While still not mainstream, the crypto landscape is on the rise in 2023. Currently, the total crypto market cap is valued at $ 1.21 Trillion, with its popularity rising slowly but surely after the uneven years of 2021-2022. With this recent rise of crypto, small businesses should take a second look at accepting crypto payments.
In layman’s terms, crypto is a virtual currency produced by blockchain networks. Cryptos are entirely decentralised, not requiring the involvement of any outside parties like banks or governments. Instead, cryptos only involve individuals and businesses to validate transactions, trade currency, and create new currencies. Cryptocurrencies are housed in hot (digital) or cold (physical) wallets.
While Bitcoin conceived and popularised the crypto movement in 2009, it is far from the only option in the current market, as more currencies are actively developed and launched. Individuals and businesses can buy crypto on various exchange platforms or brokerage services. With their secure, decentralised nature and many other capabilities, cryptos are a valuable addition to small businesses globally. This article will dive into the risks and rewards of accepting crypto payments.
How Can Small Businesses Accept Crypto Payments?
While adopting crypto as a payment solution might seem challenging and even frightening at first, it is a very simple process. Thus, as of 2023, numerous businesses worldwide have chosen to accept crypto payments. Utilising Bitcoin payments on various e-commerce platforms has become a go-to strategy for up-and-coming startups. So, below are the detailed steps for how newcomer businesses can adopt this innovative method of accepting payments.
1. Create a Digital Crypto Wallet
To store, sell and purchase crypto, businesses must have a dedicated crypto wallet account. Crypto wallets are designed to house digital coins and let account owners conduct transactions. Crypto wallets are practically identical to traditional bank accounts.
There are two general types of crypto wallets – Multi-crypto and single-crypto accounts. Single-type crypto wallets only accommodate a particular cryptocurrency, while multi-crypto wallets support storing various crypto assets. Setting up a multi-crypto account is generally advisable for more freedom and options on the market.
2. Set Up a Crypto Payment System Online
While it might sound highly technical and complex, setting up crypto payment systems on websites or applications is simple. In most cases, businesses can purchase and install pre-built plugins that add a crypto feature to the overall payment system. The plugins can be connected to the business crypto wallet, automatically transferring funds to and from the company’s account.
3. Include a POS Crypto Payment Option
In the case of a physical store, it is best to also adopt a POS system for accepting cryptos. The POS system will allow customers to pay with cryptos at the store checkout counter. In some cases, businesses will need to purchase new POS terminals, but it is mostly possible to download the required software into the existing POS device. With the POS method, customers will swiftly transfer the crypto funds by scanning a barcode or tapping their phones.
How Does Crypto Taxation Affect Businesses?
Since crypto and tradable stocks are similar in many discernable ways, the US government has decided to employ crypto taxation laws that closely resemble the stocks and bonds market. Profits earned from sales or appreciated assets and investments are taxed under capital gains tax laws. The capital gains tax rate is less for crypto owners who have decided to hold their digital assets for more than a calendar year.
Since the IRS states that the income on cryptocurrency is its fair market value at the time of performing the services or selling goods, businesses are incentivised to hold their crypto assets instead of converting them to fiat currency. Otherwise, companies could get taxed twice – first on the income generated and second on the capital gain of the cryptocurrency if the crypto value increases between acquisition and selling periods. Thus, businesses should examine the taxation structure and employ diligent strategies to avoid over-taxation.
Benefits of Adopting Crypto for Small Businesses
Small businesses are often dubious about adopting crypto as a payment solution. However, this approach could prove fruitful in various ways. It all depends on the target audience and whether they would like to explore the crypto payment options. Small businesses tend to gain a lot with this novel payment method if they are.
Minimal Transaction Fees
Crypto transactions are well-known for their generous transaction fees. Unlike fiat currencies, cryptos do not require the involvement of numerous third parties to process a simple transaction. In the case of cryptos, only the underlying exchange platform will take its share of commissions. Therefore, crypto fees are almost always considerably lower than their fiat counterparts.
Simplicity and Security
Numerous individuals have realised how simple and convenient it is to conduct their financial transactions with crypto. Therefore, small businesses can acquire an entirely new segment of customers by adopting the crypto payment methods, enabling users to swiftly pay their dues without delays and extra paperwork. Additionally, customers value security for their finances and personal information, which is definitely a strong suit for cryptocurrencies.
Cryptocurrencies allow customers from different countries to purchase goods and services without delays or excessive fees. Small businesses adopting crypto payment solutions effectively open the gates to cross-border sales from vastly different geographical locations.
Downsides of Crypto for Small Businesses
While accepting cryptocurrencies is a viable strategy with a lot of upside, it is not without its fair share of risks and shortcomings.
Crypto is Extremely Volatile
It is no secret that the crypto industry is still highly volatile. Even the most established cryptocurrencies tend to fluctuate dramatically, leading to sizable losses for involved parties. Therefore, small businesses need to understand the inherent volatility risks and try to control them with risk hedging and mitigation strategies. However, losses might be inevitable to some degree, regardless of tactics. Many companies utilise special software that instantly converts received crypto into fiat. While effective, this strategy does not completely eliminate the volatility risks.
Crypto Lacks Proper Governance
Despite the valiant efforts of numerous legal authorities, most of the crypto market remains ungoverned and, therefore, less safe than its fiat counterpart. Due to its decentralised and anonymous nature, the crypto landscape can be unforgiving regarding fraud, cybercrime and other malicious intents. In these unfortunate cases, recipients cannot identify or track their lost funds.
Various regulatory bodies are trying to introduce laws and regulations that will change this status quo but keep the crypto benefits intact. However, as of 2023, the crypto industry still lacks governance to eliminate cyber crime and market manipulation.
As the crypto landscape continues to evolve and grow, many opportunities are presented for small businesses. In 2023, accepting crypto payments is close to becoming a standard procedure. However, the market is still relatively a blue ocean. So, small businesses across the globe can stand to profit from this strategy massively. However, they still need to be mindful of the risks involved in the crypto industry.