Cryptocurrencies such as Bitcoin, Ethereum, and Litecoin have quickly gained prevalence as disruptors of the financial industry. While the risks and benefits of investing in cryptocurrency are hotly debated, most predict that the technology behind digital currency has the potential to revolutionize the future of financial transactions and payments.

The debut of these alternative currencies has required consumers and businesses to swiftly assess how they may be impacted by its popularity and subsequent use. This leaves many small business owners wondering where they fit into the cryptocurrency picture and what approach they may need to take in reference to accepting such currency.

Before we dive into the pros and cons of accepting cryptocurrency as a form of payment, let’s take a quick look at the technology central to digital currency.

What is Cryptocurrency and Blockchain?

Cryptocurrency is a form of secure, legal, encrypted digital currency which is transferred between two parties and is not controlled by a centralized government or institution.

One of the most fundamental and innovative elements of Bitcoin – the leading cryptocurrency – is the “blockchain”. Akin to a financial ledger, the blockchain is a database hosted by millions of computers simultaneously that tracks transactions. What makes a blockchain ingenious is that it is accessible to the public, easily verifiable, continually reconciled, and not stored in a centralized location.

Top 3 Reasons to Accept Cryptocurrency

As with any new technology, it is important to analyze the distinct needs of your organization to determine if accepting digital currency is a good fit. Overall, there may be many advantages to jumping on the cryptocurrency bandwagon, both for your business and your customers.

  1. Increased Consumer Privacy and Security

According to data from 2016 Baymard Institute survey, the following categories include the top reasons that consumers abandon their online shopping cart:  Forced account creation, long/complicated checkout process, lack of transparency, and an untrustworthy website.   The bottom line is that security and ease of use are what customers seek when shopping or seeking services online.

Digital currency transactions are fundamentally more secure than standard debit/credit card transactions due to the cryptographic nature of the network and technology. This significantly decreases the risk of financial information being compromised.

Because all cryptocurrency transactions are stored on a blockchain, the payment process, in theory, becomes less susceptible to fraud.  These transactions offer ease of use without providing personal information to the merchant.   There are no bank statements or identifying information other than the cryptocurrency addresses and amounts involved.

  1. Save on Transaction Fees

One benefit of cryptocurrency is that there are few processing fees involved, if any, because it is a peer-to-peer, decentralized technology. Due to there not being a “middleman”, fees can be eliminated. This could be a substantial savings to a small business, especially considering that many businesses are charged approximately 2-3% by credit card processing companies or payment services such as PayPal.

Another way to think of this is that it offers small business owners the option of either potentially earning more profit or lowering their prices to include their customers in the savings.

However, it’s important to note that some online wallets, where you store your digital currency, may charge a small monthly fee. There are also exchange fees, albeit much lower than traditional exchange rates, for converting cryptocurrency to fiat (legal tender such as USD or Euro).

  1. Reduced Processing Times

The processing time for receiving payment and transfers from digital currency is almost instantaneous. This means less time your small business has to wait for payments and gives you more flexibility when it comes to making payroll, paying rent, or purchasing necessary items for your business.   This can give your business a much needed edge in your industry and perhaps lessen the stress of awaiting transfers and funds in your bank account.

While traditional payment transfers can take days or more, cryptocurrency processes in real-time and is usually available within minutes.   With the added security of digital currency, this also means less concern about fraudulent charges.

Risks of Accepting Cryptocurrency

As with any new technology, there can be definite risks associated with adopting and integrating it in your business. Digital currency is still in this relative infancy, which means not all of the kinks have been ironed out. While the currency is deemed as generally more secure than fiat, there have been numerous reports of malware attacks on Bitcoin in particular, as well as reports of many cryptocurrency exchanges closing.

It’s also wise to keep in mind that the well-known volatility of cryptocurrency prices makes it challenging to determine the true price. It may require more diligence on your part to watch the cryptocurrency market to determine if and when you should exchange and withdraw your cryptocurrency.

Along the same lines, filing taxes could become laborious and confusing if dealing with digital currency.  One potential tax ramification is that the Internal Revenue Services classifies digital currency as property, rather than currency.  This could potentially mean a small business who accepts digital currency could be subject to capital gain taxes.   Consulting with an accountant who is well-versed in digital currency would be highly recommended.

In summary, most experts ultimately agree that cryptocurrency is the future of financial payment and transactions.  While its early form and function may shift and change to suit the needs of the market, the paradigm of digital currency is likely here to stay.  Business owners should be encouraged to stay on top of trends in the industry that could potentially impact them and their customers.   In the end, every small business owner must weigh the potential risks and benefits of accepting cryptocurrency in order to ascertain which decision is right for them.