Bitcoin has come a long way, in terms of adoption, since when it made its appearance on the scene in 2009. Today, many more companies, including major ones like Microsoft Corporation and Dell, have started to accept the cryptocurrency. But as a small business owner, you may be wondering if it makes good business sense to start accepting Bitcoin for transactions as well.
What is Bitcoin?
Bitcoin is a peer-to-peer digital currency. It is a new system of payment that does not necessarily involve exchange of digital tokens or notes for transactions to take place. This explains why it is called a cryptocurrency. Transfer of Bitcoin is done digitally, simply by updating a public transaction log.
Should your business start accepting Bitcoin?
There are some important considerations you need to pay attention to in order to determine the fit of Bitcoin use in your business. Here are some important factors to consider:
Fees – Bitcoin transaction fees is usually very low, much lower than what your business would have to part with using several other payment systems. Fees usually range from zero to one percent. The use of Bitcoin can help you make significant saving by avoiding credit card processing fees, which could be as high as 5 percent.
Speed – Another thing that your business could benefit from Bitcoin usage is speed. Transactions are completed almost immediately. This is unlike credit card payments that may be held in escrow for several days.
Dispute – Bitcoin transactions are final and irreversible. This could be quite useful in protecting your business from chargeback fraud which is common with credit card payments. Credit card charges that are disputed can take several months to resolve, depriving merchants funds rightly due to them. With Bitcoin, it is left to your business to determine whether to issue a refund.
Regulation – Many people are drawn to Bitcoin because it is not subject to the whims of a central authority like a government. The use of the cryptocurrency for illegal purposes, however, has increased government scrutiny of its use. While Bitcoin acceptance can help boost your customer base, it may also draw the attention of authorities to your business. There should be no problem in this regard if you are only involved in legitimate business, though.
Volatility – Bitcoin is known for its volatility. Its price fluctuates from time to time. The effect of this reality is that the value of sales made in the cryptocurrency at a point in time may be worth more or less at a later period. This volatility can affect Bitcoin liquidity.
Security – Since Bitcoin is technology-based, it makes room for possibility of hacking. You are especially more vulnerable to security threats when you store the cryptocurrency on your computer’s hard drive. Without proper security measures, you are out of luck if you are hacked since there will be no way of recovering your money.
Tax – You also want to understand how Bitcoin use can influence tax matters to avoid issues with the authorities. For the purpose of tax, the cryptocurrency is classified as property if not immediately exchanged into cash. You are taxed on value appreciation in such a case.
It is also worthy of note that while Bitcoin is increasingly being accepted by businesses, it is possibly a currency of the future as more people are just getting to know about it. You should weigh the benefits and the issues to determine the appropriateness of Bitcoin adoption for your small business.