The financial markets are all abuzz about cryptocurrency. But as a small business, should you be accepting payment in this virtual currency? A growing number of companies, including a number of small businesses, accept Bitcoin; a list of them was last updated in March. There are certainly pros and cons to consider before you move ahead in this area.

The Good

Accepting payment in virtual currency, such as Bitcoin or Bitcoin Cash (the most popular cryptocurrencies) can offer you some advantages over traditional payment options:

• Transaction fee savings. If you accept payment with plastic or electronic payment, such as PayPal, you bear the merchant fees, which can be a significant percentage of each transaction. You don’t have these transaction fees with cryptocurrency, but there are other fees associated with cryptocurrency which can be smaller than merchant fees.
• There are no chargebacks. Once a transaction is complete, the customer can’t recoup payment through a payment processor (such as MasterCard or Visa).
• There’s a marketing advantage. Taking payment in this new technology suggests to customers that your business is up-to-date.

The Bad

While there may be some advantages to accepting payment in cryptocurrency, there are some drawbacks.

• Getting set up. To accept payment in cryptocurrency, you need to set up a digital wallet on a digital currency exchange. In the future, there’s likely to be exchanges accepting multiple types of digital currency.
• Reporting payments in cryptocurrency can be complex. The IRS has determined that Bitcoin et al. isn’t currency; it’s property. As such, you must report as income the fair market value of the cryptocurrency on the date of payment or receipt, based on a listed exchange. And as yet, you can’t pay your taxes in cryptocurrency.
• Cryptocurrency options may not comport with customer preferences. Because there are so many types of virtual currency, the one(s) you accept may not necessarily be the one(s) that customers are using. Most companies that have been accepting payments in cryptocurrency have restricted transactions to Bitcoin or Bitcoin Cash; they haven’t expanded to Ethereum, Litecoin, or other virtual currency (one exception is Overstock, which accepts all of them.)

The Ugly

Perhaps you can live with the bad, but can you handle the ugly? You can lose big time by taking payment in cryptocurrency.

• The value of Bitcoin and other cryptocurrencies can swing dramatically. (Remember when it reached $20,000? It’s now about $8,500, but intraday changes can be hundreds of dollars or more). Once you’re paid, you don’t have to hold onto the Bitcoin; you can sell it but may have additional gain to report. But due to volatility, you could experience a loss from the time you receive payment to when you dispose of your cryptocurrency. This problem can be somewhat eased by using BitPay, Coinbase, or certain other sites to immediately exchange the cryptocurrency payment into cash.
• There’s no protection for your Bitcoin if your account is hacked. You can lose it all. Tech guru Steve Wozniak, co-founder of Apple, reported in Febuary that he had 7 bitcoins stolen from him.

Watch for changes on the regulatory front that may ameliorate some of the bad and ugly concerns listed above. For example, Wyoming has enacted laws to permit cryptocurrency to be traded in the state, exempt virtual currency from property taxes, allow corporations to use blockchain technology to store company records, and do initial public offerings in virtual currency. But Colorado failed to pass the Cyber Coding Cryptology for State Records law.

Conclusion

Most small businesses likely don’t want to rush into a decision regarding payment in virtual currency, but you’d be wise to start looking into it. You don’t want to be getting around in a horse and buggy once Main Street switched to the automobile.