First let’s start of with, what is cryptocurrency?
Cryptocurrency is digital way of exchanging currency that doesn’t require a bank. It came to fruition through a programmer (or series of programmers) working under the alias Satoshi Nakamoto. They described it as a ‘peer-to-peer electronic cash system’. Although it’s taken a few years to catch on, it is now accepted by giants such as Amazon, Microsoft and Overstock.com. This begs the question, if and when will this trend trickle down to small businesses. Here are some pros and cons to accepting cryptocurrency.
No processing fees
That’s right, I said no processing fees. Processing fees are by far the biggest complaint I hear from my clients. The 2-3% that gets lost on every transaction. The reason there aren’t processing fees with cryptocurrency is because it is handled electronically without the assistance of a third-party vendor that is needed to “process” the payment. There are however two things to note. The first is to have a digital wallet that you need to utilize cryptocurrency, you may be charged a monthly fee by the provider of that wallet. This fee is usually about $30. The second is that some cryptocurrency exchanges will offer an expedited processing fee of 1% to make your money available to you more quickly after an exchange has occurred. This is not a required fee and therefore a convenience which is a far cry from the 2-3% mandatory charged by credit card companies.
All transactions are final
Unlike credit card companies where you always operate under the threat of a chargeback with little or no recourse to contest the assertion, all cryptocurrency sales are final. This puts the power of refunding money and enforcing your refund policy back in your hands. There is of course the flip side to this which is you are bound buy the same rules if you use cryptocurrency to make purchases.
Most cryptocurrency transactions require less than ten minutes to verify and process. Someone pays you with cryptocurrency, ten minutes later it shows up n your wallet and is available to use. This is significantly better than the 2-3 days required to wait on money being available through credit card payments. The only downside is converting cryptocurrency to currency used in centralized banking can take a couple of days to process. If you receive payment and need it to make a purchase using the dollar instead of cryptocurrency, you’ll be back at the mercy of your bank and the amount of time it takes for the cryptocurrency to be converted to cash.
Sounds to good to be true right? Well like all things in life there’s bad with the good and here are a couple of reasons to be cautious of cryptocurrency.
Sounds ominous and it can be. Cryptocurrency is gaining in acceptance and use at a rapid rate. Therefore, the value of cryptocurrency has skyrocketed but that also means it can decline just as fast. A government moves to ban cryptocurrency and the value plummets. If you’re invoicing clients on a Net30 basis, the value of your cryptocurrency at the time you invoiced may be different than when payment is due 30 days later. This can lead to you giving your client a big discount unintentionally. Then you’re left with holding that cryptocurrency until it’s value increases again. In some cases, your digital wallet provider will immediately convert payments to dollars to avoid crashes in value.
The government hates cryptocurrency
They can’t regulate it, track it or take it away from you. For us as individuals, this is a great thing. An untaxable, anonymous form of payment. The reality is that with the rise in popularity, there will come a time when the government decides they need to intervene to make sure they get their cut of your money. Cryptocurrency is playing in their currency’s sandbox and they’re only going to tolerate it for so long. No one knows what extent the governments will take to regain financial control and therefore there’s some risk in using it as a means of currency.
So, what does this mean for small businesses? It means there’s a valid form of payment that can be a benefit both you and your clients. Whether you’re ready to take on cryptocurrency, only you can decide.
Written by Tom Barnhill, co-owner Business by Barnhill