When the cryptocurrency craze began in earnest in 2017 with the spectacular rise of Bitcoin, businesses everywhere struggled to make sense of what the new form of currency would ultimately mean to them. Some ignored the developments completely, while others immediately looked for ways to integrate the new technology into their operations. When companies like Expedia, Stripe, and Microsoft jumped on the bandwagon and started accepting cryptocurrencies as a payment option – business decision-makers elsewhere sat up an took notice.
Then, the cryptocurrency market crashed, bringing almost all of the momentum toward mass-adoption to a screeching halt. In the months since, those early pioneers – Expedia, Stripe, and Microsoft – have all reversed course and dropped support for cryptocurrency payments.
Lately, however, cryptocurrencies have started to see a resurgence in the business world, beginning with the announcement of the Facebook-backed Libra cryptocurrency. The latest developments have reignited the debate as to what, if anything, businesses should be doing to adapt to the very-much-alive crypto movement. Since it’s a very real possibility that some big players might be adopting crypto in a big way in the near future, here’s a look at the basic pros and cons of accepting cryptocurrency as payment for the average business right now.
The Benefits of Accepting Cryptocurrency
In the earliest days of cryptocurrency adoption, there was a whole raft of issues that made it difficult or even undesirable for the average business to start accepting cryptocurrencies as payment. One was the fact that many of the most popular coins carried astronomically-high transaction fees due to scaling issues leading to overloaded peer-to-peer processing networks. In recent months, however, as the technology has improved and more payment processors have entered the market, those transaction fees have dropped. Right now, accepting crypto payments can cost a business up to 70% less than they’re spending on traditional payment processing.
In addition to lower costs, businesses that adopt cryptocurrency payments immediately gain the ability to process cross-border transactions with no middleman. That means having a single-currency payment system that any customer, in any country, can use to purchase goods and services. Compared to legacy solutions like wire transfers and check payments, cryptocurrency offers a more frictionless process that can complete a payment in mere minutes.
Perhaps best of all, though, is the fact that cryptocurrencies put the control of transactions back into the hands of businesses, instead of the hands of the legacy payment processors. That’s a major advantage, as it gives businesses a way of avoiding losses due to chargeback fraud. Since crypto payments are peer-to-peer transactions between a business and their customer, any payment disputes must be handled by the business itself, with no third-party that scammers can take advantage of. The direct nature of cryptocurrency transactions is one of the features that make them such an appealing option for businesses, particularly in the retail space.
The Drawbacks of Accepting Cryptocurrency
Even though many of the initial pain points associated with businesses accepting cryptocurrency payments are a thing of the past, there are still significant drawbacks involved. The biggest one is the continued volatility in the value of the major cryptocurrencies. At last count, the top ten cryptocurrencies had 30-day volatility of 61%, which presents a major challenge for businesses. With swings that large, the only way to cope is to exchange any cryptocurrencies collected for fiat currency immediately upon receipt to ensure that a drop in value doesn’t damage the bottom line. Doing so adds an additional layer of complexity (and fees) to the process, which might be a deal-breaker for some.
On top of the volatility, businesses also have to account for the relative lack of security in the crypto-exchanges where they’ll have to keep their money. It seems that each new day brings fresh news of an exchange that has fallen victim to a hack, with several already this year accounting for nearly a billion dollars in losses. Unlike traditional banks, though, crypto exchanges may not cover losses – even when they result from negligence or insider threats, and that represents an extreme risk for most businesses to take with their earnings.
Last but not least, businesses that accept cryptocurrencies as payment will have to rely on a digital wallet to store their crypto-funds. While that may seem like no big deal, it carries some significant potential for problems. As it turns out, there’s plenty of ways that the keys to such a wallet can get stolen or be lost by its owners. When that happens, there’s nowhere to turn to recover the funds locked away in the now-inaccessible wallet. For a business, that could mean losing thousands of dollars (or more) in profits with no recourse and that could do some severe damage to their bottom line.
Making the Right Decision
What all of this boils down to for the average business is that there are still risks involved in accepting cryptocurrencies that should give them pause. Unless they’re using it for very specific circumstances, like for international sales, or if they’re a digital-only business that’s willing to take their chances, it’s probably still not advisable to add cryptocurrencies to their list of payment options. Of course, if Libra or other well-supported currencies take off in the near future, that calculation could change in a hurry.
In fact, that may be the biggest reason for businesses to start exploring their crypto-payment options now, so they’ll have technology solutions in place when a viable new coin becomes available. With any luck, such a coin would address some of the problems mentioned here, reducing the overall risk for participating businesses. That would represent a big breakthrough in the adoption of cryptocurrencies by business, and one that can’t happen soon enough. For now, though, a cautious, measured approach remains the order of the day.