December 20, 2019

Should Your Business Accept Bitcoin Payments?

However, while accepting credit cards and other traditional payment methods may seem obvious, accepting Bitcoin payments is more complicated. In addition to subjecting your business to Bitcoin’s erratic price, it also comes with tax complications.  Still, there are large companies, such as Amazon and AT&T, who now accept Bitcoin. Clearly, Bitcoin has resonated among enough consumers that it’s worth considering. Due to this, we'll review the topic further in this post.

What Is Bitcoin?

Bitcoin is a type of digital currency, also referred to as a kind of cryptocurrency or virtual currency. It's the first decentralized digital currency ever created, and is stored on a network of computers called a blockchain. Every transaction is verified through cryptography on this blockchain. As a digital currency, Bitcoin only exists as a snippet of code on your computer. In other words, there are no physical coins or tokens. Each time Bitcoin is spent or received, the network verifies the transaction and stores it. The stored transaction can't be altered without network verification. This provides security for Bitcoin users because the transactions record is available to the public. However, even though the data is public, the person or entity that spent or received that Bitcoin is kept anonymous. Due to this combination of security and the ability to remain anonymous, Bitcoin has become very popular. Many Bitcoin users like the currency because it’s an alternative to using traditional financial institutions to transfer money. Coindesk highlights several distinctions between Bitcoin and traditional currency, which include:
  • Decentralization: Traditional currencies rely on centralized banks to facilitate and verify transactions. Bitcoin transactions are verified by a network of computers spread throughout the world.
  • Limited Supply: Unlike traditional currency, there's a finite supply of Bitcoins. This eliminates the ability of anyone to manipulate its value.
  • Immutability: Once an hour has passed after a Bitcoin transaction is recorded, it can’t be reversed.
  • Divisibility: Bitcoin can be divided into one hundred millionths, making it possible to process microtransactions.
Due to the popularity of Bitcoin, similar types of digital currencies have come out. Some of the largest ones include Ethereum, Ripple, Tether, and Litecoin. However, Bitcoin still boasts the largest market capitalization at nearly $130 billion.

Is Bitcoin Really The Future of Digital Currency?

Bitcoin must overcome obstacles before we can declare it as the future of digital currency. One of Bitcoin’s core values lies in its security, yet Bitcoin hackers regularly find ways to steal. Also, because it's an anonymous transaction, more than one billion dollars in Bitcoin is spent in illegal online marketplaces.  However, the number of companies that accept cryptocurrency like Bitcoin is increasing. Plus, as the technology behind Bitcoin advances and becomes more mainstream, adoption will likely increase.  Ultimately, it’s impossible to say if Bitcoin is the future of digital currency. Whether it’s Bitcoin, a similar format, or a combination of several, cryptocurrency is here to stay.

The Pros and Cons of Accepting Bitcoin

As you might expect, accepting Bitcoin comes with both pros and cons. Depending on your business's industry, the benefits and drawbacks of accepting Bitcoin may be more or less pronounced. In concept, the advantages of accepting Bitcoin are similar to those of accepting any other additional payment method. For example, by offering Bitcoin payments, you’ll increase the chances that your customers will have their preferred payment method.  However, the disadvantages of accepting Bitcoin are unique and not exactly straightforward. To help you decide whether to offer this payment method, here are the pros and cons of accepting Bitcoin. Bitcoin Accepted Here

The Benefits of Bitcoin:

  1. Access New Customers
As a business owner, expanding your market is always a top priority. Accepting Bitcoin is one of the most simple ways you can reach new customers. Of course, this depends on your industry and ideal customers.  Ultimately, some companies will have a large base of Bitcoin users to sell their products to and others won’t.
  1. Lower Fees for Cross Border Payments
One of the biggest problems in the payments world is cross border payments. Not only is making payments across borders slow, but it’s also expensive. Bitcoin allows you to avoid many of the fees associated with cross border payments. Although you'll still pay fees for accepting payments with Bitcoin, they'll be lower.
  1. Bitcoin Can Build Your Brand
Much has been made about the cult-like following of Bitcoin, making it clear that it has a loyal following. By accepting Bitcoin, your brand will score points with Bitcoin users. However, beyond that, you’ll also position your company as an innovative brand, unafraid to delve into new technologies.
  1. More Choices for Your Customers
When it comes to payment methods, more is generally better. By offering Bitcoin as a payment method, you’ll avoid losing customers who want more payment options.

The Downsides of Bitcoin:

  1. High Exchange Rate Risk
Even though it’s the most popular cryptocurrency, Bitcoin’s price is extremely volatile. The value of a single Bitcoin can change significantly in seconds. For this reason, it’s risky to accept Bitcoin if you’re not immediately converting them to dollars (USD). Due to this, many businesses work through third-party exchanges that instantly convert Bitcoin payments to USD.
  1. Unique Tax Treatment
The IRS treats Bitcoin differently than traditional currency. For example, if you’re paid in Bitcoin and consider it a capital asset, it’s considered property for tax purposes. This means your Bitcoin will be subject to capital gains taxes.  There are ways to avoid the tax issues that come with Bitcoin, but you’ll need to consult a tax professional.
  1. Complicated to Set Up
From a technical perspective, it’s not necessarily complicated to start accepting Bitcoin. However, to do it right takes time. First, you’ll need to conduct research and decide how you’ll process the payments. While some businesses do it through a third-party exchange, others accept Bitcoin directly.  In addition, you should speak with a tax professional to understand the tax implications of accepting Bitcoin.
  1. Lack of Regulation
As a fairly new type of currency, Bitcoin isn't as regulated as it needs to be yet. Therefore, if you’re accepting Bitcoin directly, it’s critical to understand the risks.

How To Accept Cryptocurrencies

Are you wondering how to accept bitcoin payments? There are generally two ways, either through an intermediary or directly. If you choose to accept bitcoin directly, set up a digital wallet and integrate it with your website and/or PoS. To avoid the exchange rate risk, many businesses use an intermediary to accept these payments. For example, KFC Canada partnered with BitPay, a third-party payment processor, to accept Bitcoin payments. KFC Canada customers were able to pay in cryptocurrency, which was then converted by BitPay into Canadian dollars. In this way, you can accept payments in cryptocurrency without actually ever receiving it.

Other Businesses Who Accept Bitcoin Payments:

If you’re researching how to accept Bitcoin payments, you’re not alone. The number of companies that accept this form of payment is growing. Companies that accept bitcoins include several major companies, such as Microsoft, Expedia, and Overstock.  However, it’s not just big businesses that accept Bitcoin. There are also plenty of small and medium businesses on the list which include pubs, diners, and coffee shops. As you can see, if you decide to add Bitcoin as a payment method, you won’t be alone. 

Final Considerations

At this point, Bitcoin simply isn’t widespread enough for most businesses to invest in receiving these payments. Bitcoin users are passionate, but the use of Bitcoin is still restricted to certain niches. Large, online stores like Overstock reach enough customers globally that the benefits of accepting Bitcoin far outweigh the costs.  However, that doesn’t mean accepting Bitcoin payments isn't worth considering. For businesses that serve tech-savvy, young customers, accepting Bitcoin may be a great idea. In any case, it’s important to understand the implications of allowing your customers to pay with Bitcoin. The costs and risks must be planned for and considered. Looking for more insights like these? Sign up for our email list! [cta-newsletter]