what is cryptocurrency?
in the most basic sense, a cryptocurrency is a form of digital currency. it is decentralized, which means it does not need a specific government or bank to maintain it. instead, it relies on individuals and businesses to verify transactions, send and receive payments, and even create more cryptocurrency. it is stored in a digital wallet.
bitcoin was the first cryptocurrency. it was founded in 2009. today, however, there are many varieties of cryptocurrency, and even more are being developed.
some of the most well-known cryptocurrencies are:
- bitcoin.
- ethereum.
- litecoin.
some cryptocurrencies may be made through a process called mining. to mine bitcoin, for example, a computer solves extremely complex mathematical problems to figure out which set of transactions goes next in the blockchain. solving these problems then produces coins, however it is not guaranteed that any one miner will earn the coin produced as there is an additional process after solving the math problem. of course, nothing physical shows that a coin has been made—the coin is just added to a digital wallet or repository.
users can buy cryptocurrency from brokers and cryptocurrency exchanges, much like trading on the stock market. many cryptos, like bitcoin, can even be purchased in fractional parts. but unlike stocks, cryptocurrency can be used directly to buy goods and services.
how can my small business accept crypto payments?
cryptocurrency can be used like money, much like the dollar or the euro. that means businesses can accept payment in cryptocurrency, whether in bitcoin or another type. however, the irs treats transactions in cryptocurrency like a property trade, where the business will owe tax on the value of the crypto at the time of the transaction. to make accounting easier, businesses may use services that allow users to pay in crypto while the business receives their preferred currency.
accepting cryptocurrency as a form of payment may seem hard or scary. but it is actually very simple, which is one of the main reasons many businesses are choosing to accept it. in general, you can take the following steps to start accepting crypto as payment.
1. start a crypto wallet.
because cryptocurrency has no physical form, you need a way to hold and monitor your digital currency. a crypto wallet is designed to hold only cryptocurrency and to send and receive crypto payments. a crypto wallet works much like a normal bank account.
multi-crypto wallets can hold a few types of cryptocurrencies, but you can also use an account that holds only one type. to make things easier for yourself and your customers, it is wise to use a wallet that will accept several cryptocurrencies.
2. add cryptocurrency as a payment method on your website.
the main way to transfer cryptocurrency is an electronic transfer. that means you must have a way to accept cryptocurrencies on your website to receive these payments.
in many cases, a website may be able to use a plugin from a payment processor for cryptocurrency. by adding the plugin to your page, you may easily be able to start accepting payments on your website. once you receive them, they are typically added directly to your wallet.
3. add a point-of-sale (pos) cryptocurrency payment option.
if you have a brick-and-mortar store, you might also want to use a pos system that accepts cryptocurrency. these systems allow users in your store to pay with cryptocurrency right at your checkout counter. again, because cryptocurrency is digital, you will need a digital way to accept payments. your pos system may already offer an integrated app, or you may need a standalone device. often the transaction is as simple as requiring a customer to scan a barcode or tap their phone to make a payment.
how are businesses taxed on crypto?
the tax code has a long and detailed definition of the term income. it is not limited to dollars and cents. income includes anything that adds value to your business. if a customer pays you in collectible baseball cards, or with another good or service, you will owe taxes on the value of that payment. similarly, that means the irs can and will tax any crypto payments your business receives.
because cryptocurrency and stocks are somewhat alike, the irs also taxes cryptocurrencies like stocks and bonds. like with stocks, you may have to pay both short- and long-term capital gains taxes on them. capital gains are profits you make by selling property or investments that have risen in value. if you hold the cryptocurrency longer than a year, then the tax rate is generally lower than if you sell it right away.
for a business accepting cryptocurrency, however, the irs often treats the payments differently. when you receive a crypto payment, the income you need to report to the irs is usually the fair market value of the cryptocurrency at the time you performed the services or sold the goods.
so, if a business chooses to hold their crypto payments rather than convert them to dollars right away, they might be taxed twice. the first tax is for the income when it comes in the door, and the second is for the capital gain of the cryptocurrency if it increased in value between acquiring and selling it. business owners may want to consider how these choices can impact their overall tax plans.
how does cryptocurrency help small businesses?
you may be trying to decide whether it makes sense for your business to accept cryptocurrency. it usually depends on the type of customer you have and whether they are willing to use cryptocurrency at all. if customers want to use it, small businesses might be able to take advantage of the benefits it offers.
lower transaction fees
accepting credit card payments costs businesses money in fees for each card swipe. those fees can add up quickly: they are often a flat fee plus a certain percentage of the transaction. cryptocurrency, though, leads to far fewer transaction fees. in general, their fees are less than 1% of the transaction, but credit card companies charge between 2% and 4%.
merchant protections
crypto protects businesses from customers who dishonestly demand their money back. these may be cases when the customer claims they never received a shipped item or has missed the window to return an item. with crypto, there are no reverse charges—they are final transactions, just like paying in cash.
convenience for customers
one of the most important reasons that business owners are drawn to cryptocurrency is that their clients want it. customers like how easy it is to pay with crypto, along with the extra layer of protection they get with each transaction.
higher sales
accepting cryptocurrency can also increase sales, especially if you sell your product or service in other countries. instead of having to convert different types of currency, businesses can usually accept crypto without currency exchange fees or international service charges.
keeping up with competitors
many small businesses are also moving to cryptocurrency because they feel like they have to since their competitors are offering cryptocurrency payments.
how can cryptocurrency be bad for my business?
accepting cryptocurrency has many benefits, but it comes with risks as well. there are three main areas you might want to consider before accepting cryptocurrency.
1. it is highly volatile.
the value of cryptocurrency changes often, even from hour to hour, let alone year to year. it is common for some cryptocurrencies to have huge value swings, such as 10% or 20%, within only a month—and sometimes in far less time. these changes can make pricing your goods and services tough. the volatility can also lead to accepted payments losing value before they can be converted. to avoid this risk and still accept crypto, many businesses use payment processors that immediately convert crypto to normal currencies at the point-of-sale.
2. it is unregulated.
part of the appeal of cryptocurrency is that it is decentralized. however, this also means there are no laws to control how people use it, which comes with some risks. some worry that there will be laws soon, but no one really knows what those regulations will involve. bitcoin has continued to grow despite the somewhat recent reporting changes from the irs.
3. it may not be secure.
while cryptocurrency appears to be safer than the average credit card, there are still some security risks. hackers can (and sometimes do) find ways to get into crypto wallets and take the currency found there. this can be a huge problem for a business that relies heavily on cryptocurrency to run, especially since no laws appoint anyone to help get your stolen funds back.
some companies offer users insurance that protects them if someone steals their cryptocurrency. it replaces stolen cryptocurrency up to a certain amount. this solution does not solve the problem of theft itself, but it may provide businesses with some safety net.
cryptocurrency is still a new adventure for everyone. if you have legal questions about accepting cryptocurrency in your small business, reach out to a 2022世界杯32强抽签时间 on call® attorney for affordable legal advice.
this article contains general legal information and does not contain legal advice. 2022世界杯32强抽签时间 is not a law firm or a substitute for an attorney or law firm. the law is complex and changes often. for legal advice, please ask a lawyer.
