The world of business is continually evolving, and the adoption and integration of technology have long been driving forces for the evolution of many businesses, allowing for improved efficiency, greater reach, increased productivity, and competitive advantages.

Cryptoassets and the blockchain technology that underpins them are the latest technological frontier that businesses are exploring to stay ahead of the curve. From household names such as Microsoft and Sotheby's, to independent coffee shops, travel agents and restaurants, we are seeing an increasing trend in businesses exploring how they can utilise cryptoassets. As mainstream adoption of cryptoassets continues to grow, businesses that incorporate crypto payment facilities can take advantage of the benefits that this novel and unique asset class can offer.

What are the benefits?

One of the main advantages that can be realised by engaging with cryptoassets and their underlying blockchain technology is that they allow for the near-instantaneous settlement of transactions.

Along with faster settlement times, cryptoasset payments can also offer lower transaction fees compared to traditional payment methods. They do not require intermediaries like banks or payment processors to facilitate transactions. Rather, cryptoasset transactions are recorded and validated on their respective blockchain by a decentralised network of computers. This decentralised structure eliminates the need for intermediaries and therefore removes the costs associated with traditional payment processing. Additionally, as cryptoassets exist entirely in digital form, they do not require a physical infrastructure for payments such as card payment terminals.

Another clear advantage for businesses that wish to offer cryptoasset payment facilities is that it can negate the risk of chargebacks. Once a transaction is validated and recorded on the blockchain, it cannot be altered or reversed. As such, payments cannot be disputed in the same way they can with traditional payment avenues, and the chargeback process, which can be a time-consuming and costly process for businesses, is essentially removed from the equation.

Integrating cryptoasset payment facilities also allows for increased customer reach. As cryptoasset payments do not require intermediaries such as banks, offering crypto payment facilities can open doors to the 1.7 billion unbanked adults worldwide, as well as the 1.2 million unbanked adults in the UK according to the FCA. Offering cryptoasset payment facilities can also be a key differentiator in appealing to customers and clients who are enthusiastic about digital assets and can be a unique advantage in a competitive market.

Similarly, cryptoassets have no borders or boundaries since they exist purely in the digital world. They do not require conventional currency conversions and can be sent to or from anyone in the world. This makes them an ideal form of payment for businesses that wish to expand globally, without the friction points associated with optimising cross-border payments.

What are the risks?

Perhaps the most obvious risk in integrating a cryptoasset payment facility is the volatility risk which has become somewhat characteristic of the crypto sector. A combination of lack of regulation and the fact that cryptoassets are often bought and sold as speculative investments can lead to rapid and wild fluctuations in the price of cryptoassets.

This volatility can make it difficult for a business to predict how much it will generate from cryptoasset payments and it can also expose the business to losses if the value of the cryptoasset falls. As such it is imperative that businesses seeking to utilise cryptoasset payments should have a plan in place to deal with fluctutations and to protect themselves against potential losses.

Also, whilst cryptoassets are secured using complex cryptographic algorithms, they are not immune to hacking or fraud. Businesses looking to accept cryptoasset payments must take steps to ensure they have an appropriate cyber security framework in place, and implement measures to protect against hacks or other threats.

Another inherent risk is the regulatory uncertainty that relates to cryptoassets. The regulatory landscape is still evolving and is very much in a state of flux. This means that businesses that accept cryptoasset payments could be subject to additional regulations in the future, that otherwise may not have applied to them.

So although there are risks associated with accepting cryptoassets as a form of payment, with careful planning and implementation of appropriate business policies and procedures, most of the risks can be negated, or at least mitigated.

What are the considerations?

This is a very fact specific question which will very much be dependent on the specific nature and operation of the business, its goods/services, its clientele, but generally businesses wishing to explore accepting cryptoassets as a form of payment should consider the following points:

  • What cryptoassets to accept- with tens of thousands of cryptoassets out there, careful consideration should be had as to the selection of cryptoassets a business wishes to accept as payment;
  • Decide whether you wish to use a third party payment processor which will allow you to accept crypto payments. They will typically charge a fee, but offer a convenient and easy way to get started in accepting crypto. Alternatively, you can easily set up your own crypto payment processing system with some time, expertise, and a little technological know-how;
  • Establishing policies and procedures- any business dealing with cryptoassets should establish policies and procedures specific to cryptoassets. These should include how to handle transaction disputes, process refunds, and importantly, how to manage price fluctuations or even eliminate the volatility risk entirely, for example, through the use of stablecoins or converting to fiat currency (e.g. £GBP) upon receipt.
  • Ongoing monitoring of transactions- cryptoasset transactions should be managed carefully to ensure that they are recorded and processed correctly. Careful consideration should also be given to how to record and report these transactions for tax purposes. Cryptoassets are taxable, and businesses will need to consider whether they choose to hold certain cryptoassets on their balance sheets as an asset, or if they would rather liquidate the cryptoassets to fiat currency upon receipt or at regular intervals , or adopt a hybrid approach.
  • Consider the right digital wallet to use- a secure and reliable wallet is essential when accepting cryptoassets as payment. There are a number of different wallets which offer varying levels of security, accessibility and functionality. The choice should be made in line with the size of the business operation, the amount and type of cryptoassets they intend to hold, and their security needs.

In conclusion, whilst there are certainly risks and considerations to take into account when considering integration of cryptoassets into your businesses, the potential benefits can be significant. As with any business decision, it is important to approach cryptoassets with caution and seek legal advice to ensure that regulatory requirements are being met, and potential risks are being properly managed.

At Mackrell, we have experience working with a range of businesses to explore the adoption of cryptoassets and can provide tailored legal guidance to ensure the adoption process is as smooth as possible, and to help you navigate this exciting new sector.

For more information on dealing with cryptoassets, receiving and making payments in them, please visit Mackrell Solicitors