Accepting cryptocurrencies in your small company might offer advantages. Here you may learn about the dangers and advantages.
What you’ll discover:
What exactly is cryptocurrency?
How can I accept cryptocurrency payments for my small business?
How are companies taxed when it comes to cryptocurrency?
How might cryptocurrencies benefit small businesses?
How might cryptocurrencies be detrimental to my business?
Although cryptocurrency is not yet widespread, it is being used by an increasing number of individuals throughout the globe. Trading bitcoin may be the most popular method for the typical individual to learn about it. This is because the digital trading sector will have reached 700 billion transactions by 2020. Yet, more individuals are using digital payments, including cryptocurrencies, to purchase products and services. If you operate a company, preparing to take cryptocurrency payments today might be one of the smartest investments you ever make.
Table of Contents
What exactly is cryptocurrency?
A cryptocurrency, in its most basic form, is a kind of digital money. It is decentralized, which means it does not need the support of a certain government or bank. It instead depends on people and organizations to validate transactions, make and receive payments, and even produce new currencies. It’s kept in a digital wallet.
The first cryptocurrency was Bitcoin. It was established in 2009. Yet, there are many different types of cryptocurrencies available today, and more are being created.
The following are some of the most well-known cryptocurrencies:
Bitcoin, Ethereum, and Litecoin are all digital currencies.
Several cryptocurrencies are created via a process known as mining. To mine Bitcoin, for example, a computer must solve incredibly complicated mathematical problems in order to choose which set of transactions should be added to the blockchain next. Solving these issues generates coins, but it is not certain that any one miner will win the coin generated since there is an extra step that occurs after the math challenge is solved. Of fact, there is no tangible evidence that a currency was created; the coin is just put to a digital wallet or repository.
Users may purchase cryptocurrencies through brokers and cryptocurrency exchanges, similar to stock market trading. Several cryptocurrencies, such as Bitcoin, may even be acquired in fractional portions. Nevertheless, unlike stocks, bitcoin may be used to purchase products and services directly.
How can I accept cryptocurrency payments for my small business?
Bitcoin, like the dollar or the euro, may be used as money. This implies that companies may accept cryptocurrency payments, whether Bitcoin or another sort. Yet, the IRS sees cryptocurrency transactions as property trades, with the firm owing tax on the value of the crypto at the time of the transaction. Businesses may employ platforms that enable people to pay in crypto while the firm gets their chosen money to make bookkeeping simpler.
Accepting cryptocurrencies as a method of payment may seem difficult or frightening. But, it is really rather straightforward, which is one of the primary reasons why many companies have chosen to accept it. In general, you may begin accepting cryptocurrency as payment by doing the procedures outlined below.
1. Create a cryptocurrency wallet.
Since bitcoin has no physical form, you’ll need a mechanism to store and track it. A cryptocurrency wallet is intended to store just cryptocurrencies and to transmit and receive bitcoin payments. A crypto wallet functions similarly to a traditional bank account.
Multi-crypto wallets may contain many kinds of cryptocurrencies, but you can also utilize a single-type account. It is best to utilize a wallet that accepts many cryptocurrencies to make things easy for yourself and your clients.
2. Accept bitcoin payments on your website.
An electronic transfer is the most common method of transferring bitcoin. To receive these payments, you must have a mechanism to take bitcoins on your website.
In many circumstances, a website may be able to employ a cryptocurrency payment processing plugin. You may quickly start receiving payments on your website by installing the plugin to your page. When you get them, they are usually placed to your wallet.
3. Provide a bitcoin payment option at the point of sale (POS).
If you operate a physical shop, you may wish to employ a POS system that takes cryptocurrencies. These technologies enable customers to pay with cryptocurrencies at your checkout counter. Remember, since bitcoin is digital, you will want a digital payment method. Your POS system may already have an app, or you may need a separate device. To make a payment, a consumer may be required to scan a barcode or touch their phone.
How are companies taxed when it comes to cryptocurrency?
The word “income” is defined in the tax law in great detail. It isn’t just about bucks and cents. Income comprises anything that provides value to your company. If a consumer pays you with collector baseball cards or another commodity or service, you must pay taxes on the amount paid. Similarly, the IRS may and will tax any cryptocurrency payments received by your firm.
Since cryptocurrencies and equities are similar in several ways, the IRS taxes them similarly to stocks and bonds. You may have to pay both short-term and long-term capital gains taxes on them, just as you would on stocks. Capital gains are earnings earned from the sale of appreciated property or assets. If you keep the cryptocurrency for more than a year, the tax rate is often lower than if you sell it immediately.
The IRS, on the other hand, often handles bitcoin payments differently. When you get a cryptocurrency payment, the amount of income you must declare to the IRS is typically the fair market value of the cryptocurrency at the time you provided the services or sold the items.
As a result, if a company decides to keep its cryptocurrency payments rather than convert them to dollars straight away, they may be taxed twice. The first tax is on the revenue that comes in, and the second is on the capital gain of the cryptocurrency if its value grew between the time it was acquired and sold. Company owners should think about how these decisions would affect their entire tax strategies.
How might cryptocurrencies benefit small businesses?
You may be debating whether it makes sense for your company to take cryptocurrencies. It largely depends on the sort of consumer you have and whether or not they are interested in using cryptocurrencies at all. Small companies may be able to reap the advantages of it if clients wish to utilize it.
Reduced transaction fees
Allowing credit card payments costs companies money since each card swipe costs money. These costs may easily pile up: they are often a set price plus a percentage of the transaction. Yet, cryptocurrency results in considerably lower transaction costs. Their costs are often less than 1% of the transaction, while credit card issuers charge between 2% and 4%.
Merchant safeguards
Bitcoin protects companies against dishonest clients who want their money back. There are situations in which a client alleges they never got a sent item or have missed the return deadline. There are no reversal charges with cryptocurrency; they are definitive transactions, just as cash.
Customers’ convenience
One of the main reasons why company owners are interested in cryptocurrencies is because their customers desire it. Consumers like how simple it is to pay using cryptocurrency, as well as the additional degree of security they get with each transaction.
Increased sales
Accepting cryptocurrencies may potentially boost revenue, particularly if your product or service is sold in other countries. Instead of needing to convert multiple currencies, companies may generally accept cryptocurrency without incurring currency exchange costs or international service fees.
Keeping up with the competition
Several small companies are also adopting bitcoin because they believe they must since their rivals accept cryptocurrency payments.
How might cryptocurrencies be detrimental to my business?
Adopting bitcoin offers numerous advantages, but it also has hazards. Before adopting cryptocurrencies, you should think about three things.
1. It is quite volatile.
The value of bitcoin fluctuates often, even hour to hour, much alone year to year. Certain cryptocurrencies often see large value fluctuations of 10% or 20% within a month—and occasionally much less time. These developments might make it difficult to price your products and services. Because of the volatility, accepted payments may lose value before they can be converted. To prevent this danger while still accepting cryptocurrency, several firms utilize payment processors that instantly convert cryptocurrency to standard currencies at the moment of sale.
2. It is ungoverned.
The fact that bitcoin is decentralized adds to its allure. Yet, since there are no regulations governing how individuals use it, there are certain concerns. Others are concerned that rules may be enacted shortly, but no one knows what such restrictions would include. Notwithstanding the IRS’s latest reporting restrictions, Bitcoin has continued to expand.
3. It may not be safe.
Although bitcoin looks to be safer than a typical credit card, there are still security concerns. Hackers may (and do) discover methods to get access to crypto wallets and steal the cash contained inside. This may be a big issue for a firm that depends heavily on cryptocurrencies, particularly because no laws designate anybody to assist you in recovering your stolen assets.
Several firms provide consumers with insurance that protects them if their bitcoin is stolen. Up to a specific sum, it replaces stolen cryptocurrency. This technique does not address the issue of theft, but it may offer some protection for companies.