Risks of Crypto

When customers want you to take their money, you had better make sure they have a way to give it to you. Credit cards have long been the default payment method for ecommerce merchants, but consumers are increasingly interested in using alternative payment options.

It pays to offer the payment methods preferred by your customer base, which is why many merchants are looking into cryptocurrency as a payment option. Crypto is highly popular among certain tech-savvy demographics, but there are some dangers in operating at the cutting edge of financial technology. What are the risks of accepting cryptocurrency as a payment option?

The subject of cryptocurrency never fails to generate a lot of opinions and predictions. For merchants, the most important opinion when it comes to whether you should accept cryptocurrency payments is that of your customers.

If you’re missing out on sales or losing repeat business because you don’t offer cryptocurrency as a payment option, then it makes perfect sense to weigh the costs and benefits of doing so.

Given the nature of cryptocurrency, these payments can take place completely outside the infrastructure of the traditional payments industry. This frees merchants from having to deal with any of the negative aspects of that system, such as processing fees, credit card fraud, and chargebacks.

However, it is important to remember that cryptocurrency comes with its own unique set of costs and hazards. Going in unprepared can leave you caught off-guard by losses and expenses from scenarios you’ve never had to deal with before.

What Are Cryptocurrency Payments?

Cryptocurrency uses digital encryption technology and a distributed ledger called the blockchain to create and exchange “coins.” The blockchain, because it is public and shared and cannot be altered without detection, serves as a trusted transaction record, and coin owners access and exchange their cryptocurrency via “wallets” encrypted with a personal key. There are thousands of cryptocurrencies in existence, but only a few—such as Bitcoin and Ethereum—see widespread use.

Cryptocurrency transfers do not require any sort of broker or processing service. You can send cryptocurrency to any wallet as long as you know its public address.

What Makes Cryptocurrency an Appealing Payment Option?

There are a number of reasons why merchants and their customers might be interested in cryptocurrency payments. Merchants who sell products or services in the so-called “high risk” category often find that they get hit with an inordinate number of chargebacks and tend to pay much higher rates for credit card processing.

Cryptocurrency payments circumvent both of these problems, and customers of these merchants may appreciate the additional layer of privacy afforded by cryptocurrency.

Every merchant should appreciate the fact that cryptocurrency is quite literally immune from payment disputes and chargebacks. Blockchain transactions cannot be reversed or rolled back; if an error occurs it’s entirely up to the recipient whether they send your money back or not.

Cryptocurrency keeps merchants safe from the impacts of ecommerce fraud. Even if a fraudster hacks into a victim’s cryptocurrency wallet and uses it to make purchases, there’s no way to dispute those payments or claw the funds back.

Another benefit of cryptocurrency is that it can make your store more accessible to unbanked or international customers. Anyone with an internet presence can own and operate a cryptocurrency wallet, and exchanges can be made from anywhere in the world with no need for currency conversion.

What Are the Risks of Accepting Cryptocurrency Payments?

Like all speculative investments, cryptocurrencies are worth precisely as much in traditional currencies as people are willing to pay for them. One of the most obvious risks of accepting cryptocurrency is that the market is still highly volatile. If you cash out during a dip in your coin’s value, you can lose money on the transaction. Holding your cryptocurrency can keep it safe from day-to-day market fluctuations but it also means you can’t access your funds, and of course there’s no guarantee that its value will remain stable over time.

Cryptocurrency also comes with some tax obligations—and paperwork. You have to report it as gross income based on its fair market value when you received it, which means keeping track of that information and paying any capital gains taxes you might incur.

The laws and regulations around cryptocurrency are still evolving, and merchants should be paying close attention to any federal, state, or local laws that might affect their handling of cryptocurrency payments. Many regulators are aware of cryptocurrency’s association with the dark web and other illicit markets, and merchants should be cautious not to base too many long-term plans on the premise that the current state of cryptocurrency payments will persist unchanged into the future.

How Can Merchants Who Accept Cryptocurrency Payments Protect Themselves?

Despite the risks, some merchants will find that accepting cryptocurrency payments makes good sense as an accommodation to their customers. If you’re one of these merchants, you can protect yourself by taking steps to mitigate the volatility and unpredictability of the cryptocurrency market.

Make sure to establish a process for exchanging your cryptocurrency that minimizes the chance that you’ll lose money by cashing out at the wrong time. Some services can convert your cryptocurrency transfers immediately upon receipt.

Because cryptocurrency payments can’t be disputed, customers who have product or service issues will have no choice but to deal directly with you if they want a refund. Be sure to provide them with thoughtful and attentive customer service even though they can’t hold the threat of a chargeback over your head—otherwise you risk alienating your customers, losing their loyalty, and having your reputation suffer due to bad word of mouth.

Conclusion

Merchants should always be on the lookout for alternative payment methods that appeal to their customers. It’s never a bad idea to introduce new options that will head to happier customers and higher sales, but always do your homework first. Cryptocurrency has a number of unique advantages to offer, but no payment method is completely safe or problem-free. The better you understand the risks you’re taking on, the less chance they’ll have of getting in the way of your success.

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