Over the past few months, cryptocurrencies, including Bitcoin, Ethereum and Dogecoin have dominated the financial news headlines as investors have rushed to embrace these vehicles. But less attention has been given to the original plan of using cryptocurrencies as digital alternatives to established currencies.
Widespread use of cryptocurrency for everyday transactions is still relatively uncommon — which is no surprise to Justin Wilcox, partner in the accounting firm of FML, which has six offices across Connecticut, including Stamford.
“Cryptocurrency, in general, encompasses thousands of coin projects,” Wilcox said. “Typically, it would be digital assets that are secured by a blockchain, like a publicly distributed ledger. Bitcoin was the original public blockchain that was fully operational and then other projects came out. Dogecoin is actually a pretty old project that was sort of made as a joke or a meme or an experiment not that long after Bitcoin was created, and it just survived all the way until today.”
Although Wilcox was aware of several software companies that fielded vendor requests to be paid in cryptocurrency, he observed that others — most notably the electric vehicle manufacturer Tesla — teases the notion of cryptocurrency transactions for “high-profile publicity.”
Still, there are some financial experts who continue to predict cryptocurrency will eventually become an accepted payment vehicle in business-to-business and business-to-consumer situations. But Wilcox remained skeptical that this would occur in the very near future.
“Right now, there’s really no reason that a traditional business would need to make payments in cryptocurrency instead of dollars,” he said. “For the foreseeable future, it’s going to be dollars.”
But, he quickly added, that’s not to say the situation will gradually change.
“When there’s a shift to more widespread adoption, it’d be the same as accepting credit cards and the same as accepting no-cash versus cash,” he continued. “Some grocery stores accept EBT (electronic benefit transfer), for example — this is just another form of getting paid.”
Wilcox predicted that there will be more business-related cryptocurrency acceptance over the next decade as “more people get excited about it and more people get involved in it.”
He also believed that business owners will rely on cryptocurrency usage as a way to stand out from their competition.
And while Wilcox warned cryptocurrencies can be “a lot more volatile” than some foreign currencies, he has shown they can offer faster transactions for companies doing business overseas.
“I did a presentation for my company a few years ago and we made an international payment in two minutes with a cryptocurrency,” he said. “And I did it while we were doing the presentation live — there were no bank delays or bank processing. It was just your wallet to the other person’s wallet.”
However, there is one element of cryptocurrency use that its advocates frequently overlook: the tax aspect on cryptocurrency transactions.
“From a business perspective, if you collect Bitcoin instead of cash and it’s worth $50,000, whether you collected Bitcoin or cash your revenue is $50,000,” Wilcox said. “Now, if you go to sell that Bitcoin when the price moves, then you have a gain or loss on that transaction and you’re now tracking in a manner similar to stock sales.
“The question for business,” he continued, “would be, ‘Why are you doing that if you’re not a cryptocurrency business? What are you doing? What’s the reason? What’s the reason to hold a large portion of it today?’”
Today’s digital environment has been constantly disrupted by cybersecurity threats, including assaults by hackers demanding ransom paid in cryptocurrency. Wilcox warned that unlike the Federal Deposit Insurance Corp. protection that bank customers enjoy on their deposits, cryptocurrency users lack that level of security over their funds, particularly if they bypass third-party custodians and decide to maintain their own funds online.
“You are your own bank and protected by cryptography and your balance on the ledger is protected because no one else can access it,” he said. “Now, if someone gets in possession of your private key, which is effectively the password to your Bitcoin balance, then they can move your funds and take it and it’s practically unrecoverable.”
For those who want to test the digital assets environment, Wilcox said there are now plug-in applications for companies that enable a third-party intermediary to accept cryptocurrency payments and then exchange them into dollar transactions, minus a service fee.
“Then, you can say, ‘Oh, I accept Bitcoin as a business,’ but you don’t actually accept it because someone else is handling and managing, collecting it and converting it and sending dollars,” he said. “That’s a way that you can accept it today without actually dealing with the actual cryptocurrency issue.”