How to Pay Using Cryptocurrency

Of course those changes also bring the attention of regulators and tax agencies. In this article, we'll outline how to pay in cryptocurrency and what it means for tax collection.

What type of cryptocurrency should you use?

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The answer is a little more complicated than it seems. First, any cryptocurrency out there remains very volatile, crypto prices can have moves of 15% in an hour. That is not ideal, since if you are paying or accepting crypto, you want your money to keep a predictable value. On the other hand, accepting crypto payments with the expectation of a rise in the price of that coin is a great way to accumulate cryptocurrencies without trading in the markets.

But for a predictable value the best way to pay and accept cryptocurrency payments is using stablecoins. These are crypto tokens that maintain the same value over time in relation to a country's currency. Stablecoins priced in dollars have a 1 to 1 relation with the US dollar, the same for euros, and other global currencies.

In the end, whether you want to pay and receive cryptocurrency transactions in volatile crypto coins or stablecoins is a personal decision. But the good news is that paying in both options is really easy.

How to pay with crypto?

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There are several ways to pay using cryptocurrency:

Crypto Wallet to crypto wallet transfer

First, the easiest way is to use the most common tool to store cryptocurrencies, crypto wallets. Most wallets offer Qr codes that can be read using a web camera, whether one from a phone or the webcam of a computer. Once the code is scanned, the wallet address will appear to the sender of the monet. Just accept the transaction and all is done.

Address transfer

Crypto wallets all have a copy function for the wallet's address. Just paste this address on your side of the transactions and send the crypto to the other person.

Prepaid paper wallets

Another way is to exchange prepaid paper wallets that store stablecoins. A paper wallet is a physical sheet of paper that has some quantity of cryptocurrency stored in it. For example, ten dollars of a stablecoin like USDT This can be exchanged with anyone like with any bill. Of course, the recipient should scan the Qr code of the paper wallet to verify the amount in it.

Exchange web wallet transfers

Another great way is to transfer crypto from one exchange address to another. The process is the same as with any crypto wallet, but most exchanges have reduced fees for transactions with addresses on the same exchange. This further reduces the cost of the transaction.

Of course, there are other payment processing sites that are not exchanges but allow users to buy crypto. The most famous example is Paypal. In 2020, the popular payment processor launched the ability to buy cryptocurrencies in the US (except for Hawaii). Any person using a Paypal account is able to buy crypto and hold it.

But as of the writing of this article, it is not possible to send a cryptocurrency from a Paypal account to another, or to a 3rd party crypto wallet. So, for now, crypto payments using Paypal are not possible and it is not actively being developed.

How to accept cryptocurrency payments?

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The examples above are for regular transactions between people that know each other. On the other side of the equation, accepting crypto payments it is more complicated. In a crypto wallet to crypto wallet transfer the ledger records the wallet address, not the name of the person. This is fine for person to person deals but not for businesses.

Any regular retail business has dozens of clients during the day. It would be very hard to keep track who paid for what using a regular crypto wallet. This is where crypto payment processors enter into the picture. These are apps that allow businesses to configure cryptocurrency payments.

With them, a business owner can know who paid, as the app relates the wallet address with the customer's name. Also, it logs the items and their prices, so the manager can now know which items from their stores were bought using crypto and when. Some popular examples are:

CoinBase Commerce

The biggest crypto processing app in the market was developed by CoinBase, the popular exchange. It is able to process payments in hundreds of cryptocurrencies including Bitcoin, Ethereum, USDC, Bitcoin Cash, and many others.

It does not charge any fees for transactions using the app, and these can be instantly exchanged to Fiat money on the CoinBase exchange. A great way to integrate crypto payments to your business.

CoinGate

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CoinGate is another cryptocurrency payment processing app. It accepts payments in 50 different cryptocurrencies. Also offers the possibility to directly exchange them to Fiat from the marketplace of the app. It charges a flat 1% fee for all transactions made using their platform.

Paytomat wallet

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Paytomat is a mobile crypto wallet that can be used to receive crypto payments. It is easy to integrate for merchants and support 14 different crypto coins, ERC-20 tokens, and EOS native tokens. It does not charge a fee for crypto payments of registered merchants on their platform.

Cryptocurrency and Taxes

As the tax season fast approaches in many countries, there are new regulations regarding paying taxes for using or holding cryptocurrencies. These are:

• Exchanging a cryptocurrency for Fiat. Any time a person sells a crypto for money the amount received is subject to taxation.
• The use of cryptocurrencies to buy goods and services. Here paying with crypto is subject to taxation for both the buyer and the business accepting payments.
• Trading is cryptocurrencies is another taxable event. This applies to both exchanges and peer-to-peer marketplaces. The tax amount is calculated in Fiat money using the exchange price of the declared asset.
• Airdrops of cryptocurrency have become taxable. 2020 saw popular crypto airdrops from exchanges such as Unisawp and 1inch Exchange. These events are now taxable in the US.
• Interests gained from lending crypto. Any interest of crypto loans are now taxable at the exchange rate of the declared asset. For example, lending LINK in Aave is taxed at the exchange rate LINK has when filing taxes.
• Crypto mining and fees from running a node in a network is taxable. Both block rewards and fees from transactions have to be declared and taxed at the current exchange rate.
• Crypto payments received for work or consulting are taxable. Any payment an individual or business receives for providing a service, or selling goods is a taxable event. It is considered income and has to be declared at the current exchange value. As we can see, as the cryptocurrency economy expands, governments are starting to tax crypto transactions. This is an expected result, but it is also a problematic one. As the volatile price of cryptocurrencies can make exchange values difficult to calculate. As a person can end up paying more if the crypto coin has appreciated during the period of time before paying the tax. Finally, crypto holdings are not taxable. As long as a person does not exchange the crypto coins to Fiat or trades the cryptocurrency for other crypto coins, these funds are not subject to taxation.

Conclusion

The crypto economy is expanding. It is now easier than ever to pay and receive payments in any cryptocurrency. Businesses and people alike are now integrating crypto in their daily economic activity. The trend won't reverse anytime soon, and it will only expand.

Of course, this expansion is attracting the attention of the tax collection agencies. TCrypto regulation and taxation is expanding all over the world. It is important to be aware of this trend, and be up to date with all of the new laws in your nation. Otherwise, the risk of having a problem with the law becomes a very real possibility for unaware citizens.

Of course, there are differences in these modes of payment. This article Difference between Bitcoin and Credit Card Payments breaks down the major characteristics of using Bitcoin or cards for transactions.