What is cryptocurrency?
Bitcoin isn’t the only cryptocurrency in today’s marketplace. There are thousands of them out there, and dozens of them are widely used and have multibillion-dollar market capitalizations.
All cryptocurrencies are non-governmentally issued digital cryptographic asset tokens. These can be exchanged as payment for goods and services and can usually be converted into formal currencies, such as U.S. dollars, Euros, pounds and so on.
Cryptocurrency units can also be subdivided down into tiny fractions of a single unit for small payments, or many coins can be sent for multimillion-dollar purchases and donations. Exchanging, using and converting major cryptocurrencies to legal tender is fast, easy and in most jurisdictions, legal.
All the major cryptocurrencies exist on what is known as their blockchain. This underlying technology works as a decentralized, robustly distributed cryptographic ledger of all transactions by all users of that particular type of cryptocurrency. It irrefutably establishes ownership of cryptocurrency units.
How to accept and send cryptocurrency
To begin accepting crypto payments, follow these steps:
- Set up a cryptocurrency wallet or wallet with an online software service or through a physical device, such as a Trezor.
- Then, set up a digital account with a crypto payment processing service, such as Coinbase Commerce, BitPay, CoinsPaid or others. There are many processing services available that support multiple types of coins.
- Give your customers the option to pay in bitcoins or another cryptocurrency through your website, your crypto-supporting online shopping portal or your email invoicing through the use of buttons and/or links.
- Regularly transfer your crypto assets from your payment platform to the personal wallet you established in the first step. This ensures that your coins are personally held by you with your own private keys in your own private wallet and can protect you against coin theft.
- When tax filing season arrives, report your cryptocurrency earnings based on local laws and accounting practices for these assets in your jurisdiction.
How cryptocurrencies can be converted into cash
If you’ve managed to accumulate funds in the form of Bitcoin or other cryptocurrencies, you can trade them for regular currency. This is possible through any one of many registered full-service exchanges that operate in many countries.
In the United States, one of the largest is Coinbase, which offers bank transfers of U.S. dollars earned from selling crypto assets through its platform. Other exchanges are available in other countries depending on local laws and demand for these services.
Accepting crypto payments and avoiding losses or fraud
The underlying mechanisms of cryptocurrency exchange and handling are complicated in some ways, but that’s not a reason for your business to avoid them. While fraud does exist when it comes to cryptocurrency payments, it can be mitigated and stopped by managing a strong and secure IT infrastructure.
Vetting your payment handling carefully can go a long way toward keeping you safe from illegal transactions or attempts at theft. Setting up payment processing accounts with reputable, well-established payment providers is another step for securing against fraudulent transactions.
Transfers in Bitcoin, Ether and most other widely used currencies are generally irreversible or very hard to reverse, which makes fraud much less likely.
Why businesses should consider accepting cryptocurrency payments
Businesses that accept bitcoins and other cryptocurrencies can use that leverage to develop their own distinct brand identity. This ecosystem of payments is still unique and fresh enough for easy reputation-building.
If your business begins accepting cryptocurrency it could attract a good deal of attention from the customers and media sources that follow your niche. Cryptocurrencies are among the few digitally convenient payment acceptance and processing options available to buyers and sellers.
Cryptocurrency legal ramifications and tax considerations
Not all countries allow legal ownership or exchange of cryptocurrencies. There are also unique tax reporting considerations that apply to crypto, even in many places where it’s legal to use it. In the United States, as of the most recent IRS regulations, cryptocurrency is treated as property for tax purposes, instead of as cash earnings alone.
Any business that accepts crypto payments must report it as income based on its fair market value at the time it was received. This creates a situation where you’ll owe capital gains taxes on your crypto earnings, instead of normal income tax.
Accepting cryptocurrency FAQ
The answers to the following frequently asked questions about accepting crypto payments can provide you with more information about digital currencies.
Are there any fees associated with cryptocurrency transactions?
Yes. All exchange and payment processing services that let you store or transfer crypto coins typically charge small transaction fees that vary, but they’re usually less than 1%. Aside from this, many (but not all) cryptocurrencies have their own in-blockchain transaction fees created by those who computationally power them. These fees shrink and grow depending on transaction demand, but they’re usually flat regardless of transaction size.
Are cryptocurrency assets covered by insurance coverage or seller protection policies?
There are platforms that offer some level of protection for your cryptocurrency assets, and there are some business insurance plans that are flexible enough to cover these assets. However, specific policies and costs can vary in their scale due to the novel nature of digital tokens.
Can I make cryptocurrency transactions at any time of year?
Yes, you can. Accepting or sending cryptocurrencies of all kinds usually takes just minutes to complete and can be done 24 hours a day, any day of the year. Converting these assets to U.S. dollars and sending those dollars to a bank account may take longer depending on your specific platform and online banking rules.