“Cryptocurrencies,” or digital currencies secured by cryptography, are becoming increasingly popular due to their reliability, fast time to settlement, and borderless nature. However, crypto payments are a novel technology, and individuals or companies interested in utilizing crypto payments may question their differences from traditional payments.
How do crypto payments work on the blockchain?
When a crypto payment is sent, it is included on a “blockchain.” A blockchain is an immutable public database where a ledger of transactions and account balances is maintained. When a blockchain is decentralized, it is run by entities around the world, and is designed to be extremely difficult to take down or manipulate.
Crypto payments are sent as a request for a transaction to be included in a “block” of data on the blockchain. Once the transaction is included in a block, the balance will be removed from the sender’s account and appear in the recipient’s account.
Blockchains are designed to require an economic commitment to each new block appended to the chain in order to minimize the risk of a block being “rolled back,” or considered invalid, once it has been added to the blockchain. The risk of a transaction being “rolled back” depends on the blockchain the payment is being sent on, and entities should conduct thorough research on the security guarantees of a blockchain prior to utilizing it for crypto payments.
Are crypto payments legal?
The legality of crypto payments varies by country and jurisdiction. Some countries, like Japan, Switzerland, and Singapore have taken relatively permissive approaches to crypto payments, while others, like Bangladesh and Bolivia, have outright banned the use of cryptocurrencies.
The regulatory environment surrounding crypto payments is fast-moving, with regulations and laws frequently changing. Before accepting or sending crypto payments, it’s important to be up-to-date with your jurisdiction’s legal framework surrounding them, and to seek professional legal advice for any concerns.
What’s a crypto payment gateway?
A crypto payment gateway is a service or platform that allows merchants to accept cryptocurrency as payment for their goods or services. Crypto payment gateways are similar to traditional payment gateways like PayPal, acting as an intermediary to facilitate smooth interaction between the customer and the merchant.
Crypto payment gateways often offer unique crypto-specific features, including ensuring that crypto payments are compliant with know-your-customer (KYC) and anti-money laundering (AML) laws, automatically converting crypto payments into fiat currency, and offering support for a variety of different cryptocurrencies.
Some popular crypto payment gateways include BitPay, which can be integrated with popular ecommerce services like Shopify, and Coinbase Commerce, the payment processing branch of the large US-based exchange Coinbase.
If I buy something with crypto, can anyone see the blockchain transaction?
Crypto payments made in most cryptocurrencies are publicly viewable on that cryptocurrency’s public blockchain. The visible information usually includes the blockchain address of the sender, the blockchain address of the recipient, and the value transferred.
Some blockchains, such as Monero and Z-Cash, intentionally privatize this information for additional security. However, so-called “private cryptocurrencies” often have unique laws and regulations surrounding their use.
What can I buy or sell with crypto?
Cryptocurrency can be used to buy or sell any physical or digital goods, as long as the counter-party to the transaction is willing to accept/send cryptocurrency as payment and cryptocurrency is legal to use in the transaction’s jurisdiction. From physical coffeeshops to e-commerce giants like NewEgg, cryptocurrency is already used to buy and sell goods around the world.
Anything can be sold in cryptocurrency as long as it is legal and the right payment framework has been established for the type of goods being sold. Physical goods may be more difficult to accept cryptocurrencies for, as the time it takes for a transaction to be meaningfully irreversible can be longer than the average credit/debit card transaction.
Are crypto payments taxable?
In the United States, cryptocurrency accepted in exchange for goods or services must be reported to the International Revenue Service (IRS) as taxable income. Other taxable events involving cryptocurrency include paying for goods/services with crypto (incurs capital gains), transferring from one cryptocurrency to another (incurs capital gains), and getting paid in cryptocurrency (considered taxable income).
Other countries/jurisdictions have different laws and regulations surrounding crypto payments. It is important to stay up-to-date and compliant with crypto regulation when exchanging and transacting in cryptocurrency, as the industry is constantly evolving and receiving new governmental guidelines.
How do I accept crypto payments?
If accepting cryptocurrencies as payment is legal in your jurisdiction, you can sell goods and services in cryptocurrency. The most popular way for merchants to accept crypto payments is through a crypto payment gateway like BitPay, which automatically converts accepted cryptocurrency to fiat.
Cryptocurrency payments can also be accepted on a peer-to-peer basis, with a wallet controlled by the recipient directly accepting and holding cryptocurrency. Despite not transitioning directly to fiat, accepting crypto payments in this manner does still incur taxes, and must be reported properly as income.
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