A few months ago, Moonlight started researching the best payment flow from companies to contractors. Cryptocurrency was top-of-mind; it’s constantly talked about in the tech world, and people who understand it are optimistic about the future of this new payment technology. It also supports international payments easily. But, when Moonlight researched with a group of startup founders, we found that people were apprehensive about using cryptocurrencies for their businesses.
Using Cryptocurrency as a mainstream payment source is a controversial topic, but it’s clear that decentralized digital currency is here to stay. Exchanging money with anyone in the world, without a third party is appealing to Moonlight and many other companies. But complexities arise once businesses look into the logistics of paying with currencies like Ethereum.
The Cryptocurrency survey
We wanted to find out how invested companies were in using cryptocurrency as a form of payment shortly. 95% of the responses we got were from company founders or startup executives, most of whom were current or present Y Combinator founders. In this article, we'll talk about the main insights we pulled from the survey.
Why Businesses are excited about cryptocurrency
Digital currencies are used globally: International payments are arduous and slow, often requiring sending money through multiple banks. Cryptocurrencies allow the transfer of money nearly instantly, independent of borders.
Cryptocurrency participation is growing: The Moonlight survey shows that 91% of participants have a cryptocurrency account, 18% of the respondents’ companies have corporate cryptocurrency accounts, and 40% reported their companies were projected to open cryptocurrency accounts within the next year.
Why Businesses are Apprehensive:
“I wouldn't be excited about having to handle all the tax implications if we paid vendors using cryptocurrency.”
Setup effort: Companies must set up cryptocurrency wallets to avoid money laundering. A marketplace like Moonlight cannot accept a credit card from a business, then pay a contractor in cryptocurrencies. This is because exchanges (such as Coinbase) are regulated heavily by the government. For viable international payments, the company must set up its own cryptocurrency wallet and use an exchange such as Coinbase to fund it. This article provides more information regarding money laundering in the form of cryptocurrency and more.
Security: If businesses must set up dedicated cryptocurrency wallets, then there are security concerns associated with access to this digital account. There are no chargebacks in cryptocurrencies, and a bad actor, whether internal or external could drain a company account irreversibly. Tracing digital money is hard, and the international nature of cryptocurrencies means that pursuing criminal charges could be impossible.
Indistinct accounting regulations: One response on the survey explained: “I wouldn't be excited about having to handle all the tax implications if we paid vendors using cryptocurrency.” Under the IRS, Bitcoin is considered property instead of currency and therefore must be taxed accordingly. We could not find accounting resources or training to make cryptocurrencies ready for businesses.
Legal: To use digital currencies for everyday transactions, companies would need to spend additional resources to figure out other related issues such as taxes, regulations, and labor laws. 18% of survey respondents reported they would not set up a cryptocurrency account to pay a vendor, while about 64% reported they might consider establishing an account. This shows that company owners are interested in the payment method, but not yet ready to commit.
Opportunities for new digital currency startups
Based on our research, we are not building Moonlight to support cryptocurrency technology. Until more innovation happens on the structure around Cryptocurrency, it will be hard for startups to use cryptocurrency technology as early adopters.
Some things we would like to see in the market: High-security cryptocurrency wallets for businesses. Wallets are the “bank accounts” of the cryptocurrency world. However, transactions are irreversible - so a hacker, phisher, or corrupt employee could hypothetically drain a company’s wallet irreversibly. Because of this, we think that high-security business cryptocurrency wallet software is essential. For example, it could implement a two-person rule for access using Yubikeys. Insurance against breaches could also help to alleviate risk.
Inflation management: Cryptocurrencies fluctuate in value relative to the US dollar in real time. Keeping too much money in cryptocurrency creates risk for businesses because the value could double or halve in a given day. Tools for hedging coins where possible against inflation, e.g., in USDT coin, could make cryptocurrencies more pragmatic for businesses.
Accounting software for cryptocurrency users: Understanding currency fluctuations and how it affects taxes is critical. Even if the intention of using cryptocurrency is to pay a vendor, any balances in cryptocurrencies fluctuate in value by the day. Our accountants are confused by it, which means that large enterprises undergoing audits need better tools for managing compliance.
Smart contracts as a service: The book Decentralized Applications does an excellent job of introducing the power of distributed applications. Some coins, such as Etherium, allow coding the terms of payment into the blockchain, which automatically trigger. This is called a “Smart Contract.” However, the market still needs to define the best practices for smart contracts. A service similar to DocuSign that allows two parties to create and agree to a smart contract could be helpful for working with vendors.
While major companies like Stripe, Microsoft, and Intuit are now accepting cryptocurrencies like Bitcoin as a form of payment, most companies have yet to embrace the system in its entirety. We found that, while the technology is an exciting way to exchange payment on a global scale, there are still some kinks in the system that need to be worked out before it can be used as a mainstream tool of payment for businesses.
We hoped to use Etherium smart contracts for Moonlight. However, our research showed that companies were not ready to pay with cryptocurrencies. So for now, we’re sharing our findings in hopes of aiding the crypto ecosystem, and possibly jump-starting some ideas for new crypto startups!
Have a cryptocurrency company or idea? We have expert contractors with experience in working with digital currencies. Start a project here to find out who is available.