3 questions to ask clients about cryptocurrency
Cryptocurrency has gone from niche concern to mainstream reality in a very short period of time. While many blockchain-based technologies are still largely experimental proofs of concepts being tested by the Big Four, cryptocurrencies like Bitcoin and Ethereum are well-developed and widely used alternatives to traditional currency. In fact, huge companies like Overstock and Expedia already accept Bitcoin as a completely valid payment method.
In the rush to be forward-facing and future-proof, there will undoubtedly be people and organizations that get into the crypto game without doing their research. You might even have clients that have begun accepting and/or holding cryptocurrency. As an accounting professional, it’s up to you to make sure that your clients are informed about the consequences, both positive and potentially negative, of allowing cryptocurrency as an option. With that in mind, here are a few essential questions you need to ask all of your clients who fall under this umbrella.
1. Which cryptocurrencies are you using?
Bitcoin is far and away the most well known cryptocurrency, but there are more than 1,600 currently being traded. Some of these, including Bitcoin and Ethereum, are established alternatives to traditional currency. Others are the result of companies creating initial coin offerings (ICOs) as a form of early fundraising. The latter category is more early adoption, so it’s probably not something most of your clients will be holding in large numbers.
Understanding which cryptocurrencies and how much of them a client holds will provide you with a basic insight into how serious they are about crypto. Even a traditional, conservative businesses may be accepting Bitcoin right now, but a company that’s holding multiple currencies of varying levels of prominence is willing to be a lot more speculative. Which brings me to …
2. How much risk can you tolerate?
While most forecasters expect crypto-markets to mature and become less volatile over the coming years, there’s still a lot of risk in holding Bitcoin or Ethereum. All you have to do to look over a Bitcoin value chart to understand just how wild the swings can be. Clients that accept payment in cryptocurrency should be fully aware of the risk they are taking in doing so.
The easiest way to mitigate that risk is through the use of a merchant account or payment gateway. These services allow companies to accept payment in Bitcoin, Ethereum, or any number of cryptocurrencies and immediately convert them into dollars. Coinbase is the most popular of these marketplaces, and they can be extremely useful for companies that want to offer their customers crypto-options without having to hold volatile assets themselves.
Of course, some of your clients may want to hold onto some cryptocurrency because of its potential upside. If that’s the case, it’s important that you advise them on how much is too much. If a client has an excess amount of cash tied up in crypto and the market nosedives, their livelihood is at risk.
3. How are you securing your cryptocurrency?
When Bitcoin reached an all-time high last December, there were countless stories of people who purchased the currency a few years ago and promptly forgot about it. All of a sudden, their little investment was worth a whole lot more than expected. Problem was, these users had forgotten their passwords to where they were storing their private keys, which led to them being frozen out of their windfall.
These stories serve to illustrate that cryptocurrencies function like cash and your password like a wallet. Lose your password and you can effectively kiss your cash goodbye. Anyone using cryptocurrency should use strong password practices and never, ever forget their password. Bitcoin themselves also recommend taking other security measures like encryption and backups to further protect your account.
One last little security point: it’s probably a good idea to familiarize yourself with nodes. In short, they’re the number of computers that store information encoded into a blockchain. Because a blockchain-based technology is decentralized, the more nodes a network has, the less susceptible it is to being nefariously overrun. Really, this concern is a moot point for established players like Bitcoin and Ethereum, because the networks they run on are so massive — but it could be a concern for newer and smaller cryptocurrencies.
What you can learn by asking these questions
As you talk to your clients about cryptocurrency, you’ll begin to recognize common behavior patterns and misconceptions surrounding how to interact with these new payment options. Understanding how people are using crypto (and how it can go wrong) will allow you the best advice possible to your clients. It will also give you the opportunity to provide a wealth of knowledge and experience to companies that are curious about accepting alternative currencies, but have yet to begun to do so. In short, it positions you as a trusted resource on a topic that will only become more relevant to businesses as time goes on. Who wouldn’t want that?