Jim: WRAL Techwire asked us to discuss whether companies should accept payments in bitcoin and other cryptocurrencies.
BENJI: Of course they did. We’ve been advising our clients on cryptocurrency issues since 2017. We’ve seen all the cycles. Bitcoin was valued at around $ 4,900 in mid-March 2020. It is now ten times that amount. Anything that gains value so quickly is interesting.
JIM: You are the CFO of our law firm. I know that lawyers are allowed to accept payments from clients in certain circumstances because I got an ethics decision from NC Bar in 2018. So here’s a question: Should our law firm accept Bitcoin as payment for our legal fees?
BENJI: I spend enough time tracking payments when customers pay with old-fashioned credit cards, ACH transfers, and checks. I am not eager to add more complications.
JIM: But Apple accepts that the payment is cryptocurrency. The same goes for telephone and utility companies.
BENJI: I know. But they have big financial and technical assistance departments. We do everything ourselves. We need simple ones.
JIM: What if I told you that over thirty million Americans own Bitcoin.
BENJI: That’s a lot of potential customers. Tell me more.
JIM: And Bitcoin and other cryptocurrencies are used a lot in cross-border transactions. So there are many other potential customers around the world.
BENJI: We do a lot of international work. So this can be helpful. But is it worth it? It would have to be a big customer to make it worth it.
JIM: Well, many fintech companies are working to eliminate or reduce the hassle of paying regular bills with cryptocurrency.
BENJI: Now you have my attention. More money and less hassle? How is it going?
JIM: You can choose to handle these payment transactions yourself and receive the cryptocurrency in your own digital wallet, and then you can exchange the cryptocurrency for fiat currency on an exchange. If its value increases or decreases between the time you receive it and the time you sell it on the stock exchange, you will have a taxable gain or loss on the difference.
BENJI: I thought you said less hassle. It makes my life more complex.
JIM: This is how you had to do it until recently.
BENJI: What changed?
JIM: Fintech companies provide digital asset gateways. Your customer pays the gateway and the gateway deposits US currency into your account.
BENJI: Is it expensive?
JIM: Most digital asset gateways don’t charge merchants a fee like credit card companies do. So you save those merchant fees.
BENJI: What’s the catch? Nothing is free.
JIM: Digital gateways generally make money in the same way that banks make money by exchanging currencies. For example, if you change US dollars into euros, the exchange agent gives you less euros than the current market price on a trading exchange would give you.
BENJI: Do these gateways only deal with Bitcoin?
JIM: No. Most gateways deal with multiple rooms. Each gateway has different policies on the coins it accepts and charges different spreads.
BENJI: How to choose the best gateway? What due diligence should I do before choosing?
JIM: First, find out how many spreads the gateway charges for the exchange. Other points include how long you risk the cryptocurrency’s value going down. What goes up quickly can often also lose value quickly.
BENJI: I don’t think I want to hold cryptocurrency for very long. What is typical?
JIM: There are two ways to play this. The first is that you have an account at the gateway that holds the cryptocurrency until you want to sell or spend it. You decide how long you want to keep it. There you take the risk of the market. The other type of service automatically sells the cryptocurrency upon receipt. This reduces your market risk. It’s similar when you buy something with a credit card from a foreign supplier. The supplier is usually paid by the credit card company in their own currency.
BENJI: I like to deal with famous brands. Do they have good security against hacking? Do they have the financial resources to pay me if they are hacked? Are these gateways established financial companies? Or will I risk them disappearing overnight with my money?
JIM: Until recently, most gateways were new fintech companies. But well-established payment processors are starting to gain a foothold in the space. For example, PayPal recently announced that it would allow consumers to pay their monthly bills in cryptocurrency.
BENJI: OK, it looks like customers who pay in cryptocurrency are becoming a reality. What do VISA and Mastercard do?
JIM: So far they are watching. If PayPal begins to attract many more customers and the volume of transactions increases due to the ability to pay in cryptocurrency, other major payment processors may be forced to join the party to protect their market share.
BENJI: If this happens then big cryptocurrencies will be really spendable like US dollars and euros. So yes, maybe we could find ways for clients to use coins to pay for their legal fees in the future.