Is it time to consider offering a cryptocurrency as a method of payment, or should you hold off?
Cryptocurrencies are an emerging market.
While there are both pros and cons of using a cryptocurrency in your construction business, the culture of the construction industry may take some time to catch up.
Here are some reasons why you should consider using a cryptocurrency for your business, and some reasons you shouldn’t.
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Some construction companies are currently using cryptocurrency as their payment method. But not many.
There is a push for greater transparency and integrity across a digital information network. However, cryptocurrency can be seen as a volatile investment and the market is still waiting on statutes, jurisdictions, and definitions to create more certainty.
Using cryptocurrency cuts down the time it takes to get paid. Cryptocurrency can be instantly transferred into cash then deposited into your bank account.
It’s faster than old-fashioned paper pushing and can be faster than other electronic payment methods.
Owners may not have to pay bank fees for credit card processing or wire transfers, and providers pay less than a cent per transaction.
Magnified, this can save a lot of money on larger scale transactions.
Once payment has been sent, that information is permanently on the blockchain, and unable to be changed.
The customer cannot get their money back other than to request a refund, which has to be initiated by the vendor.
There are legal protections for common payment methods that are part of the agreement between customers and the payment provider. For example, there’s an agreement between a person who uses a credit card and the credit company itself.
If you’re an international vendor, using cryptocurrency avoids exchange rate calculations. There’s no need to convert cash into different money types.
This means that everyone processes the transaction using the same type of money. Then this is exchanged for their own local currency.
Exchange rates fluctuate with the market, and so do cryptocurrencies. Vendors hold currency in their accounts and wait for them to rise. These same currencies may also lose value, leading to potential losses.
Currently, there are no …
… surrounding cryptocurrency and its use.
Cryptocurrencies fall under the jurisdiction of:
Because they fall under the jurisdiction of the IRS, this means they are subject to either capital gains tax or income tax.
Doing your research on each cryptocurrency service provider and its terms and conditions is an important step before making a choice.
After you’ve done some research, and you pick a service provider, you sign up for an account then get a virtual key that allows you to accept and send funds.
Terms and conditions vary between different cryptocurrency providers. Doing your due diligence may save you in the long run.
If you are thinking about a cryptocurrency to use, the process begins with asking a few key questions:
These are just a few of the things to think about before you decide on a cryptocurrency. After that has been done, if you have the tech for it, signing up is generally a simple process.
All income received via cryptocurrency is taxable at the market value at the time the payment was received.
Because cryptocurrency value is constantly changing, accounting departments will be required to keep track of and have proof of the market value at the exact time the payment was received – which could be markedly different from the value at the time of their next payment.
This circles back to needing to keep close track of the market value - but goes beyond that.
Because payment recipients may also be subject to capital gains tax if there’s an increase in market value, there’s a greater need to watch the market value.
The biggest comparative factor that stands between the cryptocurrency vs fiat currency debate is their backing.
Fiat currencies, while not backed by something physical with value such as gold, are backed by the central government. They are managed by governments to regulate inflation and maintain economic growth.
Fiat currencies are less subject to fluctuation than cryptocurrencies are. From October 2017 to January 2018, the volatility of the price of bitcoin reached nearly 8%.
Why does this happen?
Bad news affects the value of cryptocurrencies. For example, in 2013, Ross Ulbricht, the operator of Silk Road, which was among the dark web’s earliest drug marketplaces, was arrested for charges of narcotics distribution, conspiracy, and computer hacking.
A narcotics outfit known as Pharmville used the Silk Road because they used cryptocurrencies. This allowed for the anonymity they needed to continue.
In another incident, after using the Silk Road to launder over $19 million by using cryptocurrency, Hugh Haney was sentenced to 3 ½ years in prison.
News like this deflates people’s confidence in cryptocurrencies, and the value of a cryptocurrency is heavily dependent on trust.
Ellis Talton of Briq, a California-based blockchain firm, noted that cultural differences are one of the biggest barriers to widespread blockchain and cryptocurrency adoption.
The construction industry is built from relationships.
And these relationships can span decades.
All parties in the construction process need to be convinced that blockchain and cryptocurrencies can be useful tools for them. Confidentiality and privacy are critically important in these relationships.
Each project’s overall data management strategy needs to be established from the very beginning to protect each type of transaction from every stakeholder.
Technological investment is a barrier to getting started if you want to use cryptocurrency as a method of payment in construction.
Less than 1% of revenue is invested in up-front contracting and technology infrastructure for managing complex construction projects
Blockchain and cryptocurrencies require a simple IT infrastructure and servers, but many construction companies are still transitioning to more modern computer systems.
This can make it difficult to transition to more advanced tech.
Blockchain is widely known as the underlying technology for Bitcoin and other cryptocurrencies. It’s their foundation.
So what exactly is blockchain?
At its core, blockchain is a system that tracks transactions across a peer-to-peer network.
The use of blockchain technology in construction is expected to greatly affect construction bookkeeping.
Blockchain allows for instant payments based on the progress of the work. This payment would be made with cryptocurrency. To make sure information that’s entered can’t be lost, the blockchain makes copies of itself, on thousands of different computers around the world. All the while, it constantly checks to ensure each copy is in agreement with the original.
This acts as a great warning system. If anyone changes something on your construction ledger, alarm bells will go off. Because the data is copied and synced so many times, a blockchain ledger becomes unchangeable.
Any mistake that is made on the ledger is there forever.
As long as you fix the mistake, your audit trail is clear.
While blockchain is the underlying technology for cryptocurrencies, it’s not a required process for cryptocurrency payments.
Construction companies would only need to select a cryptocurrency provider to process payments.
If you wanted automated payments, however, you would need the abilities that a blockchain provides. The payment would still need to be manually initiated. Payments wouldn’t be connected to the progress of a project without blockchain.
One of the benefits of using cryptocurrencies is getting payments faster.
With Flexbase, you’re able to send construction invoices and paperwork quickly to get paid faster, so you can stay cash flow positive.
Flexbase customers get paid 63% earlier on average.
We can help resolve late payments with friendly reminders. And we can help get it moving by sending legal notices.
To make payments easier and better manage payment functions, Flexbase can fully integrate with:
Flexbase does the work to make sure each document is fully compliant with state and local laws, so you don’t have to. You can focus on your business with confidence, knowing any funds going in and out of your construction business are protected.