Bitcoin and other cryptocurrencies are gradually making their way into the business world. A few household names are beginning to accept them for purchases. You can use Bitcoin to book a hotel with Expedia, a flight with CheapAir or to furnish your home or office from Overstock.
It is likely that in the near future you will have a customer ask if they can pay with Bitcoin. So should your small business join the Bitcoin revolution and accept this type of payment? Here is our overview of the pros and cons of accepting cryptocurrency payments.
First, what is Bitcoin? It is an entirely digital currency that was created by an anonymous computer programmer in 2009. It is largely regarded as a fraud-proof system, where Bitcoins are ‘mined’ using advanced computers. Creating new Bitcoins is costly and difficult, so there are limitations on supply. Bitcoin is legal in the US, UK and most developed nations, but it is treated as property rather than currency. So it is legal to use it to buy goods, but if you make a profit out of the increased value of the Bitcoin you own, that profit will be subject to capital gains tax. Conversely, if you make a loss you may be able to apply that loss to reclaim tax.
Advantages of accepting Bitcoin payments
The main advantage of accepting Bitcoin is that it would increase the number of payment options for your customers. If you are in an industry where it is likely to become a norm, then this could be important. For example, apps and gaming. Microsoft now accepts Bitcoin for some purchases including those of games and apps.
Your customer base is another factor to consider. Bitcoin users are overwhelmingly male (90%) and fifty percent are millennials, aged between 25 and 34. They are technophiles, interested in finance and everything screen-based: trading, games, movies and TV. If that conjures up a picture of your typical client, then you could certainly enhance your brand attractiveness to them by offering Bitcoin payment options.
Another plus to accepting Bitcoin is that it is not subject to the kind of payment chargebacks you can get with credit card payments. Once the Bitcoin payment is made it is one-way and irreversible. Fees are also pretty low, generally around 1%, or even zero when transactions are peer to peer.
Bitcoin remains highly volatile. The price fluctuates dramatically, driven by speculators. Unlike sovereign currencies, it is not backed by government guarantees, so there is no insurance against losses. If the market falls you can lose everything. Of course, on the other hand, if the price goes up, you could make a fortune. So if you do accept Bitcoin you will need to keep a sharp eye on the trading market and be sure to cash out at just the right time.
Bitcoin and other cryptocurrencies are here to stay. For now though, unless your main customer group is majority millennial males, the risks appear to outweigh the benefits. Even then, proceed with caution. For most businesses, Bitcoin is something to keep an eye on, but wait until it calms down before making your move.