A few years on from Bitcoin hitting the mainstream, cryptocurrencies are back in the news. Dogecoin, a meme-inspired currency promoter by Elon Musk, has made the headlines (not always for the right reasons), whilst a wide array of online retailers have begun to accept it as a form of payment.
Accepting cryptocurrency transactions could be beneficial to your business, both in financial terms and the publicity this can generate, but there can be pitfalls.
Here then is a brief rundown of where cryptocurrencies are at in 2021: what they are, what's popular, and whether your business should be getting involved.
What are crypto currencies?
Crypto currencies are currencies that are decentralised from banks, and lack any physical tender. They exist entirely online, using digital coins that are stored in specially secured 'wallets'. To use them, you simply pay in much the same way you would use a traditional payment portal, such as PayPal or Stripe.
Instead of being issued by a bank, crypto currencies are generated by individuals using special utilities on their computers. These are designed to be incredibly resource intensive, making the process of creating (or 'mining') crypto currencies a long and inefficient one.
As the value of crypto currencies is tied to their popularity and the rate of mining, they tend to be more volatile than traditional currency markets. This has allowed many speculators to make quick gains on investments in crypto, driving further interest and investment.
Benefits of accepting crypto currencies
Crypto currencies represent an entirely new approach to online finance. As the currencies are decentralised, there is no prospect of inflation, and the only record of the payment is stored in the 'blockchain', a digital ledger that tracks the use of the cryptocurrency. The high security and decentralised nature of this technology makes it both cheaper and more secure than traditional payment methods, with no third parties and no processing fees.
While the market is volatile, crypto currencies are generally trending upwards. Dogecoin looks set to be here for the long haul, while Bitcoin has stabilised into a period of steady growth after a massive rise in value. Businesses who accept crypto currencies are investing in assets that they can look to profit on when trading for real-world currencies, or even use for purchasing from other firms.
Another major benefit is the positive PR associated with accepting crypto currencies. As a new and exciting payment option, accepting crypto currencies will likely generate headlines, and help to maintain the currencies' momentum. It may also unlock new customers who prefer this type of payment, and encourage them to spend something which has relatively little practical value other than as a means for investment.
Drawbacks of accepting crypto currencies
For all of this, there is a lingering question over the viability and practicality of crypto currencies. Despite major backers in Wall Street and major business leaders, the market remains volatile and divided, with dozens of different currencies, and new ones constantly emerging. The crypto market, however, can fluctuate wildly, as it did with the recent crash that wiped billions from various cryptocurrencies including Dogecoin and Ethereum. The way it operates also presents logistical challenges: since there is no real 'middle man', there is no process for refunds, and transactions must be made on faith.
There's also a growing ethical concern about the environmental impact of cryptocurrency mining, and how this reflects on the green commitments of businesses. As crypto currencies have boomed, so too has the practice of crypto mining, where people invest in expensive computers designed to efficiently generate the currencies. As the process for generating crypto currencies is extremely resource intensive - and because many crypto miners use multiple PCs running for days on end - the production of crypto currencies has been widely criticised for wasting huge amounts of power.
The intensity of the process also causes computer components to burn out quickly. This has not only led to a massive shortage in graphics cards - most notable in the production of new games consoles from Sony and Microsoft - but also adds to the demand for the rare materials used to manufacture them. The process for mining and processing these materials is environmentally destructive in itself, and has created apocalyptic wastelands in countries such as China.
There are also questions around how it is taxed. In the US for example, crypto currencies are considered property investments for tax purposes, making them subject to capital gains tax. Businesses using crypto must keep track of the value of their currency when buying and selling in order to accurately report its gross income. It's likely that we will see further regulation around the various crypto currencies as they continue to grow.
There is also concern about cryptocurrency being used for money laundering purposes which has recently led to the UK Financial Authority clamping down on a vast number of cryptocurrency dealers for failing a UK money laundering test which has ultimately led to dealers closing business.
How to accept crypto currency payments
Should you wish to accept crypto currency payments, you'll first need to decide which crypto currency you intend to use. Bitcoin is the most renowned and arguably most stable option, but a single coin costs an absurd amount of money, presenting a barrier to entry. Smaller currencies such as Dogecoin and Ethereum provide a lower buy in, and an opportunity to make substantial gains if their value rises.
Next you'll want to consider which payment processor you use. While marketplaces including Etsy and Shopify have struck up partnerships to offer crypto as a payment option, other sites will have to use their own crypto management platform. Options such as Coinbase Commerce and Coingate allow you to essentially 'become your own bank', providing software that allows you to accept and manage crypto payments.
The way this software works is very simple: transactions generate a unique link which the customer follows, and pays for by accessing their wallet. Instead of being processed and facilitated in the usual way, transfers of crypto currencies take place in a 'distributed ledger' - a heavily encrypted, constantly updated database that is backed up on servers all around the world.
Due to the nature of this encryption, each transaction (and thus each change to the ledger) is immutable, and cannot be faked or refunded. In other words, it's impossible to pay for something if you don't have enough digital currency to afford it. All the software does is manage your connections to this database, and keep a record of your transactions with customers.
The various software options for crypto currencies may integrate with existing e-Commerce solutions, or provide their own. Crypto.com for instance offers a popular WooCommerce plugin to add crypto as a payment option. The fees for using these software suites and processors vary: some charge a fee for the software but not for payments, while others offer free payments up to a certain quantity or turnover. In either case, crypto payments are cheaper to operate than traditional payments, and therefore tend to be cheaper to process.
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