To the layman, “cryptocurrency” sounds arcane. But Bitcoin and its siblings could be good tools for businesses looking to securely transact payments and more.
With over 1,000 digital currencies in existence, defining what they are and how they fit in a business model might seem daunting.
To get started, the first step is to select a payment processing provider, such as Coinbase or BitPay. Next, open a business account with the payment processing provider. Processing fees can be minimal but may vary with transaction volume.
Low-margin businesses based on small transactions might find accepting Bitcoin a challenge because of process timing and fees. Bitcoin transaction processing can range from a few minutes to several hours, and on-the-go customers may not want to wait.
Considering the current state of processing, one possible cryptocurrency candidate that might not be deterred by the lag time is the car dealership. A wait of minutes or hours would not affect merchandise utility, and the price structure for each item sold could cushion the impact of processing fees.
Bitcoin also may be a viable opportunity for enterprises involved in legal-cannabis-related commerce, given that traditional banks may shy away from money derived from that source.
Converting to cash
A Bitcoin wallet is a virtual compartment where the cryptocurrency is stored. The virtual wallet is accessed through a private key, which must never be lost. Retrieving a private key is impossibly difficult, and without your private key you would lose access to your Bitcoin.
To process a conversion, you will need to enter the amount of local currency that you wish to receive. The amount of Bitcoin that corresponds to the local currency requested will automatically be calculated at the current exchange rate. When your Bitcoin is “sold,” depending on the exchange used, you should have options to transfer the local currency to a bank account or receive another form of payment. Keep in mind, the IRS regards cryptocurrency as property. So, selling Bitcoin could result in a taxable transaction that would need to be reported on your tax return.
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One of the primary draws to cryptocurrency is the additional security that is fundamental to its design. While not foolproof, hacking a Bitcoin transaction is more difficult than hacking your bank account or the bank itself.
Since its public introduction in 2009, Bitcoin usage and investment has grown enormously. And as the processing of cryptocurrency improves, business processes are expected to become more efficient.
Speed and market volatility are big issues currently being addressed in the world of cryptocurrency. The IRS has yet to issue definitive guidance on how to value virtual currency for purposes of calculating gain or loss.
While there are still many unanswered questions, as cryptocurrencies become increasingly embedded in commercial operations, it behooves modern businesses to identify how and if virtual currency has a place in their business model.
The industrial and digital revolutions were not without obstacles, but the gains ultimately were too advantageous to be thwarted. Many see this repeating with cryptocurrency.
n Judith Herron is a certified public accountant with Markovitz Dugan & Associates. Alyzabeth R. Smith, a certified public accountant, is a senior associate with Siegfried Advisory.