Cryptocurrency has had a dramatic impact on the financial world. More than a mere novelty, cryptocurrency can now be traded for a profit, as well as used to purchase goods or services just like any other form of currency.
If your company accepts cryptocurrency for payments, you may want to familiarize yourself with how this technology works. Today, we’ll explore what finance executives need to know about cryptocurrency when it’s used for payments.
What is Cryptocurrency?
The promises and perils of cryptocurrency have been widely debated for years. What exactly is cryptocurrency, anyway? Think of cryptocurrency as a casino chip. The chip is valuable because you are able to exchange it for real currency.
In the same way, cryptocurrency is valuable because it can be exchanged for real currency. Cryptocurrency has attracted considerable attention because its value rapidly rose to astonishing levels, though the unstable nature of cryptocurrency prompted financial experts to speculate about the “bubble” eventually bursting.
What Are the Benefits of Using Cryptocurrency for Payments?
Cryptocurrency, of course, can be used just like any other form of currency. Businesses have the option of accepting cryptocurrency as a form of payment for their goods or services.
Accepting cryptocurrency offers the following advantages:
Attracting New Buyers
Accepting Bitcoin or other forms of cryptocurrency could expand your reach to new, tech-savvy buyers. In other words, you may attract new customers by accepting cryptocurrency along with other forms of payment, which could increase your company’s overall profits.
Cryptocurrency also eliminates exchange rates associated with international markets. Cryptocurrency can make it easier than ever to accept international payments, effectively opening your business to a worldwide customer base.
Streamlining Cash Flow
Unlike other forms of payments, there are no transaction delays associated with cryptocurrency transactions. This also means that your business will not have to spend time waiting for payments to be processed. This lets some companies see funds in their account on the same day. This helps companies keep track of their cash flow while ensuring that money is in their accounts faster than ever before.
Reduce Transaction Costs
Traditionally, businesses must pay a fee when they are handling online and credit card payments. These fees can accumulate and cut into your overall profits.
Cryptocurrency, on the other hand, can settle even large transactions at a significantly lower cost, which can be particularly helpful if your business does a lot of volume.
Finally, cryptocurrency has long been associated with greater financial security when used for financial transactions. Cryptocurrencies typically work with something called “blockchain,” which serves to record transactions.
Blockchain can also be used to trace the history of a particular piece of cryptocurrency, showing what it’s been used or traded for in the past. This makes cryptocurrency impossible to “forge” or “counterfeit.” Companies can accept cryptocurrency with a high degree of confidence in its authenticity and value.
What Are the Risks of Using Cryptocurrency for Payments?
Despite these benefits, there are some significant risks associated with cryptocurrency that businesses and financial personnel should be aware of:
The greatest risk of cryptocurrency is its unstable value. While cash is regulated by the U.S. government, cryptocurrency has no such oversight. As such, there’s a great deal of speculation as to when cryptocurrency values might suddenly plummet. Added to this is the fact that cryptocurrency values tend to fluctuate considerably.
In order to make cryptocurrency a reliable source of income, your company’s financial department must convert cryptocurrency into cash as fast as possible to mitigate the risk of having its value dip or crash.
Fluctuating Transaction Fees
While cryptocurrency offers reduced transaction fees compared to other forms of payment, it’s important to be aware that transaction fees are not fixed. This means that the cost of a transaction can vary from day to day, which can present a challenge when it comes to managing your company’s overall cash flow. It can also make it tricky to plan for profits from individual transactions.
Earlier, we noted that cryptocurrency is difficult to forge or counterfeit, but that’s not to suggest that cryptocurrency has no security risks. It’s conceivable that hackers can steal your cryptocurrency, representing significant losses to your company.
While digital currency exchanges like Coinbase offer insurance against such losses, these policies don’t cover you if you’ve been hacked.
To Crypto or Not to Crypto?
Cryptocurrency is here to stay. Many companies are simply accepting this as a new financial reality and seeking to make the most of this new technology.
While cryptocurrency comes with some risks, however, the rewards are considerable. If your business chooses to deal in cryptocurrency, you may wish to mitigate these risks by trading your cryptocurrencies for real dollars as soon as possible. Doing so can ensure that you continue to serve a broad customer base without sacrificing your company’s security or financial stability.
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