Bitcoin is a controversial digital currency, which you can use to make transactions without the need of a central bank. Since Bitcoin is not subject to regulation (yet), transaction costs and international payments are easier and less expensive.
You can buy or sell Bitcoins on exchanges and store them in a digital wallet. Bitcoins are also traded in speculation that the future value will increase. While transactions are recorded in a public log, names of purchasers and buyers are not public, only their wallet IDs.
The Rise of Bitcoin
Bitcoin is soaring in popularity. Introduced in 2008, there were only a few hundred businesses accepting Bitcoin in 2012, and only a few thousand wallets that could make purchases in Bitcoin. Today, more than one million wallets (accounts) can buy with Bitcoin, and 50,000 businesses accept the currency. In 2014, Bitcoin transactions worldwide averaged more than 50,000 per day, with a peak of over 100,000 per day.
At this point you’re probably wondering, is this legal? The answer is yes --so far -- despite the fact that the anonymity of Bitcoin makes it attractive to drug dealers and money launderers.
Notwithstanding the recent collapse of Mt. Gox, one of the largest Bitcoin exchanges, several new exchanges, such as BitPay, have emerged to take its place. And Dish Network recently made news in announcing that it would accept Bitcoin, the largest company so far to do so.
If it’s good enough for Dish, is it good enough for your company?
Pros of Accepting Bitcoin
Bitcoin transactions are less expensive than credit card or PayPal.
There’s no application fee. In fact, there’s no application process. You just download the software and you’re good to go.
The only fee is if you elect for faster processing, enabling Bitcoin to be immediately transferred as domestic currency to your bank account; the fee is less than 1% per transaction and is paid to the Bitcoin provider.
You do, however, pay the exchange a monthly fee (typically around $30) for transaction processing.
Customers like the fact that there are no service fees when using Bitcoin.
Because Bitcoin eliminates the bank and other intermediaries, no service and handling fees are tacked on, which makes purchasing from you more attractive. Amazon built its business in part because it initially did not have to charge sales tax. The ability to offer digital payments without service fees is a similar competitive advantage.
A typical wire transfer costs about $25 for the sender and $15 for the receiver. That's $40 per transaction that can be saved when a wire transfer is avoided. With checking accounts costing $15/month, the option of having a no-cost alternative way to pay for things is appealing.
Bitcoin makes international transactions simpler and less costly.
There’s only one exchange rate, regardless of country, and no complicated reporting requirements or currency conversions. A Bitcoin is a Bitcoin around the globe.
When you accept Bitcoin, you get paid quickly.
Bitcoin transactions are usually settled quickly. Your account is usually credited within a matter of minutes after completing a sale. Compare this to other payment systems that hold onto your payments for hours or days.
With Bitcoin, chargebacks are up to the seller, not the payment processor.
When a credit card sale is disputed, the merchant isn’t paid until the issue is resolved. Payment can be held up for months, and more often than not the merchant is on the losing end.
With Bitcoin, you are paid, the money is in your bank, and you decide if a customer issue warrants a refund.
Your Bitcoin exchange listing is free advertising.
Your business is listed on the exchange and other Bitcoin sites at no cost to you.
Bitcoin users are loyal customers.
If you are the only vendor in your field who accepts Bitcoin, or one of the very few, then customers who prefer to pay with Bitcoin have little choice but to shop with you.
You can often earn more in Bitcoin appreciation than the interest earned on cash in a savings account.
Exchange rates fluctuate, so you could decide to hold on to some of your Bitcoins to see if they become worth more before “cashing” them in.
However, like any form of speculation, this could also be a potential problem. In fact, it could be a huge problem if Bitcoin one day just goes away and your balance goes with it.
Cons of Accepting Bitcoin
Bitcoin could just disappear someday.
If you’ve converted all your Bitcoin to currency, not a problem. If you’ve held onto a substantial portion speculating that future value is going up and it instead all comes crashing down, that’s a problem. Bitcoin is subject to theft by hacking, and there have been some spectacular losses -- Mt. Gox was hit in 2014 and in 2011.
There is no FDIC to come to your rescue if the currency collapses. Bitcoin is subject to wild fluctuations in value on a regular basis that would test the nerves of anyone holding a significant stake.
Bitcoin makes you responsible for customer service and tax reporting.
If there’s an error in the transaction amounts, you have to fix it, not the bank. That means you are subject to consumer protection laws on how you respond to billing complaints. Also, exactly how you report Bitcoin earnings for on your taxes is a little murky.
There isn’t much of a traditional paper trail, so you’ve got to create and provide all the documentation for reporting purposes. After making Bitcoin users nervous for years, the U.S. Internal Revenue Service recently issued reporting guidelines for virtual currencies.
The value of Bitcoin is volatile.
Calculating the market value of Bitcoins can be complicated. It’s not like the gold standard, though it is virtually "mined". And it’s not regulated by an independent agency. You have to stay on top of fluctuating valuations to make sure you are charging sufficient Bitcoins equivalent to what you’d charge in regular currency.
Bitcoin will likely become more stable as more businesses accept the digital currency. If you decide to be one of those businesses, be sure you are willing to accept some of the risks of being an early adopter.