Crypto has become more mainstream, leading some businesses to start accepting crypto payments. In fact, in 2021, one country, El Salvador, made Bitcoin its legal tender. This is an example of how well-known cryptocurrency now is. Business owners who are considering accepting crypto payments, however, first need to look at the pros and cons before deciding.
Payment Security is Better with Crypto than Fiat Currency
By far the highest number of fraud cases in the USA are perpetrated on credit and debit cards. April 2020 showed a 35% increase compared to the same period of the previous year, measured in dollars. This trend began with the Covid pandemic. Unfortunately, small businesses that are least able to absorb the impact of fraud were the biggest targets.
Crypto transactions are generally more secure than payments by debit and credit card. There is no need for a third party to verify a crypto transaction as the blockchain technology on which it runs is decentralized. With fiat payments, data can be attacked in a centralized hub, which is not available with crypto. All the information pertaining to a crypto transaction is contained in the person’s crypto wallet. Identity theft is also not a problem as the blockchain is a general ledger that records and verifies all transactions without offering a gap.
A Crypto Transaction Cannot be Reversed
A small business that wants to receive crypto payments needs to be aware that a crypto transaction is irreversible. If the business handles a lot of refunds, this is going to require keeping accurate records of every payment made by all its customers. A manual refund will have to be done in each case.
You Pay Lower Fees
Businesses are usually required to pay setup fees to companies that they sign up with to process their payments. Additionally, they are also liable for transaction fees, which could amount to at least four percent on each transaction. Depending on the exchange, some of them do not require any transaction fees, and if they do, it could be as low as one percent. A service like Topper lets you use an on-ramp to convert fiat currency to cryptocurrency. Crypto payments are also useful for avoiding paying for international transactions. The reason for this is that there is no home country or bank involved in handling cryptocurrency.
Tax Implications Must be Considered
According to the IRS, for tax purposes, crypto is categorized as property. Any cryptocurrency that your business receives must be declared as gross income. The value is equal to the fair market value of the crypto. You need this figure twice, on the day of receipt of the cryptocurrency and on the day that you sold it. Businesses will thus pay a capital gains tax on crypto payments that they receive from customers or other sources. If you have multiple daily crypto transactions, this can become unwieldy. Some businesses limit crypto payments to sales over a minimum value.
Crypto is Risky
Cryptocurrency is not subject to inflation, and its value cannot be manipulated by governmental policies. Nevertheless, crypto, even Bitcoin, is very volatile. The majority of businesses avoid crypto payments for this reason.
There are pros and cons to accepting crypto payments and each small business owner has to weigh these up to determine if it is right for them.