The Risks Of Accepting Cryptocurrency As Payment
What Are The Risks Of Accepting Cryptocurrency As Payment?
There has been a lot of hype around the Cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP) lately. Crypto-Currencies are digital currencies which exist on a shared, decentralized ledger, and work as an alternative medium to fiat currencies such as Canadian and US dollars.
Please see our post What Are Cryptocurrencies and How Will They Affect My Business? for more information about how Cryptocurrencies can help your business.
Although these currencies are only in their infantile stages, the potential for their use is vast with the potential for their use (and value) to skyrocket when they become more widely used and accepted. Before you start accepting these currencies as payment though it is important to be aware of the following risks:
- Value: Crypto-Currencies are similar to stocks on the stock market in that they are commodities with values that change based on market and external factors. This causes the value to be volatile; one day it could be worth thousands while the next day it could be worth nothing. A recent example is the Crypto-Currency, Ethereum which briefly started the 2017 year at about $12CDN per coin, peaked at about $565CDN by mid-June and then went down to around $250CDN in mid-July. Accepting payment in such currency can therefore be a highly risky investment.
- Security: Crypto-Currency works on blockchain technology which is a decentralized and distributed digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the confirmation of subsequent blocks and the collusion of the network. As the name suggests, Crypto-Currency technology is internet-based and as such it is vulnerable to cyber attacks and hackers. Crypto-Currency is also not coded to be owner-specific. This means that any Crypto-Currency that you own is not coded to belong to you, and hence if your Crypto-Currency is stolen, you have very little recourse. It is important to ensure that your computer systems have up-to-date virus and malware scanners and that you adopt the use of an effective and secure “Crypto-Wallet” to store your currency.
- Integration: Before proceeding to accept Crypto-Currencies as payment, it is important that you understand how they work and whether they can integrate well with your business model. Moreover, there may be obstacles in getting your employees and clients to understand and accept the risks of an infant technology and to buy-in to the idea. There are substantial benefits to using Crypto-Currency though, including reduced overhead, banking fees and lightning cross-border transfers of wealth and fast transaction times. Understanding the benefits is the first step to integration.
- Legal: Using smart contracts to govern transactions leads to the question of enforceability which depends on the jurisdiction. Some jurisdictions have laws about electronic contracts which may be extended to smart contracts. However, there is no clear legal framework about smart contracts yet. Moreover, as blockchains store information in packets to be distributed around the world, it is difficult to determine what the governing law is in the case of disputes. These current circumstances make it difficult and potentially highly costly to resolve any disputes about such contracts.
For the time being at least the Pros far outweigh the Cons. Please visit our Cryptocurrency and Blockchain Advisory web page to learn more about what cryptocurrencies can be used for and how we can advise your business on best practices and Fintech solutions that will enhance your business and save you money.
Call or email Grinhaus Law Firm for a free consultation to find out how you can integrate Crypto-Currencies into your business model. As a boutique law firm located in midtown Toronto, we have the experience and expertise necessary to help you structure your business.
PLEASE NOTE: THIS IS NOT INTENDED TO BE LEGAL ADVICE AND SHOULD NOT BE RELIED ON AS SUCH. IT IS IMPORTANT THAT YOU CONSULT WITH A LICENSED PROFESSIONAL.