Diversifying your income stream with cryptocurrency

Though it's not gold — and it actually outperforms gold as a commodity — cryptocurrency has been vilified and sainted depending on who you ask.

What is cryptocurrency? Why should you care about it?

Simply, cryptocurrency is a form of digital currency exchanged through a process called cryptography. Crypto's other unique features are that it's untethered from government control and is secured by blockchain technology, which verifies any digital currency's origin anonymously and records transactions instantaneously.

Why would a small business consider accepting cryptocurrency as a form of payment?
Tech companies and rogue states aren't the only ones accepting cryptocurrency as a form of payment. Banks, exchangers, processors like PayPal and now consumers have joined the brave new world of crypto. According to cryptocurrency exchange Coinbase, 8,000 merchants around the world accept digital money or "coins" such as Bitcoin, Bitcoin Cash or Litecoin. As more and more household-named merchants and institutions accept digital coins as payment for goods, services, tuition or wages, small businesses will need to compete or they could lose customers.

In 2021, the cryptocurrency industry reached nearly $3 trillion in market value and the return on investment in Bitcoin has been stunning. The lure of cryptocurrency's tremendous return is reason enough to explore its use as a hedge against. Other attractive aspects of cryptocurrency include:

• Instant transaction speed from anywhere in the world, 24/7.
• Removal of an intermediary like a bank and its processing fees.
• Diversification of a business's income stream and investment portfolio.

With new types of blockchain wealth creation — like Non-Fungible Tokens, also called NFTs — creating billionaires, the IRS now has guidance on how to report cryptocurrency. All of this sounds pretty exciting, but with anything this thrilling, there's a darker side.

Cryptocurrency transactions are recorded using blockchain technology.

What are the risks associated with accepting cryptocurrency?
If you are considering accepting crypto as payment for your goods or services, then you should be aware that not only is the currency's market volatile, it's headed for greater regulation.

The swings of cryptocurrency value can be tough for small businesses. Unlike the dollar bill, crypto isn't legal tender in the U.S. When you need the USD cash from your crypto portfolio, the exchange rate can be detrimental for your company's cash flow and balance sheet. If your company offers deferred payment or a monthly subscription to customers, then digital coin may be too unstable for your company's bottom line. 

An unregulated currency is appealing to proponents of cryptocurrency, but as of this writing, there is only one country, El Salvador, that accepts digital coins as legal tender. Nine countries, including China, have outlawed cryptocurrency. In the United States, federal agencies and lawmakers are watching blockchain activity closely. The Treasury's Office of Foreign Assets Control has a Specially Designated Nationals and Blocked Persons List of wallets that are in sanctioned jurisdictions, in part, because blockchain transactions are anonymous and can't be reversed.

One thing is certain: There will be changes coming for using crypto that could impact your business's taxes, reporting and credit. Are you ready for all of those changes?

Paying with cryptocurrency is here.

How can a small business protect itself from the risks associated with cryptocurrency?
As with any business decision, evaluating whether to accept cryptocurrency payments requires a common-sense approach. Before you buy a processor for cryptocurrency, make sure that you:

• Do your due diligence on the cryptocurrency market and its potential effects (positive or negative) on your bottom line.
• Find out if accepting cryptocurrency is something your customers want from your business.
• Be sure that cryptocurrency is a beneficial part of your business strategy.

The Law Offices of Donald W. Hudspeth, P.C. helps small businesses protect their business interests. Contact us if you believe that a vendor involved with your company's cryptocurrency transactions has harmed your business.

Categorised in: Starting a Business in Arizona

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