What is Bitcoin Currency?
Bitcoin has become increasingly popular since its advent in 2009. Bitcoin is a peer-to-peer payment network that is done digitally. Essentially, it is known as a cryptocurrency because there is no actual exchange of digital notes or tokens. Instead, the consumer updates a public transaction log to transfer bitcoin currency to the seller. Bitcoin can be used to pay for services or products although overall use of bitcoin currency is rather small still.
Merchants typically accept bitcoin because its zero to one percent transaction fee is smaller than the typical two to five percent credit card fee. The major questions surrounding bitcoin usage are whether it is technically legal, as it is not supported by any government agency or most big businesses, and how accepting bitcoin could affect taxes for businesses. Another key worry for those contemplating the use of bitcoin is its fluctuating exchange rates that change based on total bitcoin usage amounts and country of purchase. Fraud has also become a topic of consideration for those contemplating the use of bitcoin. False invoices could find their way to your customers who use bitcoin if your bitcoin information is compromised, and those payments could be sent to a random account where they will be exchanged for cash. At the moment there is no way to reverse bitcoin transactions like this. Taking all this information into account, does using bitcoin make sense for you as a small business owner?
Advantages of Bitcoin
Bitcoin transactions are very similar to cash transactions. When contemplating how taxes would work with bitcoin, remember that just like cash, bitcoin does not leave a paper trail. When handling your taxes, handle your bitcoin transactions the same way you would handle your cash transactions. If tax issues are your area of major concern in deciding whether accepting bitcoin makes sense for your small business, your only major worry should be the value assigned to your bitcoins when you exchange them for cash. They tend to fluctuate daily, and assigning a value to bitcoin depends on the exchange rate for your country of origin and your buyer’s country of origin. So when deciding if bitcoin is right for your small business, make sure you also decide if you will be exchanging your bitcoins for government currency or if you will be holding onto them in the hopes that the exchange rate rises.
Bitcoin can end up being faster and costing you less than using services like PayPal. It is definitely more profitable than accepting most major credit cards because with bitcoin you can start accepting once you download the application software for you company. You do not need permission, and you do not have to pay to apply. All you pay is less than one percent per transaction to bitcoin miners who run the bitcoin network. The less than one percent fee only applies to you as a merchant if you choose to have priority processing to allow your payments to post faster or if you choose to have your bitcoins immediately transferred into currency and deposited to your bank account. Bitcoin also allows you to reach a range of people from country to country because it is its own type of currency. It allows you to sell internationally at a lower cost, and it allows for one exchange rate all across the world. The only exchange rate you as a business owner need to worry about when it comes to bitcoin is that from your bitcoin account to whatever currency your country of origin accepts.
Another advantage of using bitcoin as a small business owner is its capacity for speed. Once a transaction is sent over the bitcoin network, it reaches the receiver within 10 minutes. Using bitcoin as a small business owner also takes out the middle man from your financial transactions. No bank backs bitcoin, so there are not any interest rates on the bitcoins you hold in your “wallet.” A bitcoin wallet stores your public key, which is an address you can exchange to give bitcoins as currency. Overall, bitcoins could lead to a general decrease in product and service prices in the economy.
Bitcoin is completely technology based, which can either deter a small business away from using it or can help a small business stand out amongst its competition. Bitcoin is a peer-to-peer currency, which means that there is no legal hold or interest on the funds in bitcoin wallets. To learn more about peer-to-peer transactions, head over to the Kabbage blog and check out the Merchant Cash Advances Guide.
To start using bitcoin, a business owner must learn how to accept bitcoins. This means understanding all about the transaction fees that go to bitcoin miners if you decide to use miners at all. You also must know what the exchange rates mean for the bitcoins you hold, how they change, and how to exchange bitcoins for monetary value. It takes a lot of work, and often customers are unfamiliar with the technology. However, the technological aspect of bitcoin makes it appealing to customers and merchants. eCommerce businesses as well as brick and mortar businesses can use bitcoins by scanning a QR code on a smartphone. No cash is actually exchanged, which has a huge appeal to customers, and it makes daily bookkeeping a lot easier for small businesses. Another positive result of bitcoin’s use is the speed at which these virtual transactions can take place.
Another huge advantage for small business owners using bitcoin is that transactions are final unlike credit card charges, which can be disputed. Most disputed credit card charges get locked up for months, and usually the merchant ends up losing the funds. Bitcoin merchants, however, get to choose when to issue a refund. When a merchant signs up for bitcoin, that business will show up on the bitcoin sites as well as on the bitcoin virtual maps so that bitcoin users know where to find merchants that accept bitcoin. This gets your small business’s name out there basically for free. And bitcoin users have been known to be quite loyal to bitcoin merchants, such that they seek out places where this type of cryptocurrency is accepted.
Disadvantages of Bitcoins
Using bitcoins and holding onto them could also be profitable for your small business. You could see increased business for accepting bitcoin, and if you hold onto some bitcoins, you could see a profit as exchange rates fluctuate. However, you could also see some loss over time, as well. If bitcoin does not catch on, the currency could eventually become useless. So far no major retailer is accepting bitcoin as a form of payment. However, as a small business owner, you always have the option of converting your bitcoins into traditional currency rather than holding onto them. And even though the bitcoin system is relatively easy to use, any mistakes made could cost you a lot of time. If the wrong total is put into the system by the customer, a refund has to be administered by you, not by the customer, which means you will have to go back and check records to see how the problem was made in the first place. Even though bitcoin has a large amount of online users, brick and mortar stores are not signing up as rapidly. Larger cities are converting to cryptocurrency at a higher rate, but small towns sometimes have stores that still do not accept credit cards, so it is not likely that they will have many bitcoin consumers or merchants.
Another thing to think about when deciding whether accepting bitcoin is a good idea for your small business is that even though you do not have to pay large transaction fees, bitcoin requires provider services from a variety of companies such as Bit Pay to process the transactions. These services cost merchants about $30 a month. Bitcoin transactions are not currently monitored by any government agency either, which could make reporting your income difficult. In order for you to correctly claim your income on your taxes, you will have to convert your bitcoins into some sort of traditional currency. If you fail to do so, you could have issues with the IRS in the future. Using bitcoin may also pose a problem for your small business accounting outside of tax issues. Because there is no paper trail, it is hard to decide how to integrate bitcoin transactions into your business expense and income statements.
Working with bitcoin currency is not easy for any small business. Pricing is hard, especially for eCommerce merchants because bitcoin is a universal currency and a volatile currency. eCommerce merchants are open to a wide variety of consumers from all over the world, which means they will have to know the daily exchange rates for bitcoin for multiple countries. Overall, this means that businesses must update their pricing almost every day so as to stay on top of the fluctuating exchange rates of the cryptocurrency.
It is hard to tell if the bitcoin bubble will eventually pop. For now small business owners have a few things they need to consider when deciding whether accepting bitcoin as a payment method makes sense for them. Small business owners need to make sure bitcoin can be easily integrated into their bookkeeping system, make sure they stay on top of exchange rates, make sure they have proper online security to guard against hackers and fraud, and make sure to take the time to learn and teach employees about the technology.
eCommerce and Bitcoin
Shopify just recently started allowing its merchants to accept bitcoins, which could lead to an increase in profitably for those merchants who use it as well as lead to increase value of bitcoins as a whole. To find out other ways to increase your Shopify store’s profitability read How To Customize Your Shopify Store on the Kabbage Guides Page.
Bitcoin can help your business grow at a rapid rate by exposing you to an entirely new marketplace, especially online. Using bitcoin instantly makes your small business an international seller; however, it also opens the door to many risks associated with technological money exchange. Bitcoin has recently been linked to money laundering, and because it isn’t backed by a government agency and the founder is known under the pseudonym Satoshi Nakamoto, regulation of bitcoin use is extremely difficult. Bitcoin is an online marketplace, so it is susceptible to fraud and hacking, and as previously mentioned, once bitcoin currency has been sent, the receiver is the only one with the option of issuing a refund or returning the currency. Bitcoin lacks consumer protections, which could deter a lot of customers away from merchants that primarily use bitcoin.
Every small business is unique, so you need to weigh out all of the pros and cons of accepting bitcoin as payment. The value of bitcoins started out as nearly nothing in 2009, but the value of bitcoins is well over $800 USD per bitcoin at the beginning of 2014. The fluctuation of the value draws a lot of people to the bitcoin phenomena; however, it is risky, so do not put all your eggs in the bitcoin basket. If bitcoin catches on, it could completely alter how business works. The risks for a small business are equal or greater than whatever benefits you could get out of using and accepting bitcoin. The major thing you need to think about is liquidity and whether you want to have your business tied up in bitcoin currency. It is extremely risky, which could be part of its appeal, but think about what the consequences are for you and your business. Remember to not get so tied up in the volatility of bitcoin that you forget to run your small business.