A new form of online currency hit the internet over one decade ago (circa 2009). It was initially seen as nothing more than a ‘tech project.’ Nobody outside of a small group paid much attention to them. It wasn’t until a few years later that it began to reach a much wider range of users.
Its real “rise to fame” came once the price of these alternative currencies began to soar. Financial experts and news outlets alike began to pose their opinions on the future of blockchain and cryptocurrencies. Opinions ranged from “the future of money” to a “tool for terrorism” and a “fad that will soon die out.”
Cryptocurrencies are still being used (now more than ever) almost eleven years later! Business owners have become more interested in cryptocurrencies. They now seek new ways to implement them into their businesses. Their only question is whether or not it’s actually legal to use them?
A cryptocurrency (or ‘crypto’) is a digital asset created to serve as a form of virtual cash. This electronic money is designed to provide a secure medium of exchange that doesn’t rely on centralized organizations like banks or governments.
These digital currencies create and record reliable financial transactions that are secured with military-grade cryptography-based algorithms. They are cryptography-based currencies. That’s why they are commonly referred to as “cryptocurrencies.”
It is because these currencies are not backed by any government or bank that people question their legitimacy and legality. Cryptocurrencies are not always traceable to the individual(s) partaking in the transaction. Its anonymity makes it a popular tool for acts like money laundering and the purchasing of illegal goods and services.
Scammers also concern regulators because blockchains are decentralized in nature. Decentralized systems make it easier for scammers to round up investments. Like in the case of the famous scams: Bitconnect and Pincoin/iFan. There are no refunds if one user sends Bitcoin from their own wallet to another user’s Bitcoin wallet because there is no central authority that can enforce a refund or suspend a user’s account activity. The transaction is final.
The receiving party would have to send the funds back through a new transaction (to refund). A third-party platform would otherwise have to serve as an escrow that holds the funds until both parties accept the transaction. A platform like Paypal (for example) allows its users to file a claim asking for a refund if the goods or services weren’t delivered.
The legality of cryptocurrencies depends on the jurisdiction (which country) they are being used in. Countries that accept cryptocurrencies as a form of payment still run into issues. The specific crypto you use will be a determining factor. There are currently thousands of active cryptocurrencies.
The issue with the vast majority of cryptocurrencies is that many are still pending regulatory authorization to circulate. This is partly due to the fact that many can still be classified as securities and that may cause them to be unauthorized by the SEC for circulation.
Cryptocurrencies like Bitcoin are classified as commodities rather than securities. This way they can circulate freely in the market. Purchasing goods and services with Bitcoin is completely legal in the US. It is also legal for businesses of any size to accept Bitcoin as an alternative form of payment.
Businesses that choose to accept Bitcoin payments are required to pay taxes on the income received. A 2013 classification by the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) stated Bitcoin would be classified as a convertible decentralized virtual currency. Bitcoin can be used legally in commercial transactions like cash or gold.
Accepting cryptocurrency payments raises a small issue with how to pay taxes on these assets. The IRS’s Virtual Currency Guidance (as well as a reminder made in 2018) states that cryptocurrencies like Bitcoin are classified as a form of property.
The reason Bitcoin and other cryptocurrencies cannot be classified as a currency is actually because they are not issued by any central bank. It is also important to note that incorrect reporting of income from virtual assets can result in penalties. Fines and even criminal prosecution can ensue if the party responsible neglects to file taxes. US taxpayers should take careful note of this when sending or receiving payments with Bitcoins.
The taxpayer must then pay a capital gains tax. The total of these taxes depends on whether the asset was held short-term or long-term (less or more than a year) and whether the asset appreciated or depreciated from the moment of acquisition. Be sure to check the specifics of how to handle this with your local government before accepting any virtual currencies for your business.
We have answered the question of whether or not using and accepting cryptocurrencies is legal. It should be clear by now that it depends entirely on where your business is registered. You should remember to check with your local government and abide by their rules.
The next question on a business owner’s mind might be: “How can I begin using them now that I know they are legal?”
Using cryptocurrencies in your business has the added benefit of showing your customers you are at the cutting-edge of payment technology. It also helps raise awareness for potential future users that you support these alternative currencies.
- Your own wallet – You can set up your own wallet at first. Especially if you expect a low number of clients will make payments using their Bitcoin. Simply place your QR-code near the cash register. They can scan your code and send you the BTC.
- Software apps – There are also third-party applications that allow you to streamline the process by having users deposit their coins into the app. You can then receive the coins instantly when they scan your code. Regular BTC transactions can take 10+ minutes for a confirmation.
- There are some very promising apps still in development to help you do this.
- Hardware devices – Some companies can supply you with your own Point-of-Sale (POS) hardware terminals. These allow you to receive tokens and even provide a receipt for your customers. They vary depending on the manufacturer.
- Gift cards – Pre-purchased gift cards can help avoid the hassle of dealing with QR-codes and waiting times.
These are only a few of the ways in which you could begin to use crypto in your business. We can be sure there will be more and more companies seeking their own share of this new payments market as more people begin to adopt cryptocurrencies.
There are millions of resources online that can help you learn more about Bitcoin. These can also help you delve deeper into Distributed Ledger Technologies (DLT) and other cryptocurrencies.
A quick Google search for “cryptocurrencies” offers over 121 million results! The specific website will depend on what you are looking to learn. CoinTelegraph and Investopedia can help answer general queries and recent events. You might also consider taking an online course at EdX or Coursera. Even cryptocurrency-related forums like Bitcointalk.org can help you ask and converse with other users directly.
Using and accepting cryptocurrency payments in your business is safe and legal. It is still very important that you check the regulations of your local government. Be sure to check the requisites for paying taxes on your assets to avoid any issues down the line.
Accepting cryptocurrencies is a wonderful opportunity that allows more people around the world to purchase your goods and services! By aiding in the adoption of these alternative virtual currencies you can minimize the overall barrier to entry into ecommerce. You also help reduce the amount of fees paid to third-party payment operators. The rewards for your business are plenty when using cryptocurrencies.