By: Hunt Demarest, CPA
With the recent boom in popularity of bitcoin, and other crypto-currencies, we have received many requests on how to implement bitcoin as a payment option for our clients. What we are going to look at is how to get your business setup with a bitcoin merchant processor and how to integrate that into your business.
Before we get into accepting bitcoin as a payment option, we should probably explain the general idea behind bitcoin. Bitcoin as a currency is a peer to peer based digital token that can be exchanged electronically all across the globe. Since there is one “currency” all across the globe, there are no exchange rates. The peer to peer network works by recording each transaction in a public log, known as the blockchain. Even though the log is public, all users are somewhat anonymous, and are only identified by complex addresses that identify their “wallet”.
Unlike conventional currency, bitcoin is not backed by hard assets or precious metals. The value and price come from the demand in the market and, because of this, the value can be very volatile. Many of my clients are leery of accepting bitcoin as a payment because they feel that they might get burned by this extreme volatility. However, as you will see, bitcoin can be used as a payment very similar to a credit card, with a locked exchange rate.
So how do we get started? I will go through the steps that I used to implement bitcoin as a payment system into our business. This is not an endorsement for any specific company and I encourage you to do your own research to see what fits best with your business. There are several companies that offer merchant services for businesses, but we decided to use BitPay. All of the steps below explain how to setup using Bitpay, but I recommend looking at the other options out there, as the fees do vary from company to company.
1. Go to Bitpay’s website here, and select the option to accept bitcoin.
2. Once you get there you will choose an option to either setup a BitPay card account or business account, we are going to choose business account.
3. Bitpay will ask you some information about you and your business, and your account will be created. You will need to enter your bank information for settlements, and also possibly ID verification, to increase your daily limits. The ID verification process is to limit fraudulent behavior, just like a credit card processor.
4. You will need to select how you want to accept bitcoin; emailing, direct integration into your website, or a point of sale app. We decided to utilize the point of sale app, and downloaded the app; Bitcoin Checkout. This is an app which is created by BitPay, and works seamlessly with their back-end. There is a process where you link the app to the BitPay account and you are ready to charge.
5. When a customer comes in, you will open the Bitcoin Checkout app and enter how much the customer wishes to pay via bitcoin. Then the customer can scan the QR code where the funds are automatically transferred. The app will give you a real-time exchange rate for how much bitcoin it will cost to pay the USD amount of the bill. The customer has to have an approved wallet which can be found here.
6. That’s it! In 2 business days the funds will be deposited into your business bank account just like a credit card deposit. There is a 1% charge for the service, but that is cheaper than most credit cards, which usually charge around 3%.
Overview: All in all, the system is fairly easy to setup, but there are a couple small issues. The first issue is that it is hard to contact support, if you have any issues with the implementation. Due to the rise in demand for bitcoin merchant processing, it seems that the businesses that run the bitcoin networks are overwhelmed with service requests. The next issue is that there are fees attached to the transaction for the buyer, generally around $30 regardless of the transaction size. This amount comes out of their bitcoin wallet so it is not transferred onto the business in any way. Even with these issues, I think it is a win-win for the business and the customer. For the customer it is a way for them to spend their bitcoin on something for which they would have to use USD. For the business, they are getting paid with a lower fee than most credit cards would charge.
If you have any questions on this, or any other tax and accounting related topics, feel free to give us a call or shoot us an email.