What You Need to Know About Cryptocurrencies as a Small Business Owner
June 9, 2022 | Last Updated on: February 3, 2023
June 9, 2022 | Last Updated on: February 3, 2023
In this article, you’ll learn:
The cryptocurrency market has come a long way since the start of 2017, when a Bitcoin was changing hands for around $1,000. While we all wish we could go back in time and load up on the “original” cryptocurrency, it’s still possible to capitalize on the increasing popularization of decentralized payments – without exposing yourself to the wild price swings that are so common in this market.
As a small business owner, you can accept cryptocurrency payments and, if you want, immediately convert the cryptocurrency to U.S. dollars (USD). But should your business accept cryptocurrency payments? And how do you accept cryptocurrency payments?
We’ll answer those questions in a bit, but first, let’s go over the cryptocurrency basics (you can skip this section if you have a crypto background).
A cryptocurrency is a digital form of money that uses blockchain technology to record transactions on a decentralized ledger. The “crypto” in cryptocurrency refers to cryptography. This technology guarantees the security of the transactions and the participants without using a centralized authority, such as a bank or government.
Bitcoin is the most valuable digital asset (as of this writing), but there are over 18,000 types of cryptocurrencies in existence as of March 2022, including Ethereum, Cardano, Litecoin, and Solana.
At this point, it may seem like a no-brainer to accept cryptocurrency payments, but there are both advantages and drawbacks to accepting digital currency payments. Let’s start by looking at the advantages.
Attract More Customers
By adding cryptocurrency to your accepted payment methods, you can attract new customers who insist on using digital money to purchase goods and services. If you don’t accept cryptocurrency, on the other hand, you could lose business to competitors who do accept cryptocurrency.
You may be wondering: what if my competition doesn’t accept cryptocurrency?
In this case, you a) have a chance to get ahead of the competition, and b) it might only be a matter of time before they accept cryptocurrency.
With all that being said, the importance of appealing to customers who prefer to pay with crypto depends on your industry.
Selling a software as a service (SaaS) tool? You have several tech-savvy customers – they’re more likely to care about whether or not you accept cryptocurrency payments.
Have an automobile parts shop? You may get away with not accepting crypto payments… for the time being.
As mentioned earlier, it’s possible to convert cryptocurrencies to U.S. dollars after receiving payments. But if you already have too much cash, you could opt to keep some of the cryptocurrency as an investment.
Cryptocurrencies have high price volatility and high risk – wild price swings are common, and there is no guarantee of continued strong returns. So, you should only invest what you can afford to lose and may want to talk to a financial advisor to see how cryptocurrencies would fit into your broader portfolio.
You typically have to pay around 3% in fees on each credit card transaction. But you don’t have to pay any fees to accept a cryptocurrency payment directly from a customer. You typically only pay around 1% in fees with a cryptocurrency payment tool.
With credit card transactions, you always face the possibility of chargebacks. In many cases, the card network sides with the customer, regardless of whether or not you were in the wrong. You don’t have to manage chargebacks with cryptocurrency payments, however. This could lead to significant savings for your small business: according to Midigator’s The Year in Chargebacks report, revenue lost to chargebacks is declining for companies, but it was still 2.31% in 2021.
Yes, it’s possible to convert your cryptocurrency payments into USD, but it’s also possible that the price drops before you can exchange it for cash. There have been several instances where a cryptocurrency has dipped by 10% or more in hours. Over the long run, the volatility tends to even out, but a large order paid in cryptocurrency could hurt your business if it comes in right before a big dip.
A hack is another way you could lose money with cryptocurrency. And if your digital wallet is hacked, your cryptocurrency could be lost forever. There isn’t a high chance of getting hacked these days for tech-savvy individuals. But if you are new to crypto, you should be extra careful and consider getting help from an expert.
According to IRS Notice 2014-21, “A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.”
This guidance wouldn’t provide much of an issue for a small business owner who accepts a few crypto transactions per year – it would be easy enough to record the fair market value on the date that the virtual currency was received, in this case. But if you plan to accept hundreds or thousands of crypto payments each year, you need a payment system to track everything. You should talk to a Certified Public Accountant (CPA) to develop a plan of action.
Due to its high energy consumption, the Bitcoin network produces an estimated 114 million tons of carbon dioxide per year, roughly equivalent to the amounts generated by the Czech Republic. This energy intensity is required to prevent a nefarious actor from taking control of the crypto network, so it’s unlikely to change in the future. Since the network is global, the negative environmental impact will only be completely eliminated – or mostly eliminated – if there is a worldwide shift to cleaner energy sources.
What does this all mean for you as a small business owner?
If you and/or your customers feel that the benefits of cryptocurrencies aren’t worth the negative environmental impact, you may want to avoid offering cryptocurrency payments.
If you decide that accepting cryptocurrency payments is a good idea for your small business, figuring out how to accept cryptocurrency payments is the next step. You have two options:
For many small business owners, Option #2 makes the most sense. The thing is, even if you have the time and expertise required to build and maintain your own payments workflow, the savings may not be worth the investment – unless you have a high-revenue, low-margin small business.
With any cryptocurrency payment tool, it’s essential to find out how long the exchange rate is guaranteed – particularly if you want the settlement to occur in U.S. dollars. Say you receive a Bitcoin payment worth $10,000, and the price of Bitcoin declines 5% before the settlement – you don’t want to be on the hook for the dip. By learning the rules around the settlement, you can eliminate cash flow concerns for your small business.
Here’s another possibility: ask your customers which cryptocurrencies they want you to accept and see if prospective third-party tools accept those cryptocurrencies. You don’t want to set up a tool and then find out that it doesn’t accept your customers’ preferred cryptocurrencies.
As a small business owner, you are likely laser-focused on providing the best product or service to your customer base. While it makes sense to prioritize the quality of your offerings, optimizing your payments is a quick, low-cost way to give your small business a boost. With that in mind, it’s worth weighing the pros and cons of accepting cryptocurrency payments, and implementing a solution if the “math” works out.
And if cryptocurrency payments don’t make sense for your business right now, you should reconsider sometime in the future. Your customers may care more about crypto in a few years. Or hacks may become more infrequent. Or the environmental concerns may become a thing of the past. This is a fast-changing industry, so it’s essential to stay on top of new developments.
There is a constantly-increasing number of ways to expand your small business. For example, in the not-too-distant past, you had to wait months to get access to small business financing from a traditional bank. But now, online lenders, such as Biz2Credit, have cut down the “time-to-cash” to less than a week. Tejas Ghandi said, “The process to apply and get approved for the funding was simple, and that’s because Biz2Credit made it that way. They asked for the necessary application documents, and after that we were approved for the financing very quickly.”
Learn how Biz2Credit can fund what’s next for your small business.