Do You Need to Form a Business Entity for Your Cryptocurrency or Blockchain Business?
Blockchain technology has created a new digital currency: cryptocurrencies. Cryptocurrencies have become a global phenomenon in the 21st century. Banks, governments and many companies are aware of blockchain’s importance, but it’s still not well-known by most people. If you’re looking to start a blockchain company, you’ll need to understand a few key things first.
Building a Blockchain Business: Where Do I Start?
Those who are thinking of starting a cryptocurrency or blockchain business often have questions. Are the steps forming such a business similar to starting a traditional brick-and-mortar company or a remote business? By definition, a cryptocurrency or blockchain business is a center or network established for the purposes of purchasing, selling or exchanging these digital assets.
Starting a cryptocurrency or blockchain business requires someone who is very technology-forward and willing to take a risk and experiment while this type of business is still so young and unknown. At a very high level, your typical day at a cryptocurrency business can be separated into pre- and post-launch: Pre-launch time is spent coding the coin, and post-launch time is spent marketing the coin technology.
Identify a Community of Users
Similar to any traditional business, it’s important to consider how your product or coin will be unique and add value to a specific marketplace. If a coin only duplicates the technical aspects of other coins that similar companies create, it will be difficult to attain long-term success.
As with any other business, the business owner will want to first identify a community that could use a new cryptocurrency. Identifying who needs your product and why will help you understand what needs to go into the product to help it become successful.
What Will My Business Costs Look Like?
The cost to start a cryptocurrency or blockchain business is primarily time rather than money. A well-versed programmer could create a new cryptocurrency in 30 minutes because the core code is already 50 percent written — though this business is unlikely to be successful.
A lot of time will need to be invested in marketing your new cryptocurrency, since your company’s success is ultimately dependent on whether people adopt and starting using it. This is where your strong marketing efforts will come into play.
8 Steps to Building Your Cryptocurrency Business
Although creating a cryptocurrency requires basic coding knowledge, owning and running this type of business still requires many of the traditional skills of running a business. Below are 8 steps to consider when starting your cryptocurrency or blockchain business.
- Plan your business: As with any business, a plan is essential for success. Here is where you will plan out your startup costs, target market profile, marketing initiatives, financial projections and more. Having a business plan will help you think of things that you may not have otherwise considered, such as different licenses, insurance, costs, etc.
- Form a legal entity: If anything should happen to your business (like a lawsuit or injury), you would be personally liable unless you form a legal business entity. But if you form your company as an LLC, S Corp or C Corp, it will prevent you from being personally liable.
- Register for taxes: Before you start any business, you need to register for state and federal taxes prior to opening. According to CNN, the IRS has established that cryptocurrency transactions are treated as property, not currency, for tax purposes.
- Open a business banking account: Keeping your personal accounts separate from your business banking account will help keep your finances organized and be more helpful come tax season. This also helps your business appear more professional to your customers.
- Set up business accounting: It’s critical to understand the financial performance of your business. There are many platforms out there, such as Quickbooks, to help you keep accurate and detailed accounting practices.
- Obtain necessary permits and licenses: Most businesses have licensing or permit requirements, and a cryptocurrency or blockchain business is no exception. For example, you may need financial service licenses for domestic and foreign transactions.
- Get business insurance: Especially since cryptocurrency and blockchain technology is still so new and managed digitally, there are many different coverages you should consider (including fraud and theft insurance). More and more insurers are getting up-to-speed on this new type of currency, so shop around to find a policy that makes sense.
- Define your brand: Last but not least, a strong brand presence is important when marketing your product. This is inclusive of your website, the staff you hire, your marketing materials and more. No matter if you’re selling business-to-business or business-to-consumer, a recognizable brand can create brand trust and loyalty.
Cryptocurrency and blockchain businesses are constantly evolving. Even though many of the above steps are similar to owning a traditional business, there should still be additional research to better understand each layer as it relates to the digital currency and blockchain technology. Nuances do exist, and it’s best to be prepared with professionals who understand those differences. When it comes to forming an LLC, Incfile has you covered by helping you quickly and easily form your business entity for as little as $0 + state fees. Contact us today to get started.