Cryptocurrency is another method for your small business to accept customer payments. However, because cryptocurrency is relatively new, many business owners do not understand it. Here are some facts about cryptocurrency and the advantages and disadvantages of implementing it as a payment option.
What Cryptocurrency Is
Cryptocurrency is a digital currency created by technically savvy individuals called “miners.” Miners use cryptocurrency algorithms to keep a decentralized ledger of transactions on blockchain technology and create new cryptocurrencies called “coins.” Cryptocurrency uses encryption technology to transfer value over the internet when buying and selling goods and services online. Cryptocurrency operates without a banking system and may be used globally to store or exchange value like cash. It has stated exchange rates for most of the legal tender worldwide. Because cryptocurrency has a fixed supply, it is considered an asset similar to precious metals.
Advantages of Accepting Cryptocurrency
There are many advantages to accepting cryptocurrency as payment for your company’s goods/services. For example, because there is no intermediary, there typically are no processing fees. Therefore, accepting cryptocurrency is less expensive than traditional payment methods such as credit cards. You can save more money or pass on your savings to your customers through lower prices. Also, because cryptocurrency transactions happen in near real-time, coins are deposited in your wallet in 10 minutes or less. This is much faster than traditional payment methods such as credit cards, which may take up to three days for each transaction to clear. In addition, because cryptocurrency transactions are final, there is no concern for chargebacks as there is with credit card payments. Therefore, you can better control your return policy, reduce customer fraud and increase your revenue. Plus, the more payment options customers have, the happier they feel, and the wider your customer base becomes.
Disadvantages of Accepting Cryptocurrency
Accepting cryptocurrency for customer payments comes with many disadvantages. For example, some merchant wallets charge a flat monthly fee for their services and a small percentage of each sale to provide priority payment processing and posting. Also, when converting cryptocurrency to a base currency, you typically pay a buy/sell spread, decreasing your income from the transaction. In addition, a merchant wallet typically converts coins to cash and sends the equivalent currency to the merchant’s bank account through ACH within three days. Therefore, you receive the money around the same time as you would from a credit card transaction. Plus, cryptocurrency has a high price volatility, meaning you risk substantial financial losses if the cryptocurrency experiences a flash crash when your coins are being converted to cash or if you bill your customers on net terms. When billing on net terms, you quote prices at the current exchange rate when you send the invoice. If the value of the cryptocurrency declines, you risk a significant loss by inadvertently giving your customer a massive discount.
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