Businessman working using multiple devices at an office near a window.
If you’re considering accepting cryptocurrency at your venture, it's important to know the benefits and disadvantages to offering this payment option. — Getty Images/ svetikd

El Salvador made headlines in September 2021 as the first country to accept Bitcoin as its official legal tender. The announcement is a new milestone in the widespread adoption of cryptocurrency. As cryptocurrency becomes more mainstream, small business owners may want to take note. If you’re considering accepting cryptocurrency at your venture, here are some benefits and disadvantages to offering this payment option.

[Read more: How to Accept Bitcoin Payments]

Cryptocurrency offers better payment security

The pandemic has led to a surge in credit card fraud; in 2020, the dollar volume of attempted fraudulent transactions rose 35% in April 2020 as compared to April 2019. Credit and debit cards were the source of the majority of fraud reports among all payment methods in 2020. And, unfortunately, small businesses are often the target of this type of fraud.

Cryptocurrency is considered more secure than credit and debit card payments. This is because cryptocurrencies do not need third-party verification. When a customer pays with cryptocurrency, their data isn’t stored in a centralized hub where data breaches commonly occur. Rather, their information is stored in their crypto wallet. Plus, the blockchain general ledger is used to verify and record every transaction, making it very difficult, if not impossible, to steal someone’s identity.

[Read more: What Small Businesses Need to Know About Blockchain]

Cryptocurrency transactions are irreversible

Once a cryptocurrency payment goes through, it is permanent. This can be a double-edged sword for small businesses. “Transactions can be refunded only by the party receiving the funds. Businesses that accept Bitcoin should be prepared for the possibility of customers requesting refunds, and keep track of how much money each customer has paid,” wrote Inc.

On one hand, cryptocurrency’s irreversibility helps business owners better manage their cash flow. There are no chargebacks to worry about, and if someone requires a refund, the retailer has to manually pay them back. This forces your team to keep immaculate records.

However, this process can also create inefficiency in your business operations and lots of additional work for your employees. If you have a ton of refunds during the holiday season, for instance, your team will need to divert time and attention toward returning payments individually.

In other words, each time you sell, buy, or use Bitcoin, you're subject to a capital gains tax.

Inc.

Pay lower fees

Merchants are responsible for paying transaction fees, as well as setup fees for many payment processors. PayPal, for instance, charges close to 4% per transaction (and sometimes more). Cryptocurrencies charge much lower fees, if any. Some Bitcoin exchanges offer fees under 1%. Likewise, if your business serves customers overseas, cryptocurrencies can help avoid international currency payment fees. This is because cryptocurrencies aren’t tied to a country of origin or national bank. As a result, businesses don’t wait for payments to clear a foreign bank or pay the costs.

There are tax implications

The IRS considers cryptocurrency to be “property” for tax purposes. This means that if you accept cryptocurrency, you must report it as gross income based on its fair market value when it was received. “In other words, each time you sell, buy, or use Bitcoin, you're subject to a capital gains tax.” wrote Inc.

The IRS rules for accepting cryptocurrency also mean that you must keep track of the value for each cryptocurrency on the day it was received and the day it was sold. This can quickly get complicated, especially when you’re managing several transactions a day. You may consider accepting cryptocurrency for items over a certain dollar value, rather than for daily sales.

It’s still considered extremely risky

Crypto fans appreciate that this currency is considered immune from inflation. Governments can’t manipulate the value of cryptocurrencies, which is both a risk and a benefit. On one hand, cryptocurrencies are a hedge against monetary inflation. On the other hand, the value of bitcoin and other crypto is extremely volatile. In a three-month span, the volatility of Bitcoin reached nearly 8%. For many business owners, that level of unpredictability makes cryptocurrency simply untenable.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

Follow us on Instagram for more expert tips & business owners’ stories.

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.

A message from
You’re invited to join a private network of CEOs.
Discover how 45,000 CEOs are growing their businesses. Connect with verified companies on a secure private network to find new clients, raise money and find reliable solutions for any business priority.
Learn More
Published September 24, 2021