There’s been a lot of talk in recent months about cryptocurrencies, specifically Bitcoin. While it may not yet be on the verge of toppling the pound, dollar, euro, or yen in your wallet - the digital cryptocurrency is steadily gaining adoption within mainstream society and with its rise, has brought many questions among regulators, consumers and small business looking to get in on the action.
As consumers slowly grow more comfortable with using digital currencies that use complex algorithms to make secure person-to-person payments, the businesses they serve are also beginning to accept Bitcoin and other cryptocurrencies as payment.
In a time when you can buy a range of items from a Subway sandwich, a Namecheap domain name, crafts from Etsy or a pint from London’s Pembury Tavern in the new Bitcoin format, what are the ramifications and dangers involved with using Bitcoin in business and how can you make sure both you and your company are protected? Does this indicate a move toward Bitcoin as a generally accepted currency? Should other small- and medium-sized businesses join in or run away quickly? Should your business start accepting crypto-coins? Perhaps, but, first there are several key considerations for small businesses looking to embark on the Bitcoin journey.
Assessing the ‘first mover advantage’ - and disadvantage
The world of cryptocurrencies continues to be a minefield. The range of services for obtaining and trading in these coins is dizzying, and many methods are brand new, untried, and untested. Even some of the largest coin exchange platforms remain clunky and slow to update, which can make it difficult to know how much money is really in your wallet.
What’s worse is that many of these service providers charge rates well above the true value to buy digital coins, often at a premium of 10% to 20%. Things are improving, albeit slowly, but for now, all of this naturally limits the pool of consumers eager - or even able - to buy from you in Bitcoin.
Entering the Bitcoin game is definitely not for the feint of heart, but then again, you don’t accept cryptocurrency payments because you have a perverse love for these sorts of limitations. Erecting the “We accept Bitcoin” sign sends a definite message, telling the world that your business is modern, forward-thinking, flexible and prepared for the future. Today, many businesses that refuse to accept debit cards are losing customers who have already made the move to contactless - I think the same will become true for cryptocurrency sooner than we think. For this reason, it’s crucial to assess your options and plan for cryptocurrency integration.
Made for traders
So, how can you tell if you should you do business in crypto coins? Any business that offers customer refunds naturally needs a mechanism to do so, and while Bitcoin has no built-in chargeback mechanism governing disputed transactions, it is no different from sterling in this regard when it comes to refunds. All that is required is for a payment to be issued in the reverse direction to your customer, albeit with the risk that the Bitcoin rate against other currencies may have altered since the original payment.
Accepting Bitcoin makes it far easier to sell to overseas customers. Today’s mechanisms for accepting foreign-currency payments are archaic and slow, but a Bitcoin transaction is instantaneous, giving you the confirmation and comfort that a payment has cleared. Exchange rate fluctuations aren’t a problem when buying with Bitcoin. It also acts as an additional strategy for staying ahead of recent fluctuations in regular currency, thus giving businesses a wider range of places to store cash away from negative movements.
Remaining security implications
By their very nature, cryptocurrencies are encrypted, but this doesn’t make them any more or less secure than dealing in normal fiat currencies, as many people may think.
In fact, the only clue as to the owner of a Bitcoin wallet is a 20-character long string. This means that if something does go awry with a transaction, there is no central regulating authority to investigate on your behalf - what do you do then?
Not to worry - if someone were somehow able to walk away with your money, Bitcoin’s public ledger of transactions could trace him or her - but only after they draw the money out, for example, through a bank account. This output would give law enforcement officials the vital evidence they’d need to pursue a case, and give traders the satisfaction that something could be done in the event of a crisis.
This is why it will benefit all businesses that have chosen to accept Bitcoin to service customers who provide their real identity through a secondary ecommerce profile.
Accounting for taste
Just like anyone trading through PayPal must account for this business properly for tax purposes, the same is true for digital currencies. How do you do that?
For now, your accountant will just be thankful that you are accepting payments in some digital, recordable method rather than cash, which can often go unreported. But managing Bitcoin will become a whole lot easier when cloud accounting software, like ours here at Pandle, starts to fully recognise and manage these digital currencies.
To properly account for expenses or payments in Bitcoin, you need to note down the sterling-equivalent value of that transaction at that point in time, something which can be done quite easily using a free online currency convertor like XE’s.
For anyone who expects to sell high volumes in Bitcoin, this will undoubtedly mean much more administrative work until the software is upgraded. But for anyone just experimenting with opening up to a new wave of customers, there is little extra work to do.
As you begin your Bitcoin odyssey, it’s important to first decide what your goals are. From there, make sure to do your own research and carry out due diligence on the wallet services you plan to use. And, as always, don’t forget to seek advice from your own professional accountant.
Lee Murphy, owner of accountancy software Pandle
Image Credit: Julia Tsokur / Shutterstock