Over the past year, Bitcoin adoption has increased significantly. Now the realm of Bitcoin and cryptocurrency stretches far beyond retail and institutional investors, and many companies are looking at ways to increase revenue by accepting bitcoin payments.
But how easy is this to do? What are the limitations of accepting payments with bitcoin? And is there a way companies can accept bitcoin as a method of payment without running into regulatory nightmares? Let’s find out.
What to consider before introducing bitcoin as method of payment
First and foremost, it is important to understand whether your clients are looking to pay for your services in bitcoin. Analyze the target audience: if your customers aren’t prepared to buy with bitcoin yet, there is no need to add features nobody will use.
Bitcoin itself has limitations and isn’t suitable for certain businesses. For example, if you own a busy store, you don’t want a queue of customers all looking to pay with bitcoin and holding everyone up because it takes 10 minutes on average to process a bitcoin transaction. What’s more, bitcoin transactions can be subject to costly fees, and moving your bitcoin between wallets could eat into your profit margin.
For other businesses, where transaction time isn’t an issue and the fees involved are minimal compared to the transaction value, accepting bitcoin could be a lucrative way to generate money. A good example of a crypto-friendly business would be car sales, as the ticket value of a car is often high, and the transaction doesn’t need to be completed in seconds.
There are other important considerations to make before accepting bitcoin as a method of payment.
Bitcoin transactions are irreversible
In business, it often happens that a user may request a refund, which is not possible with bitcoin, as transactions aren’t reversible. The business will have to keep track of each transaction and pay the customer back manually if needed. Of course, this will incur additional transaction fees.
As with any other income, you will need to keep a record of bitcoin transactions for taxation purposes. This can be tricky with cryptocurrency because it is a fledgling sector, and there are very few reputable accounting services that can help you do this.
Not only will you need to pay sales tax or corporation tax on your profit, but in many countries you will also need to pay capital gains tax if your bitcoins appreciate in value.
Regulation in different countries
In some countries it is illegal to accept bitcoin as payment. In others, like El Salvador, it is legal tender, and bitcoin payments are encouraged.
Before accepting payments in BTC, ensure that you have checked the crypto laws in your jurisdiction and know the rules governing what you can and can’t do when accepting bitcoin payments.
For investors, volatility in the crypto market can be their best friend as investments can sometimes jump significantly overnight. But with price increases come the inevitable drops in value, such as the major crash that happened in May this year.
For a business with operational costs and suppliers to pay, these drops could be devastating and mean that you’re unable to meet your financial obligations. It is best to accept fiat currency as well as crypto for the time being to ensure liquidity.
Alternatively, many companies switch out bitcoin to stable coins at the time of a drop to mitigate the risk associated with market crashes and guarantee liquidity.
Which major companies already accept cryptocurrencies?
Of course, there are already some companies that are embracing the idea of bitcoin payments, and you might be surprised at some of the big names that already accept the coin:
- Overstock – for purchase payments (it was the first large retailer to accept bitcoin);
- Microsoft – for payments in Microsoft Store;
- PayPal – for making online purchases (converting crypto to fiat at checkout), as well as buying, holding and selling crypto;
- Expedia – for travel services payment, through a partnership with Coinbase;
- Starbucks – for purchasing company products through the Starbucks app using the Bakkt wallet.
There are many other companies that have accepted or are looking to accept bitcoin. Tesla famously accepted bitcoin until recently, and is also looking at ways to accept bitcoin again going forward, once its environmental concerns are put to rest.
Benefits of bitcoin payments
Bitcoin is often considered a store of value; as a result, accepting bitcoin payments can help your company hedge against inflation. Inflation in the US recently reached 5%, and many companies are seeing the cost of doing business escalating as a result.
Bitcoin can also appreciate in value over time, which makes it particularly attractive to some businesses. Goods that cost $100 worth of bitcoin might actually make the company a lot more in profit because the value of bitcoin could increase.
Cons of bitcoin payments
All good things come with downsides, and accepting bitcoin is no different. Taxation is becoming a key battleground (especially in the US) around crypto, and businesses might find they are caught up in a fast-moving tax regime. Legislation on crypto is being changed and altered all the time, and accepting bitcoin today could lead to a heavy tax burden tomorrow.
Bitcoin is also not especially functional as a currency because of scalability issues. It is costly to transact with and it can take a long time for payments to process. What’s more, as adoption grows, the Bitcoin blockchain will get congested, leading to higher fees and slower transaction times as people compete to get their transactions in the next block.
Cryptocurrency in general will soon be a mainstream payment method for businesses. Because of its status and value, bitcoin is leading the way for many businesses, although as a currency it is not ideal and has its operational risks.
Consider all the above before deciding to accept bitcoin, and make sure you have spoken to your accountant about any tax implications around bitcoin payments.