Bitcoins have been making news this week as it was confirmed that Bitcoin startups now have their own Silicon Valley accelerator, bringing many of the underground companies facilitating these payments into the limelight. There is certainly no doubt that Bitcoin is bigger and pricier than ever before, and gradually receiving more media attention. It is no longer the pursuit of the tech-savvy web-based business owners, with many average businesses employing this virtual currency. This leads many business owners to the question; is Bitcoin right for my business? We explore the pros and cons of Bitcoin, and the type of businesses for which the currency works best.
First however, it is important to define what Bitcoins actually are. Bitcoins are a decentralized currency that can be sent from person to person via the internet. Anyone can generate Bitcoins, as long as they run the free application Bitcoin miner. Mining requires a certain amount of work to equate to a certain amount of coins (in this case the solving of mathematical problems by software) therefore mining is usually the reserve of experienced coders. However, one can also gain coins by accepting them in exchange for goods or services, buying on a Bitcoin exchange, exchanging them for traditional currencies or visiting a site that offer Bitcoins as a free sample. The concept itself is quite a complicated one; however essentially Bitcoins are a virtual currency that can be converted to traditional currency such as pounds. You can find out more about the technology behind them here.
Therefore, based on the principles behind the technology, the currency is most convenient for web-based trading or retail companies. For example, sites already accepting Bitcoin payments include; WordPress, OKcupid and Reddit. Before you think about embracing this trend you must think about whether the service you offer and business model you employ suits the usage of an online currency. Is it really profitable for you to accept payments via Bitcoin? While this type of currency works for larger web-based companies such as those listed above, it may not be suitable for an online retail space dealing in antiques. In this case, target customers will generally not be using Bitcoin currency, so opening a wallet may be pointless. However, if you own a website with the business model of selling domain names or games currencies, Bitcoin may be the perfect payment alternative for you.
There is a reason why so many businesses accept Bitcoin payments, as there are many pros. In general they are beneficial for businesses because chargebacks are impossible; once a coin is spent it is impossible to retrieve. There is also the advantage that there are no fees to process payments as there are with traditional card readers, meaning that companies that operate on an international level do not have to incur large fees as they do with normal banking systems. As there is no centralized operating system, currency doesn’t have to clear so can reach a bank account within minutes.
Due to the system being speculative in nature, a value of a Bitcoin could rocket from £150 to £250 overnight, based on demand. However, this is both a pro and a con as the same is realistic vice-versa. Bitcoin payments, although taxable do not leave a paper trail; something that is seen as advantageous in certain lines of work. Lastly, at any time Bitcoins can be exchanged for traditional currency such as British Pounds, with generally a good exchange rate.
However, as mentioned, the speculative nature of Bitcoin payments means that a Bitcoin value could dramatically decrease in a short amount of time, as it has been known to decrease by 90% in value in a matter of weeks. This is bad news when exchanging Bitcoins for goods, as the value you make ends up being less than sold. It has also been rumored that companies dealing in Bitcoin are having their bank accounts shut down by some of the biggest U.S. banks, meaning that some businesses have gone into liquidation. This means that owning a Bitcoin based company could put you in trouble with authorities, despite its total legality. Lastly, nobody knows the direction in which Bitcoins are going, is is either a feasible solution and the next big thing, or it is an intangible fad that will end in many dollars lost so it may be better to explore the trend first. There is also a lot of confusion surrounding Bitcoin payments, making new developments hard to keep track of.
There is no real answer for whether your business should employ this currency or not. There are a number of reasons for and against, and the most important thing to decide is whether Bitcoins are suitable for your business model. If the answer to this is that you are not sure, you should steer clear for now. This technology is still in its baby stages, and if all goes well, you have plenty of time to get involved when the course is sure.