What Bitcoin means for small businesses
Bitcoin has captured the attention of speculative investors, businesses and citizens across the world. From its dramatic rise in value to the revolutionary underlying technology called Blockchain that powers this cryptocurrency. How it can benefit small businesses is widely debated. Here is what it can mean for your business.
Bitcoin in a nutshell
Bitcoin is a cryptocurrency or digital currency that relies on revolutionary Blockchain technology for faster, cheaper and more convenient transactions. It enables buyers and sellers to transact directly (peer to peer), from virtual wallet to virtual wallet. Unlike government issued currencies, Bitcoin is independent of any central authority and doesn’t require third parties like banks to process payments.
Bitcoin has been adopted by multinationals like Microsoft and Virgin Galactic, which inspired smaller businesses across the world to follow suit. Although adoption in the retail industry will take time, Pick ‘n Pay has recently run a successful trial of payments made with Bitcoin. It is accepted by a growing number of online shops, including Bidorbuy and Takealot.
What does it mean for small businesses?
It is still early days for Bitcoin and adoption is hampered by uncertainty. When considering Bitcoin as an additional payment option, small businesses need to assess the potential benefits, risks and drawbacks before diving into the uncharted waters of cryptocurrency.
The good and the great
- Ultra-fast and cheap transactions
Small businesses are often deterred by costly credit card transaction fees. Bitcoin exchanges generally charge 0%-1% per transaction and are not linked to the sale value. Where credit card transactions can take 2-3 days to clear, Bitcoin transactions are processed at a fraction of the time. It all adds up to significant savings.
- More payment options
Small businesses can attract a wider customer base with faster and cheaper payment options. This means more sales, significant savings and greater convenience for businesses and customers who adopt this cryptocurrency.
- No borders
Bitcoin is free of cross-border restrictions. It enables small businesses to transact internationally with previously inaccessible markets without steep foreign exchange and international transaction fees.
- Fraud protection and finality of transactions
Unlike credit card payments, Bitcoin transactions are final in that transactions can’t be disputed or reversed. It gives businesses greater control over their return policies and offers protection from credit card and chargeback fraud.
Bitcoin transactions are open source and anyone can view the transactions in the Blockchain. However each transaction is kept anonymous through the use of public keys.
The bad and the ugly
- Price volatility
The price of Bitcoin is volatile and flash price corrections are possible. Businesses should be ever ready to convert Bitcoins back into a virtual or physical currency to avoid potentially significant losses. To help insulate small businesses, this conversion can be done quickly and automatically with most digital currency exchange companies like Coinbase and Luno.
- Frequent price updates
Prices are quoted on the current exchange rate. The value of Bitcoin over 30 days could vary drastically. The same applies when listing prices online, which would require regular updates. Bitcoin exchange companies offer services that automatically update online prices based on the current value of Bitcoin.
- Perception and trust
Bitcoin’s volatility is partly attributed to its perception in the financial landscape. The concept of cryptocurrencies is very new and will take time for consumers to trust and understand the system before they use it.
As a digital currency, Bitcoin and the Blockchain are immutable, however Bitcoin wallets and trading platforms are not immune to cyber-security risks like financial malware attacks. To minimise the risk, Coinbase keeps less than 2% of its customers’ cryptocurrency online. Losses are fully insured and all fiat currency maintained.
- Taxes and regulatory uncertainty
Bitcoin is recognised as a valid commodity by the U.S. government and is treated as cash or property. However, Bitcoin is not insured or regulated by any central authority. Legislators are currently working on regulations to govern cryptocurrencies and businesses have to be adaptable to ongoing legislative changes.
Bitcoin in the future
Bubble or breakthrough, it is too early to determine the future role and value of Bitcoin. That said, it certainly has the potential to fundamentally change how money is perceived and exchanged. Bitcoin is a phenomenon that should be closely watched as it may become mainstream faster than its bullish rise in 2017.