In crypto news, FTX, one of the world’s largest cryptocurrency exchanges, crashed recently. Already on its way downhill, what sent it spiraling was Binance’s heel-turn on buying it out. All of this has sent most crypto coins downward, confirming the fragility and volatility of the crypto market.
Are the effects of the FTX collapse on the crypto market permanent, or will there be a bounce back? And since the payment giant Visa has terminated crypto payments via the Visa debit card linked to FTX token (FTT), does this bode well for any form of major acceptance of crypto as a payment? Your questions answered.
How does crypto work as a payment system?
Crypto is a digital currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature.
Many cryptocurrencies are decentralized systems based on blockchain technology, a distributed ledger enforced by a disparate network of computers.
A defining feature of crypto, and arguably its most endearing allure, is its organic nature; crypto is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.
Crypto is becoming more widely accepted as a legitimate payment method, but it still has a long way to go before it becomes mainstream. Some businesses are hesitant to adopt crypto as a payment method because of its volatile nature, but others see it as an opportunity to get in on the ground floor of a new and exciting technology.
Take the metaverse or NFTs for example. They use crypto in a variety of applications, not just as payment.
The FTX crash and Visa termination – what does this mean for small businesses?
FTX, created by Sam Bankman-Fried, was one of the world’s largest crypto exchanges. Recently, it crashed for several reasons. Namely, Binance did a bit of due diligence after offering to buy it and then backed out which sent FTX market share spiraling downward. This had an affect on the entire cryptocurrency world which is normally quite volatile, but never like this.
Visa, as well, has backed out of its crypto payment partnership with FTX, leaving FTX account holders with even less possibility of securing their funds. Which obviously makes sense—why would you partner with a company that tanked?
However, the Visa news is big because just a month ago both a Visa spokesperson and FTX made announcements about expanding their crypto payments offerings. Now, Visa is severing ties with the crypto exchange FTX and shutting down its crypto debit card program. Because Visa is so trusted, it leaves crypto as a payment method several steps back.
So what does all this mean for small businesses that accept cryptocurrencies? For now, it’s business as usual. Cryptocurrencies are still volatile and unpredictable, so it’s important to be prepared for anything. In the long run, these recent setbacks could actually be good for the industry. They exposed some of the weaknesses of current infrastructure and highlighted the need for better solutions. And as more businesses start accepting cryptocurrencies, we can expect to see more innovation in this space.
Businesses that relied on the Visa/FTX partnership to accept crypto payments now need to find an alternative.
Advantages of accepting crypto payments
eCommerce businesses that accept crypto payments can enjoy a number of benefits. For one, crypto payments are fast and efficient, and customers can typically receive their goods or services more quickly than with traditional payment methods.
Additionally, crypto payments are secure, and businesses can be confident that their transactions will be protected from fraud.
Finally, accepting crypto payments can help businesses to tap into a new customer base. With the growing popularity of cryptocurrencies, more and more people are looking to use them for everyday transactions. As a result, eCommerce businesses that accept crypto payments can appeal to a wider range of consumers. For example, you can more easily accept payments from people who live in Europe, Latin America, Asia, and new countries previously unreachable in ecommerce.
Accepting crypto isn’t solely about accepting a new, digital type of money. It’s about the underlying tech that secures transactions much more than traditional payment methods. A huge plus of this is negating chargebacks.
Disadvantages of accepting crypto payments
eCommerce businesses that accept crypto payments may be at a disadvantage when it comes to taxes. The IRS currently treats crypto assets as property, which means that businesses that accept crypto payments will be subject to capital gains tax on any appreciation in the value of the digital assets.
In addition, businesses will need to track the cost basis of each asset in order to calculate the correct tax liability. This can be a complex and time-consuming process, particularly for businesses that receive a large number of crypto payments.
As a result, eCommerce businesses may want to weigh the costs and benefits of accepting crypto payments before deciding whether or not to do so.
Crypto is also not an extremely popular payment method yet. While hopping on the bandwagon early is nothing to scoff at, you may end up paying more in fees or losing money from the sale due to market volatility.
Tips for dealing with crypto payments
In order to ensure that businesses are compliant with tax regulations, it’s important to have a plan for tracking and managing crypto payments. The best way to do this is by creating an internal policy that outlines the steps necessary to properly handle crypto transactions.
For example, businesses should establish rules for when they convert their crypto assets into fiat currency. They should also have a plan for tracking the cost basis of their crypto payments and any changes in their value.
Businesses also consider setting up an escrow account, which can help to protect them from market volatility and ensure that they receive their payments in full. Additionally, businesses should research different payment processors to find one with low fees and secure infrastructure.
FAQs about crypto payments
What types of crypto can be accepted?
Most payment processors are able to accept major cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and Litecoin. Additionally, some platforms may also be able to support lesser-known coins or tokens and stablecoins.
Are there any tax implications for businesses that accept crypto payments?
Yes, businesses that accept crypto payments may be subject to capital gains taxes on any appreciation in the value of the assets.
What are some tips for handling crypto payments?
Businesses should establish an internal policy for tracking and managing their crypto transactions, set up an escrow account if needed, and research different payment processors to find one with low fees and secure infrastructure.
Are there any risks associated with accepting crypto payments?
Yes, one of the main risks is market volatility, which can cause businesses to lose money if they receive a payment in crypto and the value of the asset decreases before it’s converted into fiat currency.
Additionally, businesses will need to be compliant with tax regulations in order to avoid any penalties.
Crypto payments offer many advantages for businesses, such as increased security and a wider range of customers. However, it’s important to consider the potential risks associated with accepting crypto payments before making the decision to do so.
Businesses should also have a plan for tracking and managing their crypto payments to ensure they are compliant with tax regulations. By taking the time to make an informed decision, businesses can hopefully enjoy the benefits of accepting crypto payments without any unexpected surprises or losses.
So, should you accept cryptocurrrency as payment with your business? If there’s demand among your customers, the answer is a resounding “yes”. But you should always have USD credit card payments as an option from both Visa and Mastercard.