Accept Bitcoin as a Payment?
A friend and client of mine was recently selling his business and commercial real estate and asked if it was ok to accept Bitcoin as a portion of payment.
I know blog posts are supposed to be pretty short and sweet but I have to dive a little bit further into this one so bear with me….
As a business broker and commercial real estate broker, I get asked a lot of different questions in many different areas dealing with business and money. Something that has been recently coming up in a lot of conversations lately is the subject of cryptocurrency. (Digital currency.) (Think of Bitcoin, Dogecoin, Litecoin, and Cardano). When my wife asked about it, I joked with her that it is the money of the future that we’ll all need in order to buy our blue Star Wars milk.
Seriously, it can be very confusing and somewhat bizarre to think about. Here’s a little information that I think could help make sense of the cryptocurrency world:
Cryptocurrency is internet money. It is completely digital. There is no physical paper or coins. It is an alternative form of currency for which there is no physical coin or paper given. It is not created by a mint, but by a computer code. Complex computers solve algorithms that rely on cryptographic code. (Hence the name “crypto” currency.) The transactions are stored on a public database or ledger. This is what is called a blockchain. Blockchains are decentralized and digital. Anyone can view the real-time transactions! These transactions are recorded across many computers so that a block cannot be altered. This makes the transaction corruption-proof so that it cannot be changed or deleted. You cannot have one person using the same Bitcoin, let’s say, and passing it along to multiple people.
Due to the fact that the currency is on the blockchain, each transaction can happen directly in a peer-to-peer network. You don’t need a third party to send or receive and you don’t need to reveal who you are. The blockchain is encrypted and only the owner of the currency can decrypt it with a “private key” that is a code. It must be stored in a “wallet”- preferably one that is not online but a hardware wallet that you plug into your computer via USB to keep your crypto safe.
From what I can tell, Cryptocurrency began in 2008 by a figure known as Satoshi Nakamoto. (Nobody knows the real name or identity!) This person is the creator of Bitcoin. It was started in order to build a digital cash system that had absolutely no centralized authority. The value has exploded ever since and more digital currencies have flooded the market.
You may hear people talk about “mining” Bitcoin and other currencies. Instead of taking shovels and digging in the earth for riches, very powerful computers solve complicated equations to both create and validate the digital “coins.” The miners are vital to the blockchain network. It would collapse without their computers. For this effort miners are rewarded with more cryptos. It takes a lot of very sophisticated computer equipment!
The blockchain aims to distribute the power of the currency among everyone in the network. There are only a set amount of crypto coins available, (for Bitcoin, the number is 21 million), and when these are all in circulation there is no easy way to add to the supply of coins. It’s very different than a government that can just print more and more money when they feel the need to do so.
The cryptocurrency can be transferred anywhere around the world and be withdrawn from any exchange. There are crypto apps like Binance or Gemini that allow you to use the app to buy and exchange currency. You can even exchange different types of cryptocurrency! There are payment processors such as Bitpay which allow you to turn your crypto in dollars and put them on a pre-paid Mastercard that you can use anywhere you like. Most information I found really stresses the importance of securing the currency on that personal wallet that I mentioned before. Cryptocurrency is a prime target for scammers and hackers.
Which leads me to my next point: cryptocurrency isn’t backed by any underlying asset. How do you really value a bunch of computer codes? It really just comes down to supply, demand, and the exchanges the crypto trades on. The value goes up and down. There is absolutely no bank or central authority who owns it. It is speculative and unregulated. If someone hacks your account and steals your bitcoins, you have no legal protections and zero chance of getting your money back. You, as the owner, are fully responsible for keeping your digital currency secure in a virtual wallet and protecting it!
A friend and client of mine was recently selling his business and commercial real estate and asked if it was ok to accept Bitcoin as payment. I would say it is really up to how you personally feel about the whole cryptocurrency market, but I personally would not – AT Least Not Yet. I understand that something like Bitcoin is worth a whole lot more than it was 10 years ago, but since there’s no underlying asset it could potentially be worthless. The value changes constantly, so if you charge someone $400 for a service and they pay you in crypto, the next hour it could be less than $400! If you understand how volatile it is and you are totally prepared to lose money and accept the risk, it could be very interesting to follow. Bitcoin and other cryptocurrencies have certainly exploded in popularity lately and more banks, investment firms, and retailers have been accepting them as legitimate forms of currency. There are a number of different opinions on where digital currency will fit into our market- some say it will one day have a verified exchange traded fund, while others say the risk is simply too high and it will never be worth what people are speculating. Maybe as the technology improves and people understand it more, it may become more of a common investment.
For myself, I like to invest along the more traditional lines, like in businesses, stocks or mutual funds. I’m not advising anyone to not take the plunge and try it, I’m just pointing out some of the facts about the risks of cryptocurrency. Please understand if you accept this as a medium of payment for the sale of services or even the sale of your business or property the value could go down.
Every investment is definitely a risk and you should always talk with an advisor when you’re thinking about ways to invest your hard-earned money.
I hope this maybe helped answer a couple of questions you may have had… let me know what you think!