With all the talk about cryptocurrencies, you might be wondering whether your e-commerce business should start accepting them as a form of payment.
There is no simple answer to that question. It all depends on the type of business you have and your tolerance for volatility and risk.
In any case, it’s a good idea to understand what cryptocurrencies are and how they work. Though you might not start accepting them for payment any time soon, there’s a good chance that eventually they will become a more common component of everyday e-commerce. If and when that happens, it won’t hurt to be ahead of the curve.
With all of that in mind, following are some cryptocurrency basics.
What Is Cryptocurrency?
Though it might seem mysterious, cryptocurrency is essentially a form of currency — but one that isn’t, like the U.S. dollar or other “fiat currencies,” backed by an issuing government. Some of the most well-known cryptocurrencies are Bitcoin, Ethereum, and Litecoin, but there are hundreds out there, and more are being created all the time.
“Cryptocurrency is a digital asset — like money — for which ownership can be irrevocably proven and then transferred to a new owner,” said Jim Bursch, director of the cryptocurrency Dash’s Bug Bounty Program.
“Before the creation of Bitcoin, it was not possible to prove ownership and transfer a digital asset because perfect copies could be made of anything digital,” he told the E-Commerce Times. “There was nothing to prevent someone from transferring a copy instead of the original. Cryptography — the ‘crypto’ in cryptocurrency — makes it possible to prove ownership of a discrete digital asset and transfer ownership, not just a copy.”
Cryptocurrencies are based on a blockchain, which is essentially a decentralized digital ledger that records transactions. Each cryptocurrency is managed by its own particular network rather than a central authority.
“Cryptocurrency is a value-management layer based on a blockchain that controls the valuation in trading of a particular asset,” said Jason Agouris, CEO of iTristan Media Group.
“In simple terms, it’s a digital currency,” he told the E-Commerce Times. “It’s based on encryption models that manage every other currency — where they go, who owns them, and the value of the entire cryptocurrency — because it’s aware of the value of the entire model.”
Cryptocurrency and E-Commerce Payments
Should you consider accepting cryptocurrency for payments on your site? The answer to that question depends on your business, your customers, and your tolerance for volatility. The central benefit of cryptocurrencies — privacy — needs to be weighed against the potential cost and risks.
“All e-commerce companies should be studying cryptocurrencies and making informed choices about whether or not to integrate them into their payment system,” said Dash’s Bursch.
“Unfortunately, this is not an easy task because there is so much hype stirred up around cryptocurrency. Despite the hype, there is no hurry. This is not a train that is leaving the station that everyone needs to jump on. Given the current volatility, it is a wise choice to wait for the industry to mature and the technology to develop,” he cautioned.
If you should decide to experiment with accepting cryptocurrency payments, how to go about it depends on the needs of your business and the type of site you operate.
One way is to set up hardware wallets and exchange accounts. Another approach is to rely on third-party processing systems. There are also plug-ins available through some hosting services.
Because of the extreme volatility of cryptocurrencies, most experts recommend exchanging them for fiat currency as soon as they’re received. Fees for accepting, processing, and exchanging cryptocurrency payments vary, and they can rival or exceed the cost of accepting more traditional payment methods.
What’s in the Future?
Blockchain technology is here to stay, but cryptocurrencies are still in their infancy. How they develop — and whether they become more mainstream — are open questions.
“I don’t know what is in the future for cryptocurrencies,” said Bursch. “They are not going away, and they are changing at a rapid pace. Fundamentally, cryptocurrencies are here to solve a problem. If you have a problem like high transaction fees or capital controls or poor banking services or poor privacy protection, then cryptocurrencies will be a solution to consider.”
At the very least, it’s a good idea to stay on top of the cryptocurrency situation and be ready to dive in if and when the time is right.
“I personally would recommend e-commerce companies who are interested in innovation to explore taking cryptocurrencies as a form of payment,” said cryptocurrency consultant Shane Staats.
“Since we’re still in the early-adopter phase of crypto, it is still not used very much for payments,” he told the E-Commerce Times, “but I think that will change in the not-too-distant future.”