In the next two years, a third of small business owners believe cryptocurrencies like Bitcoin, Ether and Litecoin, will be available as a method of payment in retail shops everywhere. It might seem crazy that businesses would even consider taking the risk with these currencies, considering that accepting payments in other currencies can lead to considerable problems. But Bitcoin can give your business some genuine advantages, and it’s worth at least understanding. Let’s start with…
The Pros: Quick and Cheap
One massive advantage from a small business perspective is that fees from transferring money from seller to buyer are virtually zero. Compare that to credit card transactions (a 3% fee), ACH transfers ($1 to $20 fee depending on speed) and electronic wire fees of $60 or more. From simply a cost perspective, its amazing that we aren’t all using something like bitcoin to transact every payment.
Right up there with advantages is the time it takes to process a bitcoin payment — none. Technically, an exchange can take up to 30 minutes to clear, but a couple minutes is more typical, and new technologies are going to make most exchanges instantaneous in the near future. Meanwhile, credit cards and ACH transfers clear in 1 to 3 days.
One reason for the high speed and low cost of a bitcoin transaction is the lack of intermediaries. Bitcoin does not need a go-between to record your transaction, making the whole process quicker and virtually admin-free.
Finally — and this is a short term benefit to be sure — accepting bitcoin can create waves of press attention and marketing buzz that can be golden for a small business. Several firms have received media attention for their decision to accept Bitcoin in their stores. This can be especially true if you’re the first local business to accept Bitcoin, or if you decide to accept another up-and-coming cryptocurrency, like Ether, LiteCoin or NEO.
The Cons: It Might Just Disappear
For now, using Bitcoin in day-to-day transactions doesn’t come without significant risks. For instance, although Bitcoin is legal, it’s not regulated or guaranteed by any government. So unlike, say, a bank account in an FDIC insured bank, you may have no recourse if things go wrong. And things have gone wrong. Millions of dollars have been lost to hackers — or simply to forgetfullness. It is estimated that over just the few years that Bitcoin has been around, people have lost passwords to accounts that would now be worth hundreds of millions of dollars. Once the password is gone, so is any hope of accessing these currencies.
Bitcoin is also far more volatile than any other currency — the massive price swings Bitcoin has see in the last 12 months are enough to give rational investors chest pain. But that’s not to say that a business cannot manage the risk by either cashing out quickly, or hedging against fluctuations in price using more traditional means. The more mainstream Bitcoin gets, the more stable its price will become.
Crypto is Coming — Like it or Not
Dozens of retailers have already made their choice and are accepting Crypto currencies (Bitcoin is just the most popular). Today, you can buy software from Microsoft, computers from Dell, and dozens of restaurants and retailers through processors like Gyft.com and PizzaForCoins.com
In fact, Overstock.com became the first major retailer to accept Bitcoin… in 2014! They had a novel way of hedging against the fluctuations in value. According to Yahoo Finance:
“In 2014 Overstock (OSTK) was the first major retailer to accept bitcoin, becoming the first billion-dollar business to take the leap. The company’s strategy was to pocket 10% of a sale in bitcoin and convert the rest into U.S. dollars.”
The CEO of Overstock, says that he’s comfortable with the value risk because of the other advantages of the transaction: “The question is why are we doing business in dollars when we could do it in bitcoin?”
The idea of actually using a new currency to receive income may seem far-fetched, especially with Bitcoin’s exchange rate plummeting against the dollar last month. But there’s some really good things about cryptocurrencies which other forms of payments just don’t have. At the very least, it’s something to keep an eye on.
FUSE would like to thank contributor Lucy Newton and NewCurrencyFrontier.com for help with this article. Learn more about bitcoin mining at New Currency Frontier’s blog.
Looking to get funding for your business growth? Download my free eBook, The Colors of Money and find the funding you need.
Dedicated to your profits,
Partner, FUSE Financial Partners