The business landscape is continually evolving, with technology being a major catalyst for fostering progress, increasing capabilities, and maintaining a competitive edge.
Among the recent innovations capturing the interest of businesses is the rise of cryptoassets and the blockchain technology that underpins them. Major brands such as Microsoft and Sotheby’s, as well as independent companies from travel agencies to cafés, are increasingly adopting cryptoassets and harnessing their potential, seeking to position themselves to benefit immensely from these distinctive digital assets.
What’s in it for businesses?
One of the main appeals of cryptoassets is the swift and transparent payment transaction mechanism that they provide. In an age where cash payments are on a significant decline, the ability to facilitate fast, transparent and secure payments is appealing to consumers and businesses alike.
Additionally, transactions with crypto often attract fewer charges compared to traditional payment methods. Cryptoassets do not require intermediaries to facilitate transactions and the elimination of these intermediaries like banks and payment gateways in favour of a decentralised verification system (in other words, the blockchain) minimises the costs associated with traditional payment processing. Also, by merit of being exclusively digital, cryptoassets negate the need for physical payment infrastructures such as card machines.
An undeniable upside for businesses adopting cryptocurrency payment is virtually zero risk of chargebacks. With every transaction confirmed and immortalised on the blockchain forming a secure, tamper-proof and transparent record, they cannot be reversed. Consequently, businesses no longer need to wrestle with drawn-out, expensive chargeback processes.
Adopting cryptoassets also offers a broader customer outreach. By bypassing traditional financial institutions, businesses can access the 1.7 billion unbanked population globally, as well as the 1.2 million unbanked individuals in the UK. Allowing for cryptoasset payment also caters to the growing population of cryptoasset enthusiasts, granting a unique selling proposition amidst a competitive market.
Moreover, due to the borderless nature of cryptoassets, such transactions do not require conventional currency conversions and can be sent to or from anyone in the world with a smart device and internet connection. This makes cryptoassets an ideal form of payment for businesses that wish to expand their operations into new jurisdictions, without the usual friction points involved in optimising cross border payments.
What are the challenges for businesses?
Whilst there are a number of advantages for businesses, integrating cryptoassets as a form of payment is not without its risks. One such risk comes from the fact that cryptoassets are extremely volatile, and it is not unheard of to have massive fluctuations in a cryptoassets value over a relatively small time frame of days and hours. This volatility can present challenges for businesses in being able to predict how much it will generate from cryptoasset payments, and it can also expose the business to losses if the value of its cryptoassets falls. In the same vein, it can also present opportunities for gains if there is an increase in the price action of a cryptoasset.
For example, a retailer may sell an item for 0.035 Bitcoin (BTC), which at the time of writing is around £766. In the days after the sale the value Bitcoin may increase, such that 0.035 BTC is now worth £800. On the flipside, the value of BTC may decrease, such that the 0.035 BTC is now worth £735.
Another challenge is security. Whilst cryptoassets are secured utilising complex cryptographic algorithms, they aren’t invincible against cyberattacks, phishing or fraudulent schemes. Thus, businesses using cryptoassets need to be proactive in establishing robust cybersecurity defences and countermeasure proecdures.
The developing regulatory environment around cryptocurrencies presents another challenge. As the legislative and regulatory landscape is still maturing, businesses adopting cryptoassets as a form of payment may need to comply with unforeseen regulatory requirements and make an effort to stay informed of ongoing developments in this area.
However, with diligent planning and careful strategies, these challenges and risks can be substantially offset and mitigated.
What must businesses consider?
For businesses considering cryptoasset integration, an effective policy and strategy should take into account the specific nature and operation of the business, its goods/services, geographical scope, and clientele. Particular consideration should be given the following points:
How Lawrence Stephens can assist with your crypto challenges
While venturing into the world of cryptoassets does bring its set of challenges and intricacies, the potential benefits are substantial. As with any business decision, prudent planning, accompanied by knowledgeable legal consultation, is key to ensure regulatory compliance and adept risk management.
At Lawrence Stephens, our team is adept at assisting diverse businesses in harnessing the potential of cryptoassets. With our bespoke legal insights, we ensure your cryptocurrency adoption journey is seamless, safeguarded, and aligned with the developing digital finance sector.