If you’ve read a newspaper in the past few weeks, chances are you’ve heard of Bitcoin. But, beyond all the hoopla and scoffing of ivory-tower economists, is this something you should be interested in as a small business owner?
Never fear, we’re here to break Bitcoin down and see what all the fuss is about!
Origin of Bitcoin
In 2009, an anonymous programmer created Bitcoin in the wake of the global financial crisis. (S)he wanted to create a currency independent of any central bank or financial institution. Bitcoin is a form of virtual currency used as an alternative to conventional (i.e: paper) currency.
Independence and anonymity appear to be the key drivers for Bitcoin. On the independence front, the likely motive was to weaken the grip various central banks have on the global economy, which many view as self-serving at the expense of the people.
Take our own Federal Reserve which, as it admits on one of its own sites, is “an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government.”
Basically, it is a collection of private bankers with a major conflict of interest (which, some suspect, resulted in the massive bailouts of recent years), and is partially foreign-owned (another conflict of interest in the eyes of many).
On the anonymity side of the equation, the original person (or perhaps group) who created Bitcoin is not known to this day. In limited communications, (s)he revealed Libertarian leanings, which typically goes hand-in-hand with mistrust of authority. And, as many Libertarians suspect a connection between the deaths of several historical leaders and their efforts to alter the existing financial order, chances are slim this person or group will ever self-reveal.
Value of Bitcoin
Bitcoin has shot up in value in recent weeks. How much so?
Originally, one dollar was worth nearly 1,310 Bitcoins. As of this writing, the value has surged exponentially and a single Bitcoin is worth over $218.
To illustrate, suppose you were feeling lucky on the first day Bitcoin became available. You had a great month and pumped a spare $200 into Bitcoins in case the currency every took off. Your investment would have taken off, indeed, and you’d now have over $57 million!
Why the Sudden Surge?
Most recently, the events in Cyprus have sparked increasing interest in Bitcoin. As Fox News reported on April 8, the government in that country is contemplating confiscating a percentage of its citizens’ bank accounts to solve its financial woes. With this in mind, citizens in Cyprus and other worried Europeans have begun taking their money out of banks and entrusting their wealth in the Bitcoin system, sending the value of this digital currency skyward.
Is Bitcoin Legal?
All of the above information is little more than entertainment if you cannot legally use Bitcoin. Fortunately, you can.
According to Fox News, the US Government has issued its first guidelines for private digital currencies. Effectively, this means it recognizes Bitcoin and other similar currencies and has decided not to prohibit their use at this time.
Still, the future is not certain and it is hard to imagine those with an interest in keeping the dollar on top won’t begin to fight Bitcoin. Then again, as a stateless currency, it remains to be seen whether any government-imposed limitations would be effective. So, if you decide to use this digital currency in your small business, pay close attention to developments as time goes on.
Do Any Businesses Use Bitcoin?
Until recently, Bitcoin was typically used mostly by businesses you’ve never heard of and the underground economy. However, several major companies are now on board.
According to PC World, Etsy, Expensify, Mega, Reddit, WordPress and other well-know companies now accept Bitcoin. If a heavy hitter like Shell or Wal-Mart joins the ranks, all bets are off.
Pros and Cons of Bitcoin for Your Small Business
Let’s take a look at the pros and cons of using this digital currency.
Pro: Increased Payment Options
Adding Bitcoin to your list of accepted payment methods will provide increased flexibility to your customers.
Think of this along the lines of the relatively new trend of “tap-and-go” smartphone payments, given that Bitcoin is another payment option for smartphone users. As use of this currency becomes more widespread, lack of acceptance could place your small business at a competitive disadvantage.
Pro/Con: Fluctuating Value
The ever-changing value of Bitcoin in relation to the dollar can be a benefit or drawback.
At the present time, it is a major benefit. In less than 24 hours (as of this writing), the price has surged nearly 17 percent. So, for example, if you sold two Bitcoins (~$380) worth of goods yesterday, you’d have effectively earned over $60 in interest on your sales in a day. Not bad!
On the other hand, some speculate we’re nearing a bubble. So, if the dollar value of Bitcoin were to drop, your revenue would effectively fall with it.
If you permit customers to pay in Bitcoins, you’ll have to come up with a separate pricing list.
Accounting, particularly from a taxation standpoint, is a major gray area for Bitcoin and there is no clear set of best practices on the matter. As such, speak with an accountant to determine your best course of action if you choose to accept this currency.
The Bottom Line
In just a few years, Bitcoin has risen from the depths of the Internet to a widely-used alternative to the dollar. And, with recent events in Europe facilitating a rapid growth in demand along with recognition from the US Government, it appears it may be here to stay.
It would be foolish to go all-in and accept only this currency. Yet, if your accountant is on board, consider implementing it as one of your payment options. After all, most people will still pay in dollars, so your risk will be fairly minimal.
Stay tuned for part II of this piece, which will discuss how to accept and use Bitcoin.