As we inch ever-closer to a cashless society – tapping our cards, phones and even watches to pay for goods and services – the question on everybody’s lips is: how long until we see a digital currency in Australia?
Despite showing signs of stabilising after a monster crash last week wiped $US200 billion ($291 billion AUD) from the market, there is rising interest in cryptocurrency, originally as an investment and now as a form of currency. As the first blockchain launched in 2009, Bitcoin’s journey over the past decade has generated a lot of curiosity; particularly due to its growing value from less than $1000 per coin in 2015 to around $42,000 AUD at today’s price.
But behind the wild fluctuations in price, it’s the distributed ledger technology underpinning Bitcoin that enables its use as a form of payment. Distributed ledger simply means there is no central authority (such as a bank) required to exchange payments. The blockchain acts as a ledger of truth, and transactions are sent peer-to-peer using the Bitcoin network.
As business owners increasingly consider Bitcoin and other cryptos as a payment option, let’s look at 3 factors that have impacted adoption thus far and are still worth considering…
Factors impacting crypto adoption as a payment method
# 1: Speed
When you pay with a credit card, transactions are almost instant – which is a good thing when you’re waiting in line at the supermarket!
Bitcoin’s speed in finalising payments varies depending on the level of activity within the network, but it can sometimes take a few hours to complete a single transaction. This renders the network almost useless for rapid transactions, and promised improvements (such as the “lightning network”) have failed to materialise.
A number of newer cryptos (such as XRP) can settle transactions much faster, but they are generally less well known. Innovative FinTech projects that enable “tap and go” style payments with digital assets are yet to become mainstream, so for now crypto payments are generally limited to those businesses that invoice with payment terms.
# 2: Volatility
Anyone who purchased Bitcoin for $75,000 in early May of 2021 would have been shocked to find it plummet to just $45,000 by the end of that same month.
Crypto is widely recognised as a highly volatile asset, with many sad stories of people who have lost entire life savings due to their investments.
Interest in the currency still remains though, so a business owner who is still keen to accept it as payment should carefully consider the potential impact on their cash flow.
# 3: Tax and regulation
It has taken a while for regulation to catch up in the cryptocurrency space, perhaps due to its technical and rapidly changing nature.
This lack of regulation and certainty left many business owners unsure of the implications of accepting it as a payment – and rightfully so. In the past few years though, the Australian Tax Office has released a fairly straightforward set of tax rulings on the matter.
Put simply, the moment you exchange your crypto for another crypto or Australian dollars you are liable for capital gains tax (CGT). CGT applies at different rates depending on how long you’ve held the asset for, and you may also be able to claim losses, so it’s worth engaging with an accountant who understands these tax obligations and how they apply.
Ask an adviser to help you assess the risks and opportunities
If you’ve been contemplating whether to accept crypto as a form of payment in your business, take a moment to first speak with your accountant or business adviser.
Cash flow is key to your business’s survival, so you’ll want to understand exactly what this payment option would mean and how it might impact your business. The same applies if you are contemplating using crypto as part of employee remuneration, as fringe benefits tax may apply.
At RSM, our skilled accountants and business advisers are always happy to have a chat about cash flow and payment structures for your business, so don’t hesitate to reach out if you have any questions.
Do you think more businesses will accept cryptocurrency as payment in the near future?
For further information
To speak with an RSM advisor regarding your agreements, please contact your local RSM office.