TABLE OF CONTENTS
- Should You Accept Crypto Payments in Your Business?
- Pros and Cons of Accepting Bitcoin & Other Cryptocurrencies
- Cryptocurrency vs Credit Card Payments
- What You Should Know Before Accepting Cryptocurrency Payments
- How to Accept Crypto Payments in 4 Steps
- What to Consider when Choosing a Crypto Payment Processor
- Why a Crypto Merchant Service Provider May Be Your Best Option
- Frequently Asked Questions (FAQs)
Cryptocurrency is a cutting-edge payment method that, as it gains more global acceptance, only seems to grow in popularity. If you’re interested in expanding your offerings to meet customer demand, or simply want to modernize your payment operations, consider accepting crypto payments within your small business.
To do so, business owners will need to do some research and follow some basic steps to get set up properly. So, read on to learn more about cryptocurrencies—the risks and advantages, and if offering this new form of payment option is right for your business.
Should You Accept Crypto Payments in Your Business?
On top of more traditional payment methods, cryptocurrency can be an alternative form of payment to offer your customers. One notable advantage of cryptocurrency transactions is the lower processing fees they incur, unlike the high processing fees with credit cards. In addition to cost savings, crypto transactions offer faster processing times, cutting out the funding delays associated with traditional methods. Moreover, the irreversible nature of these transactions eliminates the risk of chargebacks. With cryptography, cryptocurrency transactions are protected, making them more secure than other forms of banking. For all the good, though, crypto does have its downsides. Let’s take a look at both the pros and cons.
Pros and Cons of Accepting Bitcoin & Other Cryptocurrencies
Cryptocurrencies represent exciting opportunities for both you and your customers. Yet, accepting Bitcoin and other cryptocurrencies as payment is not a risk-free endeavor. Below are some of the main considerations, both good and bad.
- Expanded customer base: Global customers might not have access to traditional banking systems and use cryptocurrency instead.
- Lower transaction fees: Cryptocurrency transactions often have lower fees compared to credit card transactions.
- Faster transactions: A cryptocurrency transaction can be completed faster than traditional payment methods.
- Reduced risk of fraud: Cryptocurrencies are based on blockchain technology, which provides a secure and transparent record of all transactions.
- Volatility: The volatility of cryptocurrency poses challenges for cash flow-dependent businesses due to potential gains or losses.
- Limited adoption: Cryptocurrency is still not widely accepted as a payment method.
- Regulatory uncertainty: The lack of equivalent regulation for cryptocurrencies compared to traditional currencies can lead to confusion, regulatory challenges, and fear of penalties.
- Technical complexity: Accepting cryptocurrencies requires businesses to have a certain level of technical expertise and infrastructure.
Cryptocurrency vs Credit Card Payments
Cryptocurrency and credit card payments are two distinct methods of conducting transactions, each with its characteristics and advantages. Some of the key differences between cryptocurrency and credit card payments are:
|Security||Cryptocurrency transactions are verified through a distributed network (over a central authority)||Credit card transactions are verified using third-party verification software and fraud prevention tools.|
|Speed||Crypto doesn’t require the same level of verification and processing, therefore, can be completed faster than credit card transactions.||Credit card payment processing has stricter regulations and may take up to 3-5 days for merchants to see the process completed.|
|Fees||Crypto transactions generally have lower fees than credit card transactions, as there are no intermediaries involved.||Credit card processing fees are higher due to the diverse range of payment methods and intermediaries.|
|Acceptance||Cryptocurrencies are still relatively new and unfamiliar in the marketplace which could alienate or put off users.||The widespread customer acceptance of credit cards has prompted businesses to adopt this payment method.|
Ultimately, the choice between cryptocurrency and credit card payments most depends on your target market, business objectives, and customer preferences.
What You Should Know Before Accepting Cryptocurrency Payments
Before accepting payments in the form of cryptocurrency, there are still important things to know and consider about what this means for your business.
How cryptocurrency transactions work
Cryptocurrency is a digital currency verified by a blockchain consensus mechanism. The blockchain employs complex algorithms for encryption and digital signatures, stored securely in digital wallets with unique addresses. Funds can be sent and received through integrated payment processors or dedicated cryptocurrency gateways.
When a customer goes to pay for something in crypto, the following happens:
- Merchants generate a payment request with the payment amount and the customer’s cryptocurrency address. This request is usually in the form of a QR code or a string of characters.
- The buyer opens their cryptocurrency wallet app or software, selects the option to send funds, and confirms the transaction with a password or biometric authentication.
- The transaction is then broadcasted to a dispersed network of computers, called “nodes”, where entities called “miners” help validate and record the crypto transaction via the blockchain.
- Merchants receive a final notification of payment in their merchant wallet, and the funds are now in their possession.
To immediately receive that payment back in fiat currency, you can use a cryptocurrency exchange or a payment processor to convert the funds into your desired currency. Or, you can choose to hold the currency in its original form. It may then lose, or gain value over time.
What cryptocurrencies you will accept
To set up crypto as a payment option for customers, you first need to determine which cryptocurrencies you want to accept. Conduct market research, and gather feedback to figure out which cryptocurrencies are most popular and in demand with your target audience. Bitcoin (BTC) is the most widely recognized and accepted cryptocurrency, but there are numerous other options, such as Ethereum (ETH), Litecoin (LTC), Ripple (XRP), and so many more. Research different cryptocurrency’s features, transaction speed, and price volatility to decide which might best align with your business’s needs.
How to avoid market volatility with stablecoins
Before accepting cryptocurrency payments, understanding risks and implementing volatility mitigation strategies, such as stablecoins, is crucial. Stablecoins are a type of cryptocurrency designed to minimize price volatility by pegging their value to an underlying asset. This could be a fiat currency like USD or a commodity like gold.
To help you avoid market volatility when using stablecoins, choose reputable stablecoins from entities with a proven track record and transparent operations. Different stablecoins employ different mechanisms to maintain their price stability so understand the specific mechanism used by the stablecoin you choose, and evaluate how reliable you think the underlying asset is. Diversifying your stablecoin holdings across different coins pegged to different underlying assets, to help reduce the risk associated with any single stablecoin.
While stablecoins aim to minimize price volatility, they are not entirely risk-free. Market conditions and other factors can still impact their stability so make sure to do your research, stay informed, and assess your risk tolerance before using stablecoins as a tool.
How taxes work when converting crypto to cash
Cryptocurrency transactions have tax implications that differ from traditional payment methods. It is essential to thoroughly investigate the tax implications specific to your state and jurisdiction.
Federally, businesses are subject to the following tax considerations:
- Capital Gains Tax: In most jurisdictions, the conversion of cryptocurrency to cash is a taxable event. If the value of the cryptocurrency has increased since you acquired it, you may be liable for capital gains tax on the profit.
- Calculation of Capital Gains: The calculation of capital gains depends on the holding period of the cryptocurrency. It’s a short-term capital gain if you held the cryptocurrency for less than a year before converting it to cash. And if over a year, it’s classified as a long-term capital gain.
- Reporting Requirements: You may need to use IRS Form 8949 and Schedule D to report capital gains and losses. Keep records of the conversion transaction, including dates, value at the time of conversion, and associated fees.
- Exchange Reporting: Tax authorities may require cryptocurrency exchanges to report certain transactions under IRS Form 1099-K or 1099-B. Ensure you receive and review these forms for accurate reporting.
- Tax Deductions and Losses: If the conversion of cryptocurrency to cash results in a loss, you may be able to offset capital gains from other investments or carry forward the loss to future tax years, subject to tax regulations.
Tax regulations and reporting requirements change from year to year, so it’s crucial to stay informed about updates and changes in cryptocurrency taxation.
How to Accept Crypto Payments in 4 Steps
Accepting crypto as a form of payment is easy to set up once you decide to move forward. Here are the general steps.
1. Know the laws & regulations regarding cryptocurrencies
Cryptocurrencies aren’t regulated in the same way as traditional currencies. Depending on your location and your type of business, you may need to follow money laundering, tax reporting, and consumer protection laws. Some countries, like the United States, classify cryptocurrency as assets or commodities, leading to specific regulations for their exchange and investment.
Cryptocurrency regulation currently falls under the following U.S. laws and taxation policies:
|Securities Laws||The U.S. Securities and Exchange Commission (SEC) regulates the issuance, sale, and trading of securities, including certain coin offerings (ICOs). The SEC determines whether a particular cryptocurrency qualifies as a security or not.|
|AML and KYC Laws||The Anti-Money Laundering (AML) and the Know Your Customer (KYC) Laws both impose certain obligations and due diligence for businesses.|
|Taxation||The Internal Revenue Service (IRS) treats cryptocurrencies as property for tax purposes and requires taxpayers to report and pay taxes on their crypto holdings.|
|Commodity Regulation||The Commodity Futures Trading Commission (CFTC) oversees the regulation of derivatives and commodities, including certain types of cryptocurrencies.|
|Consumer Protection Laws||Accepting cryptocurrency means you still must adhere to consumer protection regulations enforced by the Federal Trade Commission (FTC). They police deceptive and unfair practices in pricing, refund policies, disclosure of terms and conditions, fraudulent coin offerings, Ponzi schemes, misleading marketing, and other deceptive activities.|
2. Decide if you’ll accept crypto directly or with a third-party processor
Deciding whether to accept crypto directly or through a third-party processor requires careful consideration. Research factors such as transaction fees, ease of integration, user experience, and customer support when choosing a payment processor or wallet provider. Look for established and reputable companies with a track record of security and customer satisfaction.
If accepting crypto directly, you’ll need a crypto wallet
To accept crypto payments, businesses require a secure digital wallet—a software application for storing, sending, and receiving cryptocurrencies. Various types of wallets are available, such as desktop, mobile, and online wallets. Select a wallet that aligns with your business requirements, preferences in features, and pricing.
If using a third party, you’ll need a crypto payment gateway
To accept cryptocurrency payments, set up a crypto payment gateway—an intermediary between buyers, merchants, and the cryptocurrency network. It streamlines transactions and ensures a smooth experience. Test the integration, then communicate the new payment option to customers.
3. Integrate cryptocurrency payments into your website and online checkout
Once you’ve set up your payment gateway and are ready to accept crypto payments, make sure to prominently display the available cryptocurrency options on your website, online store, or point-of-sale system. You can do this by generating a “Pay with Crypto” payment button or setting up an API integration to your checkout page. Additionally, it’s essential to make your customers comfortable with this new payment option, so provide more information and clear instructions on your website.
4. Set up in-person crypto payments via QR code
Once you’ve set up your payment gateway and are ready to accept crypto payments in person, prominently display the available cryptocurrency options at your sale counter. It’s essential to educate your customers about the benefits of using cryptocurrencies and provide them with clear instructions on how to make crypto payments. This could include explaining the steps involved, providing wallet addresses or QR codes, and addressing any security concerns they might have.
What to Consider when Choosing a Crypto Payment Processor
Choosing an appropriate cryptoprocessor can be a critical decision for businesses looking to accept cryptocurrency payments. Here are some factors to consider when choosing a payment processor especially equipped for cryptocurrency payments:
Payment processing fees can vary significantly between different crypto payment processors. Some may charge a flat rate, while others may charge a percentage of the transaction amount. Additionally, some payment processors may charge fees for payouts or impose minimum payout thresholds. Make sure you understand any fees or restrictions regarding payouts when choosing a crypto processor.
Consider the security features offered by the crypto payment processor. Look for providers using advanced security measures, such as multi-factor authentication and encryption. Additionally, some jurisdictions may require businesses to comply with specific regulations so make sure the processor complies.
Look for a crypto payment processor that offers good customer support. In the event of any issues or questions, you want to be able to quickly and easily contact the provider for assistance. A responsive customer support team can significantly contribute to a smoother payment processing experience and help resolve any potential challenges efficiently.
The payout frequency refers to how often the payment processor will send the funds from cryptocurrency transactions to your bank account or wallet. Some crypto payment processors offer daily payouts, while others may offer weekly or monthly payouts.
Some processors may only support a few cryptocurrencies, while others may support a wide range of digital assets. Make sure the processor supports the cryptocurrency you want to accept and integrates easily with your existing payment system. You may also want to look for a provider with simple integration options for popular eCommerce platforms, such as Shopify or WooCommerce.
Why a Crypto Merchant Service Provider May Be Your Best Option
A crypto merchant service provider (MSP) can be a great option for businesses looking to accept cryptocurrency payments. There are specialized merchant service providers that have the knowledge and expertise to help businesses navigate the unique challenges of accepting cryptocurrency payments.
A suitable crypto MSP can simplify the payment process, making it easier for customers to complete their transactions. Dealing with traditional banks and their stringent due diligence and compliance measures for high-risk businesses can be challenging. However, a trusted cryptocurrency processing provider can provide the necessary expertise and guidance to navigate these complexities.
Frequently Asked Questions (FAQs)
Is accepting Bitcoin safe for my business?
Accepting Bitcoin can be safe for your business if you understand and take the necessary precautions to mitigate your risks. Such as implementing strong security measures, complying with legal and regulatory requirements, and assessing customer demand before diving in.
Cryptocurrency transactions are often considered more secure than other traditional payment methods, due to the use of blockchain technology. However, it’s still important to take steps to protect your business from potential security breaches or fraud.
How much does it cost to accept crypto payments?
The cost of accepting Bitcoin and other cryptocurrencies can vary. It will depend on a few different factors including the payment method you choose and 3rd-party associated fees. Some of the main costs to consider are payment processing fees, currency conversion fees, wallet fees, and regulatory compliance costs.
Overall, the general cost of accepting cryptocurrency payments is often on par or even lower than regular transaction fees. But, this will depend on a variety of factors specific to your business.
Is it legal to accept crypto as a payment?
Though not true everywhere in the world, deciding to accept cryptocurrency in the United States is legal. That is, as long as a business is complying with all the relevant laws and regulations.
How do I accept Bitcoin on Shopify?
Accepting Bitcoin on Shopify is relatively straightforward.
- First, sign up for a crypto-compatible payment processor. Shopify supports several BitCoin-compatible payment processors, so simply choose a provider that fits your needs.
- Configure the crypto payment processor on Shopify through API integration. This may include entering your wallet address, setting up transaction fees, and customizing the payment experience for your customers.
- Run a test transaction on Shopify to ensure that everything is working properly.
- If the test goes well, you’re now ready to start accepting Bitcoin or other crypto in your Shopify store.