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Cryptocurrency 101 for Small Businesses

  • 27 February 2018
  • Author: Alexander Carr
  • Number of views: 2199
Cryptocurrency 101 for Small Businesses
Bitcoin and other cryptocurrencies are all over the news lately, yet it remains a mystery to many small business owners. We know you’ve got questions, so we compiled a simple Q&A using advice from cryptocurrency experts to help explain what cryptocurrency is,

when it might be a good idea for small businesses, and how it’s taxed.

What is cryptocurrency?

Cryptocurrency is a digital currency not regulated or controlled by any bank, government or centralized financial authority. Instead, encryption techniques—using a form of incorruptible digital ledger like blockchain technology—regulate its use over the Internet. Bitcoin is the most talked-about cryptocurrency, but dozens of other forms exist including Litecoin and Peercoin. The currencies can be bought, sold and exchanged online on cryptocurrency exchanges like Coinbase. To learn more about what cryptocurrency is and how to use it, read this easy-to-follow guide by Finder.com

What is its value for small businesses?

Dealing with cryptocurrency when you’re a small business can be risky, but experts point out several scenarios in which the risk could pay off. As Due.com’s William Lipovsky explains in this overview, cryptocurrencies can help small businesses enter global markets because they operate as a peer-to-peer transaction system, eliminating the need for third-party intermediaries or currency exchanges and the costs and risks associated with them. The peer-to-peer nature of transactions enhances privacy and security while reducing the chances of fraud and identity theft.

The benefits of blockchain beyond its use for cryptocurrency is also worth noting. The encryption technology can be used to create secure-yet-transparent transactions for functions like smart contracts and supply chain management. In short, it’s a game changer that is transforming a variety of industries. These separate guides from The Blockchain Research Institute and Blockgeeks can give you more in-depth glimpses into the business value of blockchain technology.

Should a small business accept cryptocurrency as payment for goods or services?

You may assume that most small businesses shouldn’t risk getting into the cryptocurrency game themselves, at least when it comes to accepting it as a form of payment from customers. However, Small Business Trends suggests small businesses consider accepting the currency without a big hassle by using a third-party payment provider like Stripe or accepting gift cards purchased through a cryptocurrency platform.

How is cryptocurrency taxed?

Alas, even cryptocurrency is taxed—but exactly how remains unclear. The IRS currently views it as property, which means transactions can be subject to capital gains or losses. Before 2018, cryptocurrencies could be swapped under section 1031 (which states that one like-kind business or investment asset can be swapped tax-free for another), but not anymore. “The massive tax bill that was just passed limits 1031 exchanges to real estate,” says Forbes.com contributor Robert Woods (you can find his theory about a possible loophole here).

That being said, the IRS is being asked to clarify its position—which hasn’t officially been updated since 2014. Behind the scenes, though, the agency has created a new in-house virtual currency team and has asked Coinbase to release information on over 14,000 users. Forbes.com contributor Kelly Phillips Erb offers more information about cryptocurrencies and taxes here.

Cryptocurrencies are certainly a moving target, but they also seem to be here to stay (at least in one form or another). If you’re curious about the subject, we’d love to hear your questions. Let us know what’s on your mind.

Image Copyright: albund / 123RF Stock Photo

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