As more and more firms utilize crypto for payments and transactions, there are several considerations that every firm should keep in mind.
There has been a flurry of headlines and announcements related to crypto payments, with industry giants like Visa and Mastercard making waves by entering this fast moving space. The concept surrounding crypto, at least at the beginning, was to serve as a cheaper, faster, and more efficient way of conducting transactions. While the sector has certainly evolved in any number of directions – including decentralized finance and non-fungible tokens – the overarching goal of many cryptoasset developments is connected to this original goal.
Following the latest bull run, and reinforced by the increasing number of new institutional users entering the cryptoasset ecosystem, this idea seems to increasingly be becoming reality.
Benefits linked to a well functioning cryptoasset payment platform and structure have been documented on innumerable occasions in an array of formats. These include, but are not limited to, real time settlement of transactions, lower fees, and the ability to send funds worldwide without having to convert from one currency to another. Setting aside those very substantive benefits for the time being, it seems reasonable to ask; how should a firm set about crafting a crypto payment strategy?
Let’s take a look at a few items that should be kept in mind.
Which crypto? Crypto and cryptoassets are discussed on a nearly continuous basis in the current marketplace, but the label itself is an umbrella term rather than being linked to any one specific item. The first decision that should be made is what type of cryptoassets the organization will be doing business in. Will the firm only accept decentralized crypto such as bitcoin, or use stablecoins such as USDT (the largest by market capitalization), or wait until a major economy launches a central bank digital currency (CBDC) alternative?
Every single cryptoasset is unique, has different characteristics, and will – in turn – lead to different ripple effects that the organization will need to keep in mind. Tax implications might be the most direct impact of transacting in cryptoassets, but there are operational, cybersecurity, and other items as well that we are going to discuss.
Accepting or sending? After the type of cryptoasset that will be integrated into the business has been selected, the management team also needs to determine how these cryptoassets will be used? For example, will the company simply accept crypto as a form of payment, or will crypto also be used to pay suppliers, employees, and other bills? Again, depending on the specific choice made, there are going to be follow-up questions and requirements in terms of what software partner will work best.
Hold or convert? Once bitcoin had first burst into the mainstream financial marketplace there were organizations that rapidly announced plans to accept crypto as a payment option and alternative. Upon closer inspection, however, the truth of the matter was revealed to not necessarily be as innovative as it might otherwise have appeared to be. What often happened, and certainly not at every organization, was that crypto was indeed accepted as a medium of exchange, but was then immediately converted back into the relevant fiat currency.
There is nothing wrong with this approach, but this represents another choice that management professionals must make. Additionally it is worth pointing out that, from a taxation perspective, that for U.S. transactions there will be a tax obligation created even if the crypto is accepted and subsequently held simply due to the fact that goods or services were exchanged for cryptoassets.
Cybersecurity. Every firm should integrate a cybersecurity approach and strategy into business operations whether transactions are denominated in fiat or crypto. That said, introducing cryptoassets into business operations leads to several other factors that need to be considered. Specifically, does the information technology currently used at the firm have the capacity and options to handle crypto transactions?
A simple example of this is that many fiat payroll, invoicing, and other financial systems are usually designed to handle transactions up the hundredth of a currency unit (for example $100.05). Perfectly fine for fiat transactions, but with cryptoassets able to be subdivided much further, this can very quickly lead to errors and misstated financials.
One other aspect around crypto and cybersecurity is how the cryptoassets will be managed by the organization? Will the firm choose so self-host a wallet or other digital storage option, or will they seek the services of a third-party provider? Both come with their own risks and potential exposure and so both should be assessed with equal rigor.