Since the introduction of Bitcoin in 2009, cryptocurrencies have permeated mainstream conversations and consumer decision-making. This medium of exchange is now actively traded 24/7 and is becoming more widely accepted as a form of payment.
But are cryptocurrencies right for your small business? Before deciding to accept cryptocurrencies as a payment method from your customers, you need to take into account some serious technical and practical considerations. there is. We weigh all the cryptocurrency factors that small business owners should consider and explore how some blockchain startups are looking to advance this space.
What is cryptocurrency?
Cryptocurrency is a digital medium of exchange that relies on peer-to-peer blockchain technology. It is decentralized and no central bank or government regulates or supports cryptocurrencies. Buyers transfer funds directly to sellers, bypassing the third parties used for traditional payment processing.
Chris Poelma, CEO and Director of PCS Software Inc. ” encryption for which only you have the key. As we hear more stories about data breaches and the sophistication of hackers, cryptocurrencies sound more appealing to consumers looking for a safer way to do business. ”
Small businesses may accept cryptocurrencies for a variety of reasons, including:
- It is at the forefront of financial technology.
- You can attract customers who use cryptocurrencies for all their purchases.
- Eliminate certain types of fraud.
But is accepting cryptocurrencies the right thing for your business?
Encryption is a digital form of encryption. Scrambles the message using a mathematical algorithm. The sender's cipher or key is required to decrypt the message.
What are the risks of accepting cryptocurrencies?
Cryptocurrencies are not without their downsides. Here are some of the risks when accepting cryptocurrencies:
1. There are technical barriers to accepting cryptocurrencies.
Accepting cryptocurrencies requires setting up a digital wallet on a digital currency exchange, which can be technically prohibitive for small business owners who are new to technology. Cryptocurrency is an information-dense field with a relatively steep learning curve, which can be a major hurdle if you're trying to run a business.
“As it stands, it will be difficult for small and medium-sized businesses in particular to accept cryptocurrencies,” said Serge Beck, CEO and founder of blockchain ecosystem company Opterium. “And even without technical hurdles, fluctuations in the value of cryptocurrencies still act as a disincentive for entrepreneurs to hold digital currencies.”
2. Cryptocurrency may fluctuate.
The biggest risk with digital currencies is price fluctuations, making their value highly unpredictable. For example, Bitcoin was valued in pennies for the first time in his 2009. It rose to more than $64,000 per coin in February 2021, but fell to less than $28,500 per coin in May 2023.
“There needs to be some sort of arrangement in place for cryptocurrencies to return to being a currency of record,” advised Ariel Woranau, managing director of consulting firm Finserv Expert. He said, “Cryptocurrency is unstable; [so] This should be done quickly and regularly. ”
Sales and service companies like BitPay and Coinbase allow you to instantly exchange digital currency for cash value, protecting your small business from fluctuations. Through these services, virtual currency payments are made in real time according to the current value of the virtual currency.
Wollanow pointed out that the only reason companies continue to hold cryptocurrencies is for speculative investment, which is essentially gambling their income stream.
Many speculate that digital payments like cryptocurrencies will usher in a cashless society, but it is doubtful that digital transactions will become exclusive soon.
3. Cryptocurrency has security issues.
Although cryptocurrency transactions eliminate cyber threats such as credit card number theft, virtual currencies are still not 100% safe from cybersecurity threats. Currently, there is no way to completely prevent cybercriminals from accessing your digital wallet. This is especially risky because unlike fiat currencies such as the US dollar or the euro, cryptocurrencies have no backing or guarantees.
However, companies are taking steps to protect against cryptocurrency security issues, including:
- Some companies insure cryptocurrencies. Some companies are working to back their cryptocurrencies with insurance. For example, Coinbase holds less than 2% of its customers' digital currency online. In the event of a breach, we will indemnify you for all losses. All fiat currency maintained at Coinbase is FDIC insured up to $250,000, just like a traditional bank. However, these protections do not apply if a personal wallet is hacked or affected by a data breach. It is still your responsibility to protect your personal account. Still, rest assured that your funds will remain safe even if your company comes under attack.
- Wallet security is being considered. Companies are also working on solutions to address wallet security. According to Beck, Opselium employs a biometric method that identifies users based on their facial structure and grants them access to their wallets, greatly reducing a thief's ability to steal someone's assets. This method also helps users reconfigure their wallets when access is lost. However, some cryptocurrency wallets only require a password for access, and if you forget your password, there is no way to recover your wallet. You will lose your entire ledger.
If your small business plans to accept cryptocurrencies, improve cybersecurity by enabling multi-factor authentication, protecting and maintaining private keys, and considering keeping cryptocurrencies offline in cold storage. let me try.
4. Cryptocurrencies face regulatory uncertainty.
The regulatory landscape for cryptocurrencies is about to change as lawmakers develop new regulations. Once in place, regulations are likely to evolve further and business owners must be prepared to adapt to changes in the crypto ecosystem.
“Since cryptocurrencies are relatively new, there is a lot of uncertainty about how governments will work out the regulatory kinks,” Poelma explained. “[Cryptocurrency] This law will not be widely accepted until companies ensure they understand how to report profits from crypto trading and pay the appropriate taxes. ”
Changes to cryptocurrency regulations are likely to continue as the adoption of cryptocurrencies expands and new issues and difficulties emerge. In the current lack of significant regulation, crypto companies are moving overseas and setting up trading desks while working with the Securities and Exchange Commission to prevent violations of securities laws. Additionally, the IRS classifies cryptocurrencies as “property” or “digital assets,” so you will be taxed whenever you sell or exchange cryptocurrencies.
Business owners who accept cryptocurrencies should closely monitor ever-changing local and state business regulations, especially as they relate to online business laws and data privacy regulations such as GDPR.
Cryptocurrency will be one of many options for customers in the future
As more customers invest in cryptocurrencies, digital wallets will increasingly become the preferred payment option for customers. If you want to add cryptocurrency to your customers' payment options, you'll need to learn about the technology, set up a digital wallet, and promote cryptocurrency acceptance to your customers.
However, you should also be sure to understand the risks. Challenges may be faced due to legislation that could disrupt the cryptocurrency payment acceptance process, such as the possible establishment of a governing body to oversee cryptocurrency companies. Care must always be taken when introducing new financial technology.
Tejas Vemparala and Dock Treece contributed to this article. Interviews with sources were conducted for a previous version of this article.
