Last winter, cryptocurrency seeped into the mainstream as Bitcoin rose in value to over $20,000 CAD per coin. This led to a rush on every conceivable coin, from established options such as Litecoin and Ethereum, to novelty coins such as Dogecoin and Potcoin. While values have since dropped off, cryptocurrencies and the blockchain are here to stay, prompting many entrepreneurs to wonder if they should be accepting cryptocurrency as payment.
What Exactly is Cryptocurrency?
A cryptocurrency is a virtual currency designed to act as a medium of exchange. The creators of Bitcoin describe it as a ‘peer-to-peer electronic cash system’ that is completely decentralized. This means no banks are involved and there’s no central controlling authority. For a close comparison, cryptocurrencies resemble peer-to-peer torrent networks used for file sharing online. The ‘Blockchain’ acts as a public ledger of all the transactions that happen within this network. It’s available and transparent to everyone. Meaning each member of the network can see every account’s balance.
Advantages of Using Cryptocurrency
As a small business owner, accepting cryptocurrency will allow you to take advantage of the following benefits.
Lower Transaction Fees
Canadian business owners face fees for accepting payments via credit card. The Canadian Federation of Independent Business lists the minimum fee for a credit card transaction at 1.65%. This fact alone has made cryptocurrency attractive to entrepreneurs as the lack of a middle-man dramatically reduces the fees involved.
Increased Merchant Protection
Another issue businesses can face is fraudulent chargebacks on credit card transactions. These can be messy and take time to untangle. Like cash, transactions through cryptocurrency are final because no third party exists to reverse the charges.
Adopting cryptocurrency as a method of payment opens you to more customers internationally. Crypto helps to avoid currency exchange and the associated fees that go along with it. Potential customers can see how you’re pricing things in a universal currency, simplifying the decision to purchase. For a conventional comparison, the adoption of the Euro across the European Union saw prices for a lot of products harmonize as consumers could easily see what people in other countries were paying for the same goods.
Flexibility for Potential Customers
It’s good business to give your customers as many ways of paying for things as possible. Bitcoin ATMs are becoming commonplace in Canada, meaning more and more potential customers are getting used to dealing with them.
Cryptocurrency Risks to Understand
Cryptocurrency has plenty of benefits, but it isn’t for every business. Here are some of the drawbacks to adopting it as a payment method.
As it’s a relatively new way of conducting financial transactions, cryptocurrency is an information-dense field with a relatively high learning curve. Most entrepreneurs are pressed for time; they might not have the luxury to get up to speed on how to get themselves “crypto-ready”.
Volatility of the Market
There’s an apocryphal story that does the rounds in cryptocurrency circles about a Florida programmer, Laszlo Hanyecz, who exchanged 10,000 Bitcoins for two pizzas in 2010. By December 2017, those same Bitcoin would be valued at over $100 million. Since then, those coins would have lost two-thirds of their value. Cryptocurrency is still very much in its infancy and prone to market fluctuations. Anyone who enters this market is advised not to make it their main method of conducting transactions.
Cryptocurrency isn’t 100 per cent safe yet. There is no way to completely prevent cybercriminals from stealing users’ wallets. Unlike conventional currencies, crypto is not backed or insured. If somebody managed to steal your wallet, you have very little chance of getting it back. The good news is that some companies are attempting to address this gap. Coinbase, one of the most popular online exchanges, holds less than two per cent of customers’ cryptocurrencies online. And, if a breach did happen, they have promised to fully insure all losses. Don’t forget to enable multifactor security on all your accounts if dealing in cryptocurrencies.
Yet to Reach Maturity
Stephen Poloz, Governor of the Bank of Canada, is on record as calling Bitcoin trading “gambling”. This view of cryptocurrencies as not quite legitimate is still held by some of Canada’s most powerful financial figures. Despite this view, Canada is one of the first countries to officially state how cryptocurrency businesses will be regulated. The framework is still being agreed upon, and updates are expected to continue arriving for the foreseeable future.