“Checkout with Crypto offers customers the ability to sell cryptocurrency through PayPal to then pay a business for select online purchases in one seamless checkout flow,” PayPal wrote in a related press release.
It’s not just Paypal. An increasing number of companies across the world, including Microsoft and Starbucks, are now using Bitcoin and other cryptocurrencies for a number of transactional, operational and investment purposes.
What is cryptocurrency
Cryptocurrency is a digital exchange currency that uses cryptography to transfer money from one individual to another online. It relies on peer-to-peer technology, and is, in effect, decentralized in nature. This means no government or central bank can back or regulate it. Buyers transfer funds directly to sellers, without a third party to process payments.
Cryptocurrency relies on blockchain technology, which is a digital ledger that records all transactions in a public and chronological order, anonymously. Anyone can add transactions to the blockchain using a personalized digital key. Blockchain technology secures the exchange of cryptocurrency.
How cryptocurrencies work
There are several different types of digital currencies traded everyday. Bitcoin is one of many currencies that are based on blockchain — it is also the most popular. Ethereum, Litecoin, Zcash, XRP and Stellar Lumens are some other examples.
If you run a cafe, restaurant or a brick-and-mortar retail store, you most likely already have a point of sale system at the checkout register. You can upgrade the most recent PoS machines with a Bitcoin wallet program. To accept payment in Bitcoin, simply type in the price and send the data. This generates a QR code that the customer can scan to complete the transaction. Most online wallets charge a percentage per transaction, and some wallet apps will even allow you to print a receipt if required.
For e-commerce transactions, you don’t even need a PoS machine. All you need to do is download a cryptocurrency app to a tablet or smartphone or tablet. Usually, transfers require scanning a QR code, inputting a code string or just bumping two devices together.
Digital wallets: These virtual wallets hold cryptocurrency and record the value of coins. At the same time, they verify transactions as well as the number of coins in storage. Cryptocurrency storage can be considered hot or cold. A hot wallet is one that is connected to the Internet; whereas a storage device such as a USB drive is considered cold.
In order to trade with cryptocurrency, a hot wallet is required. But crypto experts recommend moving cryptocurrency coins to cold storage for safekeeping, because online cryptocurrency storage can be vulnerable to hackers.
Some popular wallet apps are Coinbase and Coinkite. These wallets work with existing PoS machines, work online and can also generate receipts.
Then there is Siacoin Wallet, which is the official Bitcoin app for Windows. It was built for extremely secure transactions, such as investment operations.
MyEtherWallet works with both the Windows and Mac operating systems. This online wallet app creates a wallet without an account and is capable of generating downloadable records.
Pros and cons of accepting cryptocurrency
Let’s start with the benefits:
- Lower transaction fees: Small businesses are typically charged between 25 and 30 cents plus 2% to 4% of the total transaction for every credit card swipe. However, transaction fees for cryptocurrency payments depend on whether you choose to receive digital coins in your personal wallet or through third-party wallets such as MyEtherWallet or Coinbase. The lack of a middleman collecting fees to facilitate the exchange reduces the expense greatly.
- Merchant protection: Since cryptocurrency is decentralized in nature, it also protects merchants from fraudulent chargebacks. Just like cash, cryptocurrency transactions are final, because no third party is able to reverse the charges. Since blockchain technology works on a peer-to-peer system, chargebacks cannot occur. If a consumer demands a refund, only the merchant (you) have the right to reverse the transaction.
- Increased sales: Cryptocurrency can open the doors to new markets across the world.
- Catering to consumer demands: An increasing number of people are now investing in and accepting cryptocurrency as a legitimate way of transacting. This gives customers an additional way to pay while providing an added layer of protection and security for their information.
Now, the risks:
- Technical barriers: Accepting cryptocurrency involves setting up a digital wallet on a digital currency exchange. This could be technically challenging for some small business owners.
- Price volatility: One of the biggest risks of using digital currencies is price volatility, which makes the value of cryptocurrency extremely unpredictable. For instance, when it was launched, Bitcoin was valued in pennies. Today, one Bitcoin is worth almost $50,000.
- Cryptocurrency security: Even though cryptocurrency transactions eliminate cyberthreats like stolen credit card numbers, the currency is still not completely safe. Also, cryptocurrencies are not backed and cannot be insured.
- Regulatory uncertainty: Because cryptocurrencies are relatively new, there is a lot of uncertainty around how the government will sort out the kinks in its regulation. Therefore, if you are looking to accept cryptocurrency for your business, it would be prudent for you to be prepared to adapt and pivot to periodic changes in regulations.
