Headline: What is involved in a retail establishment deciding to accept cryptocurrency


Body:  I can’t tell you how many little “Square” devices I have seen at small businesses.  These hardy folk just plug them into a smartphone, and begin taking credit card orders.   The adoption of this technology was very fast, so, it must’ve been a pretty easy decision to make.   This made me curious to ask what it would take for a small business to begin to take cryptocurrency as payment.  Up to now, only the larger organizations like AT&T, Microsoft and Overstock (among others) have decided to take Bitcoin and other cryptocurrencies as payment.  Now is when the smaller players begin to dip their toes in the liquidity offered by cryptocurrency.

What are the options to accepting cryptocurrency?

One option is to use a 3rd party to do the exchange for you.   2 of the largest companies to play this role are BitPay and Coinbase Commerce.  BitPay will usually charge about 1% of the transaction total as a fee.   CoinBase Commerce doesn’t have a similar reference, but is likely quite similar.  CoinPayments is another payment processer and has a processing fee of only .5%.     GoCoin will charge a 1% transaction fee, but it works with so many services, that fee might be worth it for some people. Paypal is getting into something similar, but, they will also allow you to convert  some of the larger cryptocurrency into fiat currency.  TripleA appears to also have a function where Bitcoin is use for invoicing and  remittances as well.

Pros and cons of accepting Bitcoin at a business (or any cryptocurrency.)

No chargebacks to be concerned with.Regulations are changing quickly, and keeping up with new policies could be cumbersome.
Might attract some crypto-fans who might otherwise go to a competitor.Bitcoin has HUGE volatility in price.  You could incur large losses.
The currency might appreciate in value over time.Tax preparation will be more complex, and likely more expensive.


How will crypto affect your operations?

Operational questions you might want to think through include:

  • What training will staff need?
  • Will you be prepared to answer customer questions?
  • Are there elements of customer service — like issuing refunds — that need to be rethought?
  • How will your crypto payments tool work with your current inventory or reporting practices?
  • Do we sell a few units of expensive merchandise or many units of less expensive merchandise?  If the former, accepting bitcoin, with all of the extra time needed at POS, might make sense.   On the other hand, if you have a coffee shop where people spend $5-6 at a time, this cost might not make a lot of sense.

The thing about all of these questions is that they all require time.  And, as they say, time is money, and both are in very limited supply.   So, all of these questions, and others, must be thought through to consider the effect of cryptocurrency upon your day-to-day operations within a small business

Isn’t accepting Bitcoin just like accepting credit cards, like you were speaking of in the beginning?

Cryptocurrency is different from accepting payment from credit cards.   I really like this chart, so, it is repeated from the article below:

CryptoCredit card
PaymentsPayments not required to run through a payment tool.Payments must run through a payment processor.
Fees0% if done directly with customer. Can be 1% or so using a payment tool.Standard flat rate is 2.9% plus 30 cents per transaction, but varies by processor.
Safety and securityLittle to no responsibility for compliance or fraud.Responsibility for compliance and (via fees) for fraud.
Resolving customer issuesNo legal protections or chargebacks to manage, but you’ll likely need to make clear your own policies.Decisions often in the hands of card networks, and they often favor the customer.
SettlementFlexible and fast, but also can be volatile.Slower, but likely more stable.
Regulatory oversightNot much now, for better or worse, but stay tuned.Stable and uniform, and comes with lots of compliance effort.
ConvenienceTransactions are comparatively fast, but there are some learning curves.Transactions are quick and how-to is well known, but underlying processes can be hairier.

Just as in the Old West, there was a lot of opportunity, but, that was tempered by a whole lot of risks, the crypto is the new opportunity.  But, while reaping the benefits, one must be very conscious of the risks one is taking.  Banditos are everywhere, rattlesnakes are numerous, and dying from thirst is a real possibility. 

What are the tax ramifications regarding acceptance of bitcoin?

There are many tax ramifications.  Three particular issues come to mind:

  1.  The IRS sees the cryptocurrency exchanges as property transactions, so for each one, records must be kept of how much the bitcoin was received at, AND at what price the bitcoin was converted to cash.  The paperwork to track this can be voluminous and the effort can be cumbersome.   So, systems must be designed to  accommodate these.
  2. Sending data to your accountant can be difficult, as you are not sure that the data from your point-of-sale system is in the same format that your accountant likes.  If conversion of data is necessary (either by you or by them) there is significant cost related to this activity.
  3. In all honesty, we are still not sure of all of the regulatory and tax ramifications concerning bitcoin and other cryptocurrency.   Future bad news on this front is very possible, and the uncertainty makes planning very difficult.

Should we accept ETH as well as Bitcoin?

This is a good question.   Bitcoin is better established, but ETH might attain much wider acceptance in the near future because of 3 features:

  1.  The ETH blockchain allows you to execute smart contracts.
  2. The ETH ecosystem is the one chosen by many gaming metaverses.  This is especially important if your main customers are going to be college-aged men and women, people who are demographically more likely to obtain value from this more flexible currency.
  3. Transactions executed in Bitcoin are irreversible.   ETH transactions are a little more flexible in this regard.

The Verdict

“We anticipate that further partnerships with regulated and established institutions in the industry will help deliver the benefits of digital currencies (e.g., convenience and support) and will continue to build the necessary foundation of trust,” This was the conclusion of a PWC report about retail businesses accepting forms of cryptocurrency as payment.  Two things about this quote seem important.  First, adoption of bitcoin and cryptocurrency seems like a fait accompli, in the future.  When this is accepted by more retailers, the conversations will become more robust, and the systems needed to  negotiate this currency will become MUCH more available.   Second, they bring up the concept of trust.   Several times in this blog, I have discussed the role of faith in a currency.  Faith and trust are truly the coin of any realm, and as the adoption of cryptocurrency goes up, more and more regular consumers will use it because they have faith in it.  Whether or not that faith is well-placed, is something that we will all see, as the future rolls out.






Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.


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