Cryptocurrencies, the digital assets or currencies that rely on encryption technology to transfer value over the Internet, are being adopted by big companies and small businesses alike. These cryptocurrencies, such as bitcoin, are used to exchange or store value. They operate independently of a banking system and are generally used for ecommerce and online casinos such as the Intertops mobile casino to buy and sell goods and services over the Internet.
Cryptocurrency offers businesses an added mechanism for paying vendors and suppliers and accepting customer payments. Many businesses don’t yet know what to think about using cybercurrencies because it’s a relatively new phenomena on the world financial scene.
If you’re a small business you might want to consider exploring using cybercurrency for your business needs. Following is some information about its benefits and disadvantages, how to accept it and what the tax implications are for small businesses that use cybercurrency.
What is Cybercurrency?
Cryptocurrency is basically a digital currency. Cryptocurrencies store value, have a fixed supply and have stated exchange rates for most of the existing legal tender in the world.
To use cryptocurrency, you need to open a cryptocurrency wallet account. This wallet will act as your bank account for cryptocurrency and will allow you to accept and make purchases with a cryptocurrency.
Some of the cryptocurrencies used include Bitpay, Coinbase and Coindesk. You purchase your cryptocurrency using cash on one of the open exchanges at stated exchange rates and then buy goods/services at participating businesses that have wallets that accept those cryptocurrency payments.
Users can “cash out” any cryptocurrency into local or foreign currency or they can store their cryptocurrency in the wallet for later use. Whereas traditional currencies are created by governments who print and regulate the currency via a central bank, cryptocurrencies are created by “miners” – technically savvy individuals who use their computing power to keep decentralized ledgers of transactions on a “blockchain.”
Miners “mine” new coins and then the coins are used by consumers and businesses to purchase goods and services, save as an appreciating asset and exchange for sovereign currency. Each cryptocurrency has a set number of coins that can ever be mined.
Small Businesses and Cryptocurrencies
The new digital currencies can affect the small business environment in both positive and negative ways. Companies such as Amazon, Overstock.com, Microsoft and others are using cybercurrencies. They believe that these currencies are the wave of the future. Increasing numbers of small businesses are following suit, determined to keep up.
Some of the ways in which cybercurrencies can impact a business positively include:
- When compared to traditional methods of payment such as credit cards, cryptocurrencies provides a quicker and less expensive way to accept customer payments.
- All cryptocurrency transactions are final which the balance of power toward the merchant and away from the consumer. Merchants can control their return policies and experience less of a risk of chargebacks, customer fraud (fraudulently disputing a valid transaction), etc. .
- There are no processing fees because there are no intermediaries to take a cut for facilitating payments. They are peer-to-peer transactions so both merchants and customers save money.
- Transactions are almost instantaneous. Once the bitcoin miner verifies and facilitates a transaction from one person’s wallet to the other (about 10 minutes) the transaction is done
- Customers who have become accustomed to paying via cybercurrencies will be attracted to the business.
Using a Cybercurrency can also negatively impact a business. Some of the ways that this might happen include:
- Both customers and businesses are at risk of the cybercurrency’s high price volatility. Cybercurrencies’ values are notoriously volatile as is the overall industry. Many merchant wallets automatically convert coins to cash if they foresee a crash coming. However, a flash crash can happen in a matter of seconds. If that happens your business might be forced to wait until the coin values recover before the cybercurrency is converted to cash. Otherwise, the business could face significant losses. This might also impact the price that you quote a supplier – if you quote a supplier one price in cybercurrency or have your price listed online and the exchange rate plummets, you’ll take a huge loss on the transaction.
- Cybercurrencies are, in almost every country (Malta is an exception), unregulated. That means that cybercurrency is currently treated as either cash or property. It also means that there’s no address to which to turn if there’s a problem.
To Accept or Not to Accept
Presently, financial advisors say that you should accept cybercurrencies if you’re a B2C business but not necessarily accept it if you’re a B2B business. This is because, while more and more consumers are using cryptocurrencies, many businesses aren’t prepared to pay their B2B partners (such as suppliers, agencies, consultancies and vendors) in cryptocurrency.
Ivan Brightly, Chief Investment Officer at Full Node Capital says “If you’re a B2C merchant you should accept cryptocurrency. It’s easy to implement and the amount of free advertising alone as a forward-thinking company that accepts multiple payment types is worth putting up a widget on your website or POS system. Cryptocurrency transactions also have lower fees than credit cards, cannot be reversed, and are typically settled and converted to cash the same-day by your merchant wallet account, reducing any market risk.”
Chris Post, CEO of Post Modern Marketing and a cybercurrency observer says “My business is predominantly B2B and I’ve given clients the option to pay by Bitcoin for over a year now. I’ve been unpleasantly surprised that when I mention this to business clients they still choose to pay by traditional means. In my opinion, the marketplace isn’t ready for B2B services to receive payments in the form of cryptocurrency. The time and effort of a B2B business owner can be better served elsewhere given the current environment.”
If you do decide to accept cryptocurrency in your small business, it’s a good idea to accept all types of cryptocurrencies. This is because most merchant wallet accounts automatically convert any sales transactions to the business’s base currency while they accept all forms of coins.