by Alec Shields
Does cryptocurrency have the potential to transform today’s reality and how the world does business? Many believe so! More than 2,300 US businesses accept Bitcoin as a form of payment, according to a late 2020 estimate. Some say that Bitcoin and other cryptocurrencies will positively affect businesses in both the present and the future by providing a decentralized digital form of payment that is fast, secure, and global. Here, I will explore some ways a business can prosper using cryptocurrencies for business transactions.
Understanding Blockchain Technology
To fully wrap one’s head around cryptocurrency, one must understand that cryptocurrencies are decentralized digital currencies that use blockchain technology to ensure the security and integrity of transactions. So, what does that mean exactly?
In essence, blockchain technology works by maintaining a continuously growing list of records, called blocks, that are linked and secured using secret writing, aka cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. This purposeful design is integral to the system. The open distributed ledger that records the transactions between two parties is verifiable, permanent, and cannot be altered or modified in any way. This process creates a network controlled not by a single entity but by a group of nodes, also called miners or validators. Any alteration to the blockchain would require more than 50% of the validators to agree with the alteration, thus making it almost impossible to alter data on the blockchain.
Advantages of accepting Cryptocurrency
Lower Transaction Costs
How can a business use this technology to gain the upper hand? One of the main benefits of accepting cryptocurrency is the potential to reduce transaction costs from credit card payment providers. On average, these payment providers charge 3-4% for every purchase a customer makes. Due to these charges, some merchants, like Kroger and Starbucks, have chosen to accept or intend to accept blockchain-based payments. This decision allows the merchant to accept the cryptocurrency and convert their revenue to fiat currency for less than 1%. Saving 2-3% on all transactions would ensure a higher profitability for any business.
No Chargebacks
When allowing debit or credit card purchases, businesses often deal with bank chargebacks. Ultimately, businesses suffer the consequences of these chargebacks. Specifically, businesses may pay additional fees, receive fines, and spend valuable time fighting chargebacks from fraudulent activity.
Unlike credit or debit cards, cryptocurrencies have no bank chargebacks. Once the transaction on the blockchain is complete, the transaction is immutable and irreversible. Therefore, it would be impossible for a customer to reverse the transaction. Customers cannot pull the money from your account and put it back into theirs without question.
Although the immutable nature of cryptocurrency has potential drawbacks, such as a merchant selling an unsatisfactory product and refusing to return the cryptocurrency received, online reviews of the company and product would likely solve this issue quickly. If a business decided to operate that way, individuals would shop elsewhere, forcing any business operating in a shady fashion to close down. Therefore, the risk of the drawbacks is so low that cryptocurrency is still the best payment option for a business.
More Data Security
From a security and privacy standpoint, paying with a credit card is inherently more dangerous. When a customer pays with a credit card, they reveal their data to the merchant, the acquiring bank, the card service, and the issuer. When paying with cryptocurrency, a customer does not disclose any private information, making it harder to steal.
Attracting New Customers
Businesses using blockchain technology and accepting cryptocurrencies also position themselves well for reaping the rewards of an emerging space that potentially includes a Central Bank Digital Currency (CBDC). Accepting cryptocurrency provides access to a new demographic of customers who value transparency in their transactions. A recent study from leading research and advisory firm Forrester Consulting revealed that businesses that integrated BitPay, a cryptocurrency payment provider, saw an average return on investment of 327%. This return was no surprise to BitPay’s CEO, stating, “accepting bitcoin and other cryptocurrencies through BitPay saves merchants considerably on fees and unlocks a whole new customer base.” The study also revealed that 40% of customers paying with cryptocurrency were new customers, and their purchase amounts were twice that of credit card purchases. The study clearly shows that many individuals are looking to spend their money via cryptocurrency.
Conclusion
Cryptocurrency, sometimes called magic internet money, is here to stay. Businesses in every field stand to prosper from the use and acceptance of it. Accepting cryptocurrency payments will raise the bottom line of any business by excluding high rates charged by credit card companies, avoiding chargebacks from banks, attracting new customer bases, and boosting a business’s average return on investment. Therefore, it would behoove all businesses to understand how the world of “magic internet money” really works while working to allow cryptocurrency payment methods. If you want to learn more, here is a quick video breaking down how to accept Bitcoin in your business: Bitcoin 101 for Small Business
This post has been reproduced and updated with the author’s permission. It was originally authored on January 29, 2023 and can be found here.
Alec Shields, at the time of this post, is a third-year student at Penn State Dickinson Law. He works as a research assistant at Penn State Dickinson Law for Professor Katherine Pearson. Alec is interested in tax, crypto, and helping start-up companies navigate this new economy. He looks forward to starting his own firm one day.
Sources:
Study Shows Merchants That Accept Bitcoin Attract New Customers and Sales
The Use of Cryptocurrency in Business
Benefits Of Accepting Bitcoin And Other Crypto For Your Business