Did you know there are over 5,000 cryptocurrencies?
As cryptocurrencies, like Bitcoin and Ethereum, expand from a subculture of Internet geeks and gain more widespread recognition, eCommerce businesses are beginning to cash in by accepting cryptocurrency payments. This is especially true if your brand caters to Millennials and Gen Z, who are the most likely to be familiar with crypto.
However, the learning curve is steep. As with anything that’s new, there are plenty of scammers, bad actors, and questionable financial advice – like this “TikTok investor” – that you can fall prey to.
In this post, we’re sharing a beginner’s guide to accepting cryptocurrency payments on your website.
What is cryptocurrency?
Cryptocurrency is essentially a digital store of value. It is like digital gold that you can treat as an investment or use to buy stuff. These virtual currencies are decentralized and hard to counterfeit because it’s secured by cryptography.
They are based on blockchain technology, a decentralized organizational method that is spread across several computers to ensure the integrity of transactional data. This currency isn’t issued by any central authority. Therefore, theoretically, these currencies are not subject to government interference.
The most popular cryptocurrency is Bitcoin. Here is an excellent primer on how Bitcoin works from the crew at BitLift.
Some other examples of cryptocurrencies are:
- Binance coin
Which businesses accept cryptocurrency payments?
From small businesses to major chains and retailers, more companies are accepting or considering allowing cryptocurrency payments.
Additionally, various types of businesses are trying out cryptocurrency, including companies focused on entertainment, retail, food stores, services, and travel. Although, it may not be permitted in all locations.
Some major brands that are accepting cryptocurrency payments include:
- Whole Foods
However, not every company accepts cryptocurrency directly. And, most that do accept it use third parties – like Coinbase Commerce – to complete such purchases.
What are the hurdles to accepting cryptocurrency payments?
Some consumers are becoming interested in using cryptocurrency, but at this point, it’s not universal. If you’re considering accepting cryptocurrency payments, you may have some difficulties to consider before deciding if it’s the right choice for your business.
The value of cryptocurrency fluctuates a lot
While the value of national currencies can fluctuate a little with time, the change in cryptocurrencies’ value can be more dramatic. It is not uncommon for the value to drop by thousands of dollars within a few hours. As a result, you can have a customer buy a product for a fair price with cryptocurrency, but if the value goes down significantly, you could lose money. This volatility may not be worth it for some businesses.
Cryptocurrency may incur taxes, fees, or territory-based regulations
Regulations, taxes, and fees on virtual currency can be confusing depending on where you live or where items were purchased. In the United States, cryptocurrency is taxable like other transactions. When filling out a United States tax return, you’ll now have to indicate whether you used cryptocurrency.
Because it is decentralized, it can create challenges on how to regulate and assess fees on crypto company and personal assets. (Note: We’ll share more information on this later in this article.)
It can take time to set up
Remember how easy it was to set up Stripe on your Shopify store? While accepting crypto payments is easier than it was even a couple of years ago, you need to be tech-savvy to set it up.
You will also need to determine whether you will create your own wallet to directly receive crypto payments or use a third-party exchange. If you choose a third-party exchange to process payments, you will acquire transaction fees.
It’s not widely used
Since cryptocurrency is still early in its development, it’s not as widely used among all consumer groups. At present, crypto exchanges may only make up a small portion of your incoming payments unless you’re in a niche that has embraced this technology.
For example, if you sell products mainly to octogenarians, you are unlikely to see widespread adoption of crypto payments. On the other hand, if your target audience is Millennial software engineers who live in tech hubs, you might have more people who prefer to pay with bitcoin instead of fiat currency.
Currently, there’s no recourse if stolen
Typically, an issuer or bank will return money from stolen credit cards or bank accounts. However, cryptocurrencies don’t have built-in protections. Therefore, it’s on the cryptocurrency holder to add proper security measures to keep their cryptocurrency safe.
Not to mention, crypto is still very much in the “Wild West” phase. There are tons of fake gurus, scammers, and get-rich-quick schemes, like this example. If you are a newbie and don’t know what you don’t know, it is easy for you and your business to get taken advantage of.
How do I accept cryptocurrency payments on my website?
As crypto grows in popularity, you may find the benefits of offering this payment outweigh any potential hurdles. Adding it as a payment option to your website can help open up your business to a new target audience and give your customers more payment options to make checkout easy for them.
Companies that accept cryptocurrency payments on their websites also benefit by capturing new customer traffic that can become repeat customers. Additionally, cryptocurrency transactions have fast processing speeds leading to less time between the sale and the payment clearing.
How to accept Bitcoin and Ethereum payments
If you decide to use a third-party exchange, the two biggest exchanges you can use – assuming you don’t want to set it up completely yourself – are Coinbase Commerce and BitPay.
Note: BitPay only works with Bitcoin, while Coinbase Commerce accepts around a half dozen of the most popular cryptocurrencies.
These two exchanges integrate with Shopify and WooCommerce and allow you to receive payments and transform them into fiat currency and bank withdrawals for a fee (if you want to). Once you sign up for the payment processor, you can use the merchant service function to convert the coins and withdraw them into your bank account.
Not all Bitcoin payment processors offer the same functions. For example, Coinbase offers merchant services but also can function as an exchange.
While BitPay doesn’t offer exchange functions, it does support various integrations with major platforms, which can be helpful to eCommerce businesses.
Alternatively, you can choose to accept crypto payments on your website without relying on a third-party service and accept payments manually. To do this, you’ll generate a Bitcoin address for each sale on your website and provide instructions for the amount of money people should send. You’ll receive the coins in your wallet, which you can then process once the transaction is confirmed.
When accepting payments manually, you will have to invoice and bill on your own instead of having the third-party processor doing it. While this cuts out the middleman, it can be a lot of work and requires technical experience. It may not be a good choice for websites that process large volumes.
How and when do I need to record crypto transactions in my financial statements?
Recording crypto payments and proper record keeping for your financial statements and taxes can be cumbersome. You must be diligent and disciplined in your recording of purchase date, price, as well as dates sold/traded.
Since there are currently no accounting platforms that capture, review and appropriate value for your cryptocurrency holdings, all gains and losses need to be done manually.
In addition, how you classify your crypto assets will vary depending on your company. For example, the IRS doesn’t recognize crypto as a currency, so all transactions need to be classified as property.
Keeping meticulous records is important because you still need to pay taxes on it. For example in the U.S, this means whenever you sell a cryptocurrency, you could be liable for capital gains tax.
Depending on the market you serve and your business’s goals, accepting cryptocurrency payments may be advantageous for your eCommerce business.
It can also be a way to set you apart from your competitors and help you attract a new customer base. However, we encourage you to take your time and weigh the pros and cons first.