After not meeting his 2017 sales goals, Ollie B. Celling knows he might get fired from Duncey’s Caps, Inc. if he doesn’t get his numbers up in 2018.  Celling begins marketing Duncey’s through his personal Facebook, Instagram and Twitter accounts.  Soon he thinks he’s hit a home run: a customer from Japan wants to buy 5,000 ballcaps for whatever Major League Baseball team Yu Darvish signs with for the 2018 season.  There’s one catch – the customer wants to pay with a new cryptocurrency.  Duncey’s contracts require payment in U.S. dollars.  Celling goes to Jim Duncey, the owner of Duncey’s, and tells him that Duncey’s should change their contracts to start accepting cryptocurrency because “it’s the wave of the future.”  Should Duncey agree?

What are Cryptocurrencies?

A cryptocurrency is a virtual currency that uses cryptography to secure and verify transactions.  Banks use similar technology when engaging in digital transactions (such as crediting and debiting accounts for their customers) but with legal tender (such as U.S. dollars) and through a central bank.  The payment network for cryptocurrencies is completely decentralized (like peer-to-peer networks for file sharing), so transactions are confirmed by “miners” who solve the cryptographic puzzle based on the private key submitted by the sender of the currency.

Are cryptocurrencies widely accepted in commercial transactions?

Yes and no.  Some cryptocurrencies, like Bitcoin, are widely accepted.  In one of the more famous examples, Mark Cuban, owner of the NBA’s Dallas Mavericks, recently announced the Mavericks would allow fans to purchase tickets with Bitcoin starting in the 2018-19 season.

What are the benefits of accepting cryptocurrencies?

Cryptocurrency payments are beneficial because they usually come with lower transaction fees than banks or credit card companies charge merchants.  Cryptocurrency also provides chargeback fraud protection because once the payment is approved and final, it cannot be reversed.  Finally, unlike standard bank accounts that have hold periods before funds become available, cryptocurrency payments are immediately available.

What are the risks of accepting cryptocurrencies?

There are several risks to accepting cryptocurrencies.  The most significant to a business is volatility.  The cash value for Bitcoin fluctuates tremendously on a daily basis.  While there are merchant service companies that will immediately exchange Bitcoin for current cash value, those services are most valuable for companies that require payment at the time the customer places the order.  Otherwise, companies that require payment at a later date are subject to price volatility risk between the date the parties contracted and the date of payment.

Another current risk is cybersecurity.  Cryptocurrencies, like other electronic data, are not completely secure from cybercriminals.  And because they are not legal tender, they are generally not insured or backed by any government.  Coinbase has added insurance coverage for losses up to $250,000, which is the same level that conventional banks insure your bank account from losses.

Tilting the Scales in Your Favor

It’s likely that your business will get pressure to accept cryptocurrency as it continues to become more mainstream.  Before doing so, your business should sit down with legal counsel and information technology experts to ensure that your business has as much protection as possible from the risks associated with cryptocurrencies.