of $100 in Bitcoin. Before that Bitcoin can be converted into cash and deposited, its value may go up or down. Fast-acting market forces can change its value significantly in a relatively short amount of time. For companies looking for stability, this can be a major disadvantage.
At least in the United States, cryptocurrency has a much more complicated taxation process than regular currency. The IRS, for example, views cryptocurrency as property rather than virtual currency, meaning its value is determined at the point it was delivered to a customer or business. If the money gains or loses value, a business must report it as a gain or a loss. Due to these differences in taxation, some companies prefer to keep it simple and stick to traditional currency.
Choose Velocity Merchant Services for Your Payment Process Solutions
Whether you decide to use cryptocurrency or not, you should always be looking for ways to update your payment processing. At Velocity Merchant Services (VMS), we offer cutting-edge payment and card processing solutions to a variety of businesses.
Schedule an appointment today to speak with a small business specialist about how we can help you grow your business.