With the rise of social media posts and groups dedicated to bitcoin, it’s clear that cryptocurrency is on the minds of both your customers and your competitors.
Deciding what payment types to accept is a personal decision, based on your particular type of business. The first step to making that decision is understanding the benefits and risks of accepting cryptocurrency.
What is cryptocurrency?
When your customers use traditional currency to pay, they hand you cash or a check or credit card that’s backed by a guarantee of value. Cryptocurrency is entirely digital, with no physical object that represents the currency. The other big difference is that while traditional currency is regulated by a bank or government, cryptocurrency is decentralized—meaning it’s completely independent.
While many people use the terms cryptocurrency and bitcoin interchangeably, bitcoin is actually a specific type of cryptocurrency. Though bitcoin is the most popular and well known, there are currently over 7,800 types of cryptocurrency, including Ethereum, XRP, Tether, Dogecoin, Ripple, Cardano and Litecoin. Each type of cryptocurrency has a separate exchange rate and may function slightly differently. Consumers buy their cryptocurrency on an exchange and then store their cryptocurrency in a virtual wallet—either a digital version or one stored on a portable hard drive.
While on the surface using cryptocurrency for small businesses may not seem secure, the opposite is true. Each transaction is publicly included on a decentralized ledger using a complex digital verification process, making it virtually impossible to commit fraud on cryptocurrency.
Because the price of cryptocurrency varies, some people purchase cryptocurrency as an investment. Using the same principles of the stock market, the goal is to buy when the value is lower and sell when it’s higher. Be sure to keep this in mind when taking payments and be sure to cash out at least daily to reduce losses.
How does a small business accept cryptocurrency as a payment method?
If you decide to begin accepting bitcoin or another cryptocurrency, the first step is to select a cryptocurrency online payment processor that can convert the currency into your base currency, such as USD.
You can use the platform to accept cryptocurrency at the register as well as for online purchases. If you’re using an e-commerce platform such as Shopify, Magento or WooCommerce, make sure the payment processor integrates with your e-commerce platform. When choosing a processor, compare transaction fees paid by the merchant, which are typically 1% of the purchase price.
While most platforms support bitcoin, which is the most widely accepted cryptocurrency, other supported currencies vary based on the payment processor. Because new cryptocurrencies are being developed, look for platforms that are continually adding new currencies, so you can continue to accept a wide range as they become more widely used and your customers wish to pay with them.
PayPal’s recent announcement that consumers can use cryptocurrency offers another way for small businesses to easily accept cryptocurrency. Merchants who already accept PayPal can accept cryptocurrency payments without changing their processes or payment processor. Customers simply use cryptocurrency when they put funds in their PayPal account, and the merchant obtains funds by using the same process they currently use. Small businesses already accepting PayPal can use this as a marketing point and a gateway into offering cryptocurrency payment options for their customers.
What are the benefits of accepting cryptocurrency?
The biggest and most immediate benefit is that offering customers a new way to pay opens the doors to new potential customers who are specifically looking for businesses that accept cryptocurrency.
Because cryptocurrency payments are a technology-enabled solution, accepting the currency shows consumers that you’re on the cutting edge of trends and have an affinity for technology. Businesses marketing to a younger customer base should especially consider accepting cryptocurrency as millennials and Gen Z are increasingly adopting the payment method.
When your customers pay by credit card, you pay a processing fee of up to 3% of the purchase price—and up to 4% for PayPal—which cuts into your profits. Many cryptocurrencies have zero transaction fees, and those that do charge less than bank fees. Additionally, when a customer pays with cryptocurrency, there’s no delay in payment—you have access to the cryptocurrency instantly, instead of waiting hours or even days for funds to appear in your bank account.
What are the disadvantages and risks of accepting cryptocurrency?
Because the value of cryptocurrency fluctuates, the sale price for a product or service is based on the value for the specific cryptocurrency at the time of purchase. If the value decreases before you cash out the currency on the exchange, you could lose money on the transaction. By using a payment processor and quickly cashing out, you can lower your risk of losing money.
Other risks of using cryptocurrency are on the consumer side. Because a cryptocurrency is a final transaction, consumers find this a disadvantage because there are many scams and unknowns associated with it. Additionally, they don’t have the same legal protections credit cards offer, meaning they cannot dispute a charge. Businesses typically find this to be an advantage because they don’t have to manage chargebacks and potentially fraudulent transactions.
While the idea of accepting cryptocurrency may feel out of your comfort zone now, remember it wasn’t that long ago that you had the same concerns about e-commerce and social media. It’s time for a digital wallet!
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