Is it Time for Your Business to Accept Bitcoin?
Bitcoin is still considered strange by a lot of companies, but a number of small businesses have decided to take the plunge.
Anyone who is watching the financial news in 2021 is doubtlessly aware of Bitcoin. The cryptocurrency, launched in 2009, has gone from a curiosity to a viable successor to gold as an asset.
The past year has been especially notable since it has risen in value so dramatically. In mid-February, Bitcoin was trading for a bit more than $47,000 and its value had risen more than 300 percent over the past year. With that kind of surge, even Wall Street’s established firms have taken notice. In early 2021, JP Morgan predicted that Bitcoin’s price could rise as high as $146,000 as it vies with gold as an alternative currency.
On the other hand, there is no shortage of Bitcoin skeptics, including Warren Buffett, who dismissed Bitcoin as having “no unique value at all” and adding it’s “a delusion, basically.” Bitcoin bears like Buffett invariably evoke the tulip craze of 1637, in which a single tulip went for 20 times the income of a skilled laborer.
Bitcoin supporters, including the Winklevoss twins, argue that it represents a “store of value” that is independent of other asset classes. For instance, Bitcoin’s price generally doesn’t mirror the stock market’s, so it’s a plausible vehicle for diversification.
Supporters argue that the fact that Bitcoin is native to the Internet and accessible all over the world on a 24/7 basis, prove its value. Moreover, Bitcoin follows the old economics rule of scarcity: There are only 21 million Bitcoins that can be mined; there have been about 18.5 million mined so far. (Read also: Bitcoin (In)Efficiency in BItcoin Mining Operations.)
While scarcity is key to Bitcoin’s valuation, skeptics argue that it has no intrinsic value. Buffett has likened it to a checkbook, “Stay away from it. It’s a mirage basically. It’s a method of transmitting money. It’s a very effective way of transmitting money and you can do it anonymously and all that,” said Buffett “A check is a way of transmitting money too. Are checks worth a whole lot of money? Just because they can transmit money?”
Small Businesses on the Cutting Edge
For small businesses, the debate over Bitcoin’s value is irrelevant. What’s relevant to a small business is missing out on revenues. At the beginning of 2021, more than 100,000 businesses accept Bitcoin.
Robert Podfigurny of Lerentech, a Web design and SEO firm based in Syracuse, New York, said that small businesses that accept Bitcoin are in effect telling their customers that they want to be a proponent of new technologies and the future of financial transactions.
"We want to create as many options for our customers, for them to pay the way they want to pay," he said. Lerentech provides Web design services, and Podfigurny explains that for a long time, companies would request PayPal functionality on their sites. Now, adding bitcoin is a new request that allows companies to provide as many options as possible.
There are other benefits as well. While credit cards often charge around 25 cents per card swipe, Bitcoin has no such fees. The decentralized nature of Bitcoin (and other cryptocurrencies) is another plus. With Bitcoin, there is protection against fraudulent chargebacks. Of course on the other hand, the fact that Bitcoin functions like digital cash makes it the object of crypto scams. (Read also: Hacking Cryptocurrencies.)
Nevertheless, accepting Bitcoin doesn’t necessarily open the floodgates to massive amounts of Bitcoin purchases. Post Oak Motor Cars, in Houston was said to be the first luxury automobile retailer to accept Bitcoin. Rick Canalis, a salesman at Post Oak Motor Cars, said that although the company has been accepting Bitcoin for “a couple of years,” the dealership has only processed 17 Bitcoin transactions. “We have a gentleman next door at our corporate office that sends out a Bitcoin invoice and it's paid that way,” said Canalis.
Impractical for Daily Purchases, But Popular With Millennials
Bitcoin’s wild price fluctuations make it impractical for most daily purchases. Though the median transaction fee via Bitcoin is around $5.40 according to BitInfoCharts, it has established a niche for itself among luxury merchants. But Bitcoin can easily swing 20 percent or more in a day, making it a gamble for making purchases.
Another problem is taxes. The Internal Revenue Service classifies Bitcoin as a property rather than currency, those buying with Bitcoin have to pay capital gains taxes.
The relative anonymity of Bitcoin transactions also makes it useful for illegal purchases. In a 2020 poll, about one-third of respondents said they believed that Bitcoin was used for illegal purchases.One thing that Bitcoin has going for it is a soft spot among Millennials. A 2017 Harris poll showed that one in four Millennials prefer Bitcoin to stocks. That popularity as an investment vehicle has little bearing on Bitcoin’s status as a currency.
The digital nature of Bitcoin is only one reason for the appeal. Millennials also like the fact that Bitcoin is decentralized and doesn’t involve any middlemen between them and their purchases.
Getting Started With Bitcoin
Though it’s understandable that businesses should have reservations about accepting Bitcoins, there’s a counter argument that a segment of the population that skews young is sold on the currency and that belief makes all the difference. But it’s not only young people who have become Bitcoin believers. (Read also: Cryptocurrency: Our World's Future Economy?)
A 2020 poll revealed that 40 percent of Americans believed that Bitcoin would be mainstream within a decade and 56 percent believed that blockchain, the technology underlying Bitcoin, would transform the world.
That’s a big change from the past. A Harris Interactive study released in March 2014 showed that while 48 percent of Americans are aware of bitcoin, only 13 percent trusted it enough to invest in it.
For those willing to make the leap, the safest option for storing Bitcoins is a “cold wallet,” that is, one that is not connected to the Internet. In such cases, a Bitcoin investor might keep a paper wallet with cryptocurrency addresses that one can access with an Internet connection. Those who use such cold wallet are protected from viruses and theft, though there’s always the possibility that they can lose their cold wallet.
Making Bitcoin Accessible
Its high price is one of the main barriers to making Bitcoin accessible. The other barriers include price volatility and the lack of government backing. On the other hand, it could be argued that Bitcoin’s roundabout way of gaining acceptance shouldn’t be held against it. As it turns out, Bitcoin has met a current flaw in the market: the lack of currencies that exist solely in the digital realm.
The Coronavirus pandemic has accelerated that evolution—a study by Mastercard in the first-quarter of 2020 showed contactless payments grew 40 percent during that period.
Before Coronavirus, the acceptance of cash payments differed by country, with 77 percent of South Koreans preferring paying without cash compared with 58 percent of Americans. After Coronavirus, merchants and consumers moved against cash. The percentage of cashless businesses almost quadrupled in the two months after the pandemic first hit.
The fear of transmitting germs via cash is real. A study by Rapyd in August 2020 found that 54 percent of consumers were concerned about handling paper money after the Covid crisis and 32 percent want to see paper money and coins phased out in the future.At the moment, such signs signal an openness to a digital currency. Whether that will mean Bitcoin or many alternate forms of currency remains to be seen, but the future clearly belongs to digital payments.