There are some strategic aspects of why accepting crypto is good for your business.
In our last article we discussed why you may want to accept cryptocurrency in your business and it may not be as risky as you think.
Many companies that aren’t used to dealing with crypto may feel that it is too new and too volatile to accept as a means of payment in their business. Even from the time we did our last post, Bitcoin’s price experienced huge swings, hitting new record highs of over $58,000 and dropping to $45,000 a few days later. Few companies want to hedge against that kind of volatility for everyday transactions.
In our last article we talked about how stablecoins, cryptocurrency pegged to the US dollar, help to eliminate the volatility and can put business owners a bit more at ease.
The benefits of transacting in cryptocurrency
You may ask why would anyone transact in stablecoins when you can just continue to handle payments and receipts the way you’ve done for years? To answer that we need to take a closer look at a transaction and the behind-the-scenes complexity involved. For simplicity’s sake let’s take a payment to a vendor as an example.
Let’s say you are working with a vendor who has a critical item you need to serve your customers—whether that is bit of code for your software or raw material for your product. And, for this example, let’s say the vendor’s contract states that they release the material upon your payment clearing their bank. Not a big deal. You’ve been working this way for years—once the invoice becomes due, you push a button and send them a payment through your bank’s online bill pay. Depending on the vendor they will receive either an ACH or a paper check in the mail. Three to ten days later the funds are in their bank (and cleared) and they release the code or raw material.
Intermediaries play a big role in simple transactions.
While it may seem simple for you to push a button to initiate a payment to your vendor, it is the complexity in transfering the funds that takes the time. When you initiate payment (or a vendor deposits a paper check to their bank), that triggers a series of steps your bank and your vendor’s bank take to complete that transaction. Your bank has to make sure you have the money, then send the funds over to your vendor’s bank and then deposit it in their account. If a paper check is involved, the vendor, after waiting 3-7 days to receive the check in the mail, deposits the check to their bank and then waits another 3+ days for the check to clear. In this case, you are looking at 10 days or more before the vendor can release their raw materials or software code. While you may be accustomed to this delay, think about what those 10 days could mean to your production if they were eliminated.
Peer-to-peer payments are the foundation of cryptocurrency.
Let’s take that same transaction in a crypto world. If your vendor accepted stablecoins, you can directly transfer your stablecoins to your vendor as simply as if you pulled dollar bills out of your wallet and put it into the palm of their hand. This peer-to-peer payment option that cryptocurrency enables, increases the speed of transactions and commerce. Cryptocurrencies use a technology called blockchain to do so. By taking the transaction off traditional financial “rails” and putting the transaction on the blockchain, you will not only have nearly immediate settlement but also an immutable record of that transaction since every party has visibility to the transaction. Therefore, there will be no collection calls, no need to reconcile your accounts payable with their accounts receivable, or sending statements back and forth disputing claims. It also eliminates the fees and delays you can experience with wire transfers.
Why hasn’t cryptocurrency become widely accepted for business?
There are a few hurdles that need to be overcome for companies to jump on the crypto bandwagon.
Hurdle #1: Adoption
Simply put, in order to start transacting in crypto, you need a counterparty who is willing to accept it. Sadly, in the US, business adoption of crypto has been slow outside of the Decentralized Finance (DeFi) space and a few select industries that are using blockchains to transact. These companies are comfortable using crypto as a means of commerce. Recent developments with PayPal and major credit cards facilitating transactions in crypto are starting to help.
Hurdle #2: Lack of Understanding
The second hurdle to accepting crypto in your business is gaining an understanding of how cryptocurrency works. While Bitcoin’s meteoric rise in price has many people considering investing in crypto as a part of their personal investment portfolio, far fewer have the stomach to take that volatility and risk to their business’ balance sheets. Many don’t know that stablecoins exist or don’t understand how money can move using blockchain technology.
Hurdle #3: Knowing where to start
The last hurdle to accepting crypto in your business is knowing where to start. Which tools should you use? How can you know you trust them? How do you manage your crypto so someone doesn’t steal it? Then, once you accept crypto, what do you need to do from an accounting and recordkeeping perspective? Is your staff able to handle it? With the right professionals in place to set you up, guide you and make sure you are not inadvertently impacting your taxes, you can have a greater comfort level that you’ve put the proper controls in place and have visibility to your crypto transactions.
You may feel like accepting crypto in your business would be more of a hassle than what it’s worth, however we feel that crypto will become more prevalent in business this year and next. Employees are going to begin to ask to be paid in crypto, your international customers or vendors may want to pay or be paid in crypto, and you won’t be able to avoid it. At some point, accepting crypto will become a strategic move, whether as a means to attract or retain top talent or differentiate yourself from your competition. So, while you are doing your strategic planning this year, consider how accepting crypto in your business would help you get an edge.
If you need help getting set up to accept crypto in your business, or if you are already working with cryptocurrencies and want to make sure you are keeping track of your crypto properly, give us a call.