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What are the benefits and drawbacks of accepting cryptocurrency as a payment option?
Written on May 24, 2023
Big, tech-forward companies like PayPal, Tesla and Starbucks have begun accepting payments in crypto. And more than 30% of small businesses now include it as a payment option.
As a CPA or accounting professional, you should be prepared to speak to clients and employers regarding the latest information. Businesses, large and small, will have questions about whether or not accepting cryptocurrency payments is a good move and the implications of adding the option, such as taxation.
Crypto crash course
Cryptocurrency is a digital and tradable tender. Exchanges are recorded in a secure blockchain that only the intended recipient accesses. Transactions are peer-to-peer, requiring no third-party intermediaries to step in (e.g., banks). Demand for its acceptance has grown as confidence and security have increased. Some use it for investing and others for purchasing.
How to pay using crypto
Like credit card payment processors, digital payment processors facilitate cryptocurrency exchanges between merchants and customers. While this introduces a third party into the scenario, it’s invaluable for easing assimilation. E-commerce platforms streamline the steps of a crypto transaction, from acquisition and acceptance to verification and documentation in the blockchain.
In addition, digital payment processors integrate with popular point-of-sale systems. They also hedge against unstable values (convert to fiat instantly), provide flexible payment options (such as cash), offer competitive transaction fees compared to credit card companies and provide vital accounting functions (invoicing, payments, payouts).
Benefits of accepting crypto payments
Those who readily adopt cryptocurrency as payment can enjoy many perks. Advantages have two things in common: they lead to increased profits and safety.
Currently, businesses can enjoy the following:
Security – Due to blockchain technology and decentralized storage, cryptocurrency offers a more secure way to pay, with significantly less chance of fraud, breaches or hacking. It's appealing to customers and companies looking for a safer way to do business.
Conversions – Business owners look for ways to turn a browsing customer into a paying one. Equipping customers with more ways to buy is a great method of branching out and improving conversion rates, which greatly benefits small businesses.
Wider market – With more than 300 million users worldwide and climbing, accepting cryptocurrency opens the doors to a global audience.
Cheaper transactions – Payment processors for crypto charge 1% or lower. Compare that to the average 25 or so cents plus 4% transaction fee for most credit card processors or PayPal, and crypto makes perfect financial sense.
Global transactions – Business owners avoid the cost of converting international currency into domestic. In addition, they circumvent the wait on bank clearances.
Perma-payments – Establishing transactions to the blockchain is about as permanent as etching it in stone. That’s good news for merchants who gain increased protection against fraud and chargebacks. It's also easier to track cash flow.
With rules, regulations and payment processors undergoing comparatively rapid changes, who knows what other benefits lie ahead?
Drawbacks of accepting crypto payments
There’s a flip side to every coin. Digital coins are no different. The newness of the concept and the technology surrounding it make up most of the pain points.
Turn-offs include:
Perma-payments – The beneficial permanence of payments is also a detractor – it’s more difficult to reimburse customers. Refunds require additional employee training, and customers could get antsy waiting to get their money back. Business owners must keep immaculate records to facilitate the process.
Value volatility – Unpredictable values can breed distrust, especially for small businesses. However, crypto can be quickly converted to cash through merchant service companies at the time of the exchange (and the hedge against inflation and government manipulation is a bonus).
Tax entanglements – The IRS taxes cryptocurrency as property. Consumers and businesses must keep tight records of its value upon receipt and exchange. The owner owes taxes on the value at the time of possession even if it loses value in the future. Changing regulations surrounding crypto can be a little too intimidating for some who will opt to avoid the complexity as long as possible.
Lack of adoption – Despite its growing popularity, for some, the use and adoption of crypto payments are still too new. They aren’t adopting yet because they are waiting to learn from the experiences of others. It’s quite a catch-22: the lack of widespread adoption is limiting its widespread adoption.
Too technical – Should a small business owner wish to adopt cryptocurrency payment options, the learning curve can seem daunting. Payment processors have eased many of the worries, but confidences could use an additional boost.