After last December’s spike in the price of Bitcoin, we received a number of calls and emails from clients wondering if they were missing out on business by not being able to take them. It’s still too soon to tell whether Bitcoin and other cryptocurrencies are here to stay.
The Maple Accounting team have put together this article for you in which we explain what cryptocurrency is, how it works, and the pros and cons of accepting cryptocurrency as a form of payment.
What is a cryptocurrency?
Cryptocurrencies are an entirely digital form of money which can be used all over the world.
Cryptocurrency is entirely P2P, which means peer to peer. There are no third parties involved. When you buy cryptocurrency, you are purchasing it from a person or company, and it is not regulated by a central bank (which we’ll talk about in more detail in a moment).
All cryptocurrency transactions are fast and cheap. You can buy, sell, and transfer cryptocurrencies from any computer, tablet, or mobile device. As long as you have an internet connection, you’re good to go.
Examples of cryptocurrencies
Three of the most commonly used cryptocurrencies, and what makes them different from one another, are:
Created in 2008, this was the first ever cryptocurrency. It is also the highest valued cryptocurrency that you can purchase. Bitcoin is the most widely available and accepted form of cryptocurrency on the market today.
Ethereum takes the concept of removing the middleman a step further. Bitcoin allows users to store the crypto in an individual wallet – the wallet itself can be downloaded from Apple’s Appstore or the Google Play store. This means, in theory, that Google or Apple can remove access to your crypto at any time by withdrawing the wallet from users. Ethereum users use a decentralised online application instead.
This cryptocurrency is based around the same model as Bitcoin, but it has a greater focus on the speed that you can process a transaction. Litecoin hopes that by focusing on the speed at which you can purchase something, it will become a dominant player if cryptocurrency is to be adopted on a broader scale in the future.
What is the appeal of a cryptocurrency?
Three of the main reasons that people are drawn to cryptocurrencies are:
You might ask why crypto users, or anyone, would want to keep their transactions anonymous. But as time goes on, more and more of what you do, purchase, and even look at is tracked. In comparison to most of what you do online, cryptocurrency use is relatively anonymous. Governments can still track how you use cryptocurrencies, but if someone in government wanted to track how you used cryptocurrencies, it would be technologically a lot more difficult for them to do so.”
No central bank is required
There are only 21 million bitcoins that could possibly exist ever. Because of this, there is no need for a central bank to regulate the currency. This also ties in with the peer to peer point that we made earlier. No government can regulate or manipulate cryptocurrency in the same way that they can with their own currency.
It is all online
Everything is becoming digitised, so why should currency be left out? It was inevitable, wasn’t it? In 1999, Nobel Prize-winning economist, Milton Friedman, said that “One thing that is missing is a reliable e-cash…”
A globally available, reliable, electronic form of money has been on the cards for years, and cryptocurrency is the realisation of this.
What to consider when looking into accepting cryptocurrency in your business
What are some of the benefits and downsides of accepting cryptocurrency in your business?
Lower transaction fees
When you accept debit or credit cards, you pay a proportion of the amount you take on a card to the merchant service providers. You do not need an intermediary or a merchant services provider to accept cryptocurrency. Even when factoring in conversion fees from crypto to GBP, it costs a lot less money to take a payment in cryptocurrency than it does to take a payment on a credit or debit card.
Cryptocurrency has a worldwide reach. So, if you sell a product that can be made available all over the globe, then you now have a way to charge for it. It doesn’t matter what the currency of the country is in which your buyer is based – one Bitcoin here is worth the same as one Bitcoin there when the transaction is made. In addition, there are no foreign exchange fees either.
Catering to consumer preferences
More and more customers are adopting cryptocurrency in their day to day lives. As a result of this, there is a growing need for businesses to start accepting cryptocurrency as a part of their standard practice. There is still a great deal of time left before this becomes the norm though.
There are two sides to every Bitcoin and the problems we see with Cryptocurrency is…
Cryptocurrency is volatile
The cost of cryptocurrency goes up and down at a much more rapid and unpredictable rate than any other traditional currency. This isn’t ideal because you could accept a payment of £10,000 in crypto for your services which is worth £400 less as little as 10 minutes later.
It might not last
Crypto may not be here to stay. We may be at its peak now, and it may decline gradually. Governments may crack down on it. Banks could refuse to deal with any company which accepts payment in crypto. You may go to a lot of time and effort to accept Bitcoin and other cryptocurrencies but never take a payment.
We can help
For all accounting matters crypto and non-crypto, call us today 01332 207336 or contact us here