Intense price swings in cryptocurrencies occur virtually every day, and their prices are constantly fluctuating daily. However, after more than 10 years, this medium of exchange is already firmly entrenched in society and becoming more widely used.
Despite the fact that the majority of people have heard of Bitcoin, very few people are aware of how cryptocurrencies function, let alone how they were created, while you don’t need to be an expert in the technology, it’s important to understand how cryptocurrencies could benefit your small business.
Small businesses are weighing the benefits and drawbacks of adopting cryptocurrencies as payment methods as the popularity of cryptocurrencies grow.
It’s crucial to evaluate the risks and rewards of accepting cryptocurrencies for your small business before making any decision. For entrepreneurs and small business owners curious about cryptocurrencies as a consumer payment method, this post is for you. Learn more about cryptocurrencies and why you might want to use them as one of your small business’s payment choices.
Cryptocurrencies are unregulated and unbacked by any government and function as a digital means of exchange that permits direct transactions without the use of third-party processors.
While accepting cryptocurrency as payment at your place of business can reduce transaction costs, it also raises security issues.
Is cryptocurrency, however, appropriate for your small business? Before deciding to accept crypto, there are a number of important factors to think about, both technically and practically. We’ll explore every aspect of cryptocurrencies that small business owners should take into account.
Cryptocurrency: What is it? Cryptocurrency, commonly referred to as crypto or fiat currency, is a type of digital or virtual money that uses encryption and a decentralized network to verify and record transactions. Cryptocurrency is a decentralized digital means of exchange that relies on peer-to-peer blockchain systems. Therefore, neither a government nor a central bank supervises or regulates cryptocurrency. Without the third parties typically involved in the payment processing procedure, buyers send money directly to merchants. In a transaction, cryptocurrency eliminates the intermediary.
Following the release of a white paper that described Bitcoin and its operation, cryptocurrencies were created. Cryptocurrencies offer users the prospect of financial freedom and fiscal equality since they are built on a tamper-proof blockchain that guards against financial bollocks. Cryptocurrencies have a number of advantages, such as the removal of third-party gatekeepers like banks, instantaneous settlement of transactions, dramatically reduced transaction fees, and seamless transfers to any location in the globe with an Internet connection.
The growth of blockchain technology over the past few years has given rise to new categories of digital assets including cryptocurrencies and stablecoins. These developments provide the building blocks for creating new payment channels that can transfer value throughout the world not just in real-time but at a far cheaper price. Stablecoins are substantially less unstable than other cryptocurrencies since they are frequently pegged to fiat money.
The importance of small enterprises to our economy cannot be overstated. Examples include eateries, hairdressers, dry cleaners, among others. Half of all Americans who are working are employed by them.
Through digital platforms like E-commerce small businesses also are discovering new methods to connect with customers outside of their immediate communities. This supply chain was crucial for them throughout the outbreak of covid-19 to balance the fall in sales volume.
However, they have received little attention during the discussion about digital currencies. The way small businesses could profit from stronger and more efficient payment facilities is almost completely disregarded, despite the fact that economic regulators and analysts stress the significance of supporting the resilience and growth of small enterprises.
Small Businesses’ Financial Vulnerability
The majority of small enterprises run with a relatively low cash reserve. This causes a great deal of economic fragility, which has disastrous effects on small businesses.
This is due to a variety of factors, including their restricted access to finance and their lack of financial opportunities in comparison to larger companies. Because they frequently struggle to provide the kinds of measurable criteria that large banks require when measuring creditworthiness, small businesses are frequently viewed by lenders as being risky.
Payment delays are among the most urgent problems facing small businesses. According to study results, nearly 70% of small firms that rely on invoicing say that these payment delays are causing cash flow issues.
Small businesses find it difficult to keep good cash reserves, which increases their vulnerability to economic crises and restricts their capacity to invest. This is because they have trouble getting loans and experience payment delays. long-term resilience and development potential might be enhanced by more innovation and competition in the payment system.
Small businesses find it difficult to keep good cash reserves, which increases their vulnerability to economic crises and restricts their capacity to invest. This is because they have trouble getting loans and experience payment delays. long-term resilience and development potential might be enhanced by more innovation and competition in the payment system.
How Slow Payments and High Fees Affect Small Businesses
Credit cards are now used for the majority of consumer transactions; this tendency picked up steam during the Covid-19 pandemic. Merchants pay fees that can exceed 3% of the transaction value to credit card companies, all of which are completely hidden from customers. Credit cards are now used for the majority of consumer transactions; this tendency picked up steam during the Covid-19 pandemic. Merchants pay fees that can exceed 3% of the transaction value to credit card companies, all of which are completely hidden from customers.
Due to their low-profit margins, short cash reserves, and high financing costs, small enterprises are clearly at a disadvantage. Small businesses may not have much negotiation leverage when it comes to receiving digital payments, but large businesses can negotiate substantially reduced prices.
Due to the exorbitant fees and delays associated with cross-border payments, these issues are compounded. Cross payments can take up to five working days, Additionally, fees are inconsistent, and depending on how many foreign banks are included in the process, businesses might be charged extra fees. We need a payments ecosystem that is more transparent and competitive to change this.
The Benefits of Blockchain Technology
Unbundling the services that are currently bundled with all digital transactions, such as intermediation, transaction risk assessment, and more, will increase competition, reduce transaction fees, and promote market growth. Additionally, lowering the number of middlemen in the process would help domestic and international payments if money were sent directly through a blockchain.
Small businesses would benefit from lower expenses as well as quicker access to funds if this payment evolution is effective. This would significantly increase their financial reserves and liquidity, enabling businesses to withstand adverse economic crises and survive.
The Increasing Use of Cryptocurrency in Business
In recent years, a legitimate sector has also built up around blockchain technology, which is a key component of cryptocurrencies. More digital currencies, including stablecoins and cryptocurrencies, are emerging as a result of the blockchain management sector.
An increasing number of businesses have started taking cryptocurrency as payment. As more brokers add cryptocurrency trading options to their systems, the currency becomes more legitimate. To facilitate payments, more crypto wallets are now available, and popular payment programs like Google Pay let you use Bitcoin for payments.
The Benefits of Crypto Currencies for Small Businesses
You may be wondering how cryptocurrencies might benefit your small business. Small businesses can benefit from cryptocurrency since it offers a low-cost payment solution that works across time zones, and countries. Overall, the rise of cryptocurrency is increasing competition in marketplaces and financial sectors.
As a result, small business owners can send money internationally or even locally for less money because they do not have to exchange currencies. No matter where you or your consumer happens to be, you may also accept or pay for things quickly.
The benefits of accepting cryptocurrencies for small businesses
You might think about taking cryptocurrency payments for your small business for the following five reasons:
Eliminate the intermediaries — Crypto transactions take place directly between you and your client, eliminating the need for a mediator. This eliminates opportunities for fraud and mistakes while also making refunds and chargebacks simpler.
Lower transaction costs — If you do a large number of credit card transactions, the absence of a middleman also enables you to pay lower transaction fees. Compared to up to 5% for credit card purchases, cryptocurrency transactions often cost less than 2% of the total amount.
Provide convenience for your customers — As cryptocurrency usage grows, customers will value the ease of using a safe digital payment method. Accepting cryptocurrencies gives clients more payment options while enhancing the security of their personal data. It is simple to use regardless of currency or border restrictions.
Increase your revenues — Accepting cryptocurrency can introduce you to a whole range of new clients since there are no international fees involved and there is no waiting period for payments. With the help of cryptocurrency, small businesses can grow and welcome customers from other countries who couldn’t previously access their goods and services due.
Using cryptocurrency to Pay Employees Might Be Easier — As a remote team employer, managing payroll for a group of workers that reside in various locations around the world can be a major problem. Consider having to pay your employees in several different foreign currencies using dollars.
The costs associated with currency exchange are far less of a burden than doing cross-border transactions. Instantaneous cross-border transactions with little to no fees are now possible thanks to cryptocurrencies. All parties can read the transaction information and instantly know the status because Cryptocurrency exchanges are open. Eliminating banks can be a huge win for the workforce as it saves both the business and the employee money.
Cryptocurrency As A Realistic Payment Method
The claim that cryptocurrency lacks intrinsic value is one of its biggest detractors. The worth the world gives it is, in fact, what gives it its value. The same might be said, though, about the many global fiat currencies that have long departed from the gold standard.
For years, ardent proponents of gold ownership were aware that excessive money production would result in a currency devaluation. They use gold as a shield against inflation and as a way to prevent the government from accessing their bank accounts because it has a relatively limited supply and has historically been regarded as precious.
It’s interesting to note that some of the most ardent cryptocurrency supporters hold cryptocurrencies for many of the same cause that people hold gold.
Risks associated with accepting cryptocurrencies
Cryptocurrency has drawbacks, as well. Here are a few risks associated with using cryptocurrencies.
technical difficulties: For small business owners who are not familiar with the technology, accepting cryptocurrencies means creating a wallet on a cryptocurrency exchange, which may be technically difficult. When you’re also attempting to manage a business, the information-dense and very steep learning curve of the cryptocurrency industry could pose a considerable challenge.
The volatility of cryptocurrencies: The biggest danger to digital currency is price fluctuations, which makes its worth very uncertain. It is extremely vulnerable to market changes and can completely lose value.
Security: Cryptocurrencies do away with cybersecurity risks like credit card information theft, but the cryptocurrency isn’t completely secure. There is currently no method to totally stop fraudsters from accessing consumers’ money. This is especially risky considering that cryptocurrencies are not endorsed or regulated the way fiat currencies are. There is little to no legal protection because it is not overseen by a government agency or banking system. Additionally, it is irreversible and only offers anonymity as a form of security.
Recommendation: If you plan to accept cryptocurrency, ensure that transactions are processed safely and that digital payments are stored securely. You may enable 2-step verification, safeguard and manage your login details, and even put your cryptocurrency offline by placing it in a cold wallet to increase the security of your accounts.
When deciding to use crypto more broadly and practically, a business has two options:
- Use a third party to keep the cryptocurrency in their possession and offer wallet management services that make it easier to track and value the cryptocurrency assets.
- Implement crypto in the organization’s systems and take control of its own private keys.
Small Businesses and Cryptocurrency: Final Thought
While widespread use of cryptocurrencies as common payment methods is still a way off, Startups and business owners with cross-border customers can also profit from accepting cryptocurrency as payment. In any event, it will be fascinating to keep track of how the future of cryptocurrencies develops.
