In a matter of a few years, cryptocurrencies have moved from the margins to the mainstream.
Once the sole domain of tech geeks and niche speculators, crypto platforms took center stage in Super Bowl commercials this year, promoted by the likes of comedian Larry David and basketball superstar LeBron James.
At the same time, businesses have begun to explore whether they should accept Bitcoin and other digital tokens as payment. While there are advantages to doing so – such as the marketing boost of being seen as an innovative company – there are also cybersecurity risks that businesses should consider.
In this post, we will take a look at some of the risks and rewards associated with accepting cryptocurrencies at your business.
What is cryptocurrency?
Cryptocurrencies are digital tokens that use cryptography to secure their transactions and to control the creation of new units. Bitcoin, the first and most well-known cryptocurrency, was created in 2009.
The first retail transaction involving Bitcoin took place one year later, when a person in Florida traded 10,000 Bitcoin for two pizzas. The transaction was worth $41 at the time, but it would have been worth slightly more than $690 million at Bitcoin’s peak in 2021.
Since 2010, more than 10,000 other cryptocurrencies have launched, accounting for a total market capitalization of over $1 trillion. In that same time, more than 15,000 businesses globally have begun accepting Bitcoin for payments.
What are the benefits of accepting cryptocurrency at my business?
Cryptocurrencies allow businesses to sidestep some of the frustrations they typically encounter when working with traditional payment processors.
Cryptocurrencies have a worldwide reach and can be accepted anywhere. For global businesses, this means that you can accept payments from anywhere in the world, without having to worry about international currency conversion rates.
Transactions are also processed much faster on cryptocurrency exchanges than traditional payment methods such as bank transfers or credit card payments.
Fees are also much lower. The merchant is typically responsible for payment processor transaction fees. Traditional processors like Paypal can charge in excess of 4% per transaction, while some Bitcoin exchanges have fees below 1%.
Processing electronic payments through cryptocurrency also eliminates the headache of dealing with chargebacks. Once a cryptocurrency transaction is made, it cannot be reversed.
Lastly, accepting cryptocurrencies can give your business a marketing boost. As we noted earlier, Bitcoin and other digital tokens are often associated with being cutting-edge and innovative.
What are the risks of accepting cryptocurrency?
Before we dive into the cybersecurity risks of accepting cryptocurrency for payments, it’s important to touch on volatility in crypto markets. As we’ve seen over the past few years, cryptocurrency prices are subject to stratospheric rises and devastating drops.
For example, EV manufacturer Tesla announced in February 2021 that it had purchased $1.5 billion worth of Bitcoin. The price of Bitcoin then proceeded to rise and fall. The company sold off almost all of its Bitcoin holdings before the end of the year. Tesla reported that its profitability was hampered by “Bitcoin impairment” in a recent financial statement.
Secondly, cryptocurrencies come with their share of cybersecurity risks. When you accept cryptocurrency as payment, you are responsible for the ongoing security of those assets. There is no bank to store your assets for you.
This means that you need to have secure digital wallets in place to store your tokens. Your “hot” wallet is connected to the internet, and it is used to store the tokens that you are actively using for payments or trading.
Your “cold” wallet is not connected to the internet and is used to store your long-term holdings. It is generally considered much more secure, but it’s important to have both types of wallets to maintain flexibility.
Wallets can be hacked, and your tokens can be stolen. In order to protect your digital assets, you need to have strong cybersecurity protocols in place. This includes two-factor authentication, multi-sig wallets and a process to regularly move hot wallet holdings into cold storage.
You also need to be aware of the potential for scams. It’s not uncommon for scammers to pose as legitimate businesses in order to get their hands on your cryptocurrency.
Finally, businesses should be aware of the regulatory risks associated with accepting cryptocurrency. In some countries, such as the United States, cryptocurrencies are considered commodities. In others, like China, they are considered property.
This can have implications for how you report your taxes, as well as what kind of licensing you need in order to accept cryptocurrency at your business.
Should my business accept cryptocurrency?
The decision of whether or not to accept cryptocurrency as payment should be based on a number of factors, including your business type, your customer base and your overall risk tolerance.
If you’re a small business owner, you might want to consider accepting cryptocurrency if your customer base is tech-savvy and/or invested in digital assets. If you do decide to accept cryptocurrencies as payment, it’s important to first understand the risks and take the necessary steps to protect yourself and your business. How secure is your company’s work network? Contact the team at Sanity Solutions for a cybersecurity checkup today.