Many rental property owners worldwide are taking advantage of bitcoin and other cryptocurrency by accepting them as rent payments. Although cryptocurrency may be significantly paying off right now, investors face substantial risks in losing money on transactions.
What Is Bitcoin?
Bitcoin is a digital monetary unit linked to a globally decentralized payment system. Bitcoins are purchased by transferring real money through an exchange or to an individual. Transfers are processed between users over the internet without needing a central processing unit. The payor uses the bitcoin address of the recipient to transfer a set amount. Bitcoins are stored on computers or held by the purchaser or a third party in a virtual wallet. Transactions are recorded in a blockchain, similar to a public register. Bitcoins may be exchanged for currencies like the U.S. dollar through online bitcoin exchanges and payment processing systems. The market value of bitcoin depends on supply and demand.
Advantages of Accepting Cryptocurrency
Rental property owners around the world who want to capitalize on technology to improve their business are accepting cryptocurrency as rent payments. Having one-year leases paid upfront and potentially making a substantial profit is an attractive benefit. Because the process of accepting cryptocurrency is less expensive than bank transfers, ACH payments or other traditional payment methods, owners save money on rent collection. Because cryptocurrency is transacted in blockchain, it offers secure, streamlined transactions.
Disadvantages of Accepting Cryptocurrency
Property management software does not support cryptocurrency for rent payments. Because bitcoins are a type of decentralized virtual currency, they are not issued or backed by the United States or any other government. Since bitcoins are unregulated and uninsured, consumers and businesses have little recourse if facing a problem. Institutional investors may avoid putting up money for apartment buildings if something as volatile as cryptocurrency were used to make rent payments. Property owners should collect rent payments in the same currency they pay expenses with because the exchange rate remains the same. Bitcoin and other cryptocurrency is unpredictable and uncontrollable, potentially causing issues if the value is less than what is needed to pay bills. Because a small number of people currently own bitcoin, it would take only a few individuals cashing out to cause the market to substantially drop. Since the market is unregulated, those individuals could buy back bitcoins at a lower price, raise the value and increase their profits. Because bitcoin may take weeks to complete a transaction, the market and the bitcoins’ value may substantially drop.
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