Since Bitcoin’s introduction in 2009, cryptocurrency has worked its way into mainstream conversations and consumer decision-making. The medium of exchange is now actively traded 24/7 and becoming more widely accepted as a payment form.
But is cryptocurrency right for your small business? Several serious considerations must be taken into account – both technical and pragmatic – before deciding to accept crypto as a form of payment from your customers. We’ll weigh all the cryptocurrency factors small business owners should consider and examine how some blockchain startups are trying to push the space forward.
Cryptocurrency is a digital medium of exchange that relies on peer-to-peer blockchain technology. It’s decentralized – no central bank or government regulates or backs crypto. Buyers transfer funds directly to sellers without the third parties traditionally used to process payments.
“Cryptocurrencies cut out the middleman in a transaction,” explained Chris Poelma, CEO and board director of PCS Software Inc. “Rather than store your money somewhere where you’re dependent on an organization to safeguard it, you hold on to it through an encryption only you have a key to. As we hear more stories of data breaches and hackers becoming more sophisticated, cryptocurrencies sound more appealing to consumers looking for a safer way to do business.”
Small businesses might accept cryptocurrency for many reasons:
But is accepting cryptocurrency right for your business?
Compared to traditional point-of-sale (POS) systems, cryptocurrencies offer several primary benefits to consider.
Cryptocurrency isn’t without its downsides. Here are some of the risks of accepting cryptocurrency.
Accepting cryptocurrency requires setting up a digital wallet on a digital currency exchange, which could be technically prohibitive for small business owners unfamiliar with the technology. Cryptocurrency is an information-dense field with a relatively steep learning curve, which can be a significant obstacle when you’re also trying to run a business.
“As it stands now, small businesses, in particular, would find it difficult to accept cryptocurrency,” noted Serge Beck, CEO and founder of blockchain ecosystem company Optherium. “And even without the technical obstacles, the volatility of crypto values still creates a disincentive for entrepreneurs to hold digital currencies.”
Digital currency’s highest risk is price volatility, which makes its value extremely unpredictable. For example, Bitcoin was first valued in pennies in 2009; it rose to more than $64,000 per coin in February 2021 before dropping down to less than $28,500 per coin in May 2023.
“You will have to make some form of arrangement for translating your cryptocurrency back into your currency of record,” advised Areiel Wolanow, managing director of consulting firm Finserv Experts. “Cryptocurrencies are volatile, [so] you will want to do this quickly and regularly.”
Using a merchant services company like BitPay or Coinbase helps insulate small businesses against that volatility by immediately exchanging digital currency for its cash value. Through these services, cryptocurrency payments are made in real time for the currency’s current value.
The only reason for a business to hold on to cryptocurrency would be as a speculative investment, Wolanow noted, but this essentially amounts to gambling with your revenue stream.
Although cryptocurrency transactions eliminate cyber threats like stolen credit card numbers, the currency still isn’t 100 percent safe from cybersecurity threats. So far, there is no way to completely prevent cybercriminals from getting their hands on users’ digital wallets. This is particularly dangerous because, unlike fiat currencies like the U.S. dollar and the euro, cryptocurrencies are not backed or insured.
However, companies are working on measures to protect against cryptocurrency security issues, including the following:
If your SMB plans to accept crypto, improve cybersecurity by enabling multifactor authentication, securing and maintaining your private keys, and considering taking your crypto offline by putting it in cold storage.
Cryptocurrency’s regulatory landscape is poised to change as lawmakers craft new regulations. Once regulations are in place, they will likely evolve further, meaning business owners must be ready to adapt to changes in the cryptocurrency ecosystem.
“Because cryptocurrencies are relatively new, there’s much uncertainty around how the government will work out kinks in its regulation,” Poelma explained. “[Cryptocurrency] won’t be universally accepted until businesses are certain they know how to report gains and pay proper taxes on cryptocurrency transactions.”
Changes in cryptocurrency regulation will likely continue as cryptocurrency’s adoption expands and new problems and difficulties emerge. As there are no significant current regulations, crypto firms are moving abroad to establish trading desks while also working with the Securities and Exchange Commission to prevent flouting securities laws. Additionally, the IRS classifies cryptocurrency as “property” or a “digital asset,” so anytime you sell or exchange crypto, it will be taxed.
If you decide to move forward and start accepting cryptocurrency, you must make some decisions and take a few steps. Overall, the process is similar to getting set up with a credit card processing company.
First, you must decide whether to use a processor to accept payments or accept them manually.
As more customers invest in crypto, digital wallets will increasingly become a preferred payment option for your customers. If you decide to add cryptocurrency to your customer payment options, you must learn about the technology, set up a digital wallet and advertise crypto acceptance to customers.
However, you must also ensure you understand the risks. With legislation that could interrupt the crypto payment acceptance process – including the possible creation of a governing organization to monitor cryptocurrency firms – you may face challenges. Caution is always advised with the adoption of any new financial technology.
Tejas Vemparala and Dock Treece contributed to this article. Source interviews were conducted for a previous version of this article.