As a business owner, your customers’ user experience is integral to ensuring their satisfaction with a sale. One aspect of this is ensuring that the checkout process is as easy as possible for them by offering various payment options. With the increasing popularity of Bitcoin, the question of whether accepting the cryptocurrency makes sense for small businesses arises.
If you have been considering accepting Bitcoin payments but aren’t sure what the pros and cons of such a decision are, we’re here to help. Below we’ve listed some of the advantages of Bitcoin and the downsides of accepting the digital currency so that you can make an informed decision. But first, let’s learn a bit more about Bitcoin and how it works.
What is Bitcoin?
Wikipedia defines Bitcoin as “a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. The cryptocurrency was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto.”
In simple terms, what this means is that Bitcoin is a form of digital currency that lets people send or receive money across the internet, even if they don’t know or don’t trust each other. Unlike other digital transactions, with Bitcoin, there aren’t any third parties involved and you don’t have to reveal your real identity. Bitcoin uses the mathematical field of cryptography as the basis for its security.
How do you accept Bitcoin?
If you want to accept Bitcoin, you will need a Bitcoin wallet. It allows you to buy, store, and sell the cryptocurrency. The wallets come with private keys, or passwords, that give access to the crypto contained in them. There are several options for your wallet, including a “hardware wallet,” where you write down your keys or keep them on a hard drive instead of storing them online. Another option is to use a crypto exchange such as Coinbase or Lumi Wallet, where the keys are stored on a third-party server. However, exchanges can be hacked.
Which eCommerce platforms support Bitcoin?
Several eCommerce platforms support Bitcoin. These include Etsy and Shopify, which use payment processors such as Coinbase Commerce and Bitpay. You can also sign your business up to payment processors such as Coinbase Commerce directly, allowing you to accept Bitcoin payments from customers anywhere in the world.
The advantages of Bitcoin
There are several advantages that Bitcoin has over fiat currencies besides its decentralized nature. Let’s look at them below:
With fiat currencies, users aren’t in control of their money. Instead, the currencies are subject to numerous risks and restrictions. Boom and bust cycles in the economy can leave banks vulnerable to crashes and be the end of bank runs, for example. In theory, Bitcoins’ price isn’t linked to any government policies, which gives it user autonomy, putting the users and owners of Bitcoin in control of their money.
Transactions are pseudonymous
With most transactions, you need to provide a variety of information to identify the person conducting them. This can be personal information you need to include when making an online purchase or when identifying information of both parties to a money transfer needs to be verified before it can be processed. While this can prevent crime, it also puts an intermediary in charge of the transaction.
On the other hand, the transactions with Bitcoin are pseudonymous, which means they can only be identified by using a blockchain address. While not completely anonymous, users can have as many blockchain addresses as they wish. You don’t need to provide any identifying information to conduct a transaction, such as your IP address.
Transactions are conducted on a peer-to-peer basis
Peer-to-peer transactions mean that you can send and receive payments from anyone on the network without requiring approval from an external authority. The only time transactions do require such approval is when sending or receiving Bitcoin from a regulated exchange or institution.
Transactions do not incur banking fees
Unlike the various banking fees that need to be paid when using fiat currencies, Bitcoin transactions don’t incur these fees. This means that you won’t be charged for account maintenance, minimum balance, or deposit and withdrawal fees, amongst others.
Payments have low transaction fees for international payments
When using wire transfers and making foreign purchases, there are generally exchange costs and fees associated with the transaction. Because transactions using Bitcoin don’t have any intermediaries, the costs of transactions are typically lower than bank transfers and, because no authorization is required, the transaction is also fast.
Payments are mobile
Like other online payment systems, users can pay with Bitcoin wherever they have internet access, eliminating the need for bank or store visits. A significant difference between online payments using traditional bank accounts or credit cards is the above-mentioned pseudonymous nature of the transactions, meaning you don’t have to supply personal information to complete the transaction.
Transactions are secure
The only way for hackers to steal your Bitcoin is if they know the private key to your wallet, however, if you put the proper security in place, stealing it is technically impossible. There’s no way to recover a password from a wallet, so if you forget your password, you’ll have no way to access the funds in that wallet.
Because your password is the only way hackers can gain access to your wallet, they employ a number of techniques in order to try and steal your password. These include:
- Phishing attacks
- Fake websites
- Man-in-the-middle attacks
It should be noted that if your Bitcoin is held by an online exchange, it is at risk of falling into the hands of hackers should they gain access to the exchange.
Since all you need to send and receive Bitcoin is a computer, tablet, or smartphone with internet access, Bitcoin enables those without access to traditional banking systems or other methods of payment to engage in transactions.
What are the downsides of accepting Bitcoin?
Although there are many advantages to using Bitcoin, as shown above, there are also downsides that need to be considered. Let’s look at these more closely below:
Expenses need to be paid in traditional currency
Until there is a wider adoption of Bitcoin, you’ll find that the majority of your business expenses, such as salaries, supplier fees, and rent, will need to be paid in traditional currency. This means that you’ll have to regularly convert your Bitcoin into a fiat currency if you want to use it to pay your expenses.
Lack of public awareness
Although Bitcoin and other cryptocurrencies are gaining popularity, the vast majority of people are not aware of Bitcoin or how to use it, meaning that the number of transactions you’ll be processing in Bitcoin is likely to be considerably lower than payments made with traditional payment methods.
Bitcoin transactions are irreversible
While it can be seen as a benefit that Bitcoin transactions are immutable, which means they can’t be amended by a government entity or a financial services agency, this also means that they are irreversible and that both parties have to trust each other. Since there are no charge-backs, only the party receiving funds can refund the transaction. This means that in order to be able to refund customers should they wish, you’ll need to keep track of how much they paid.
Unlike traditional currency, the IRS decided that Bitcoin should basically be treated as property and taxed accordingly. If your business accepts Bitcoin, you’ll need to report all Bitcoin as gross income based on the market value when you received it, making it subject to capital gains tax.
Illegal in some countries
Because of its pseudonymous nature, Bitcoin has attracted criminals such as hackers and drug dealers. This has led to some countries banning the cryptocurrency outright, including China and India. On the flip side, El Salvador has made Bitcoin legal tender, becoming the first country to do so. But even in the US, there are calls for more regulation of Bitcoin which means you’ll need to keep up with the changing rules if you want to accept it.
Bitcoin’s volatility is a major reason why people stay away from the cryptocurrency. It has seen massive swings in value. In 2021 alone, Bitcoin has gone from a high of $60,000 to as low as $35,000. This makes many people stay away from Bitcoin for small transactions meaning you’ll likely encounter fewer customers using it. You’ll also need to convert your Bitcoin payments into fiat currency as soon as you receive them in order to avoid the possibility of the currency decreasing in value, affecting your bottom line.
Should Your Business Accept Bitcoin?
As you can see from the above, there are several advantages and disadvantages to Bitcoin. Bitcoin gives users autonomy and allows for pseudonymous tractions that don’t incur banking fees with low transaction fees that are mobile, secure, and accessible to users outside of the traditional banking system.
On the other hand, you’ll still need to pay your expenses in traditional currencies. There is a lack of awareness around Bitcoin. The transactions are irreversible. There are tax implications to consider, it is illegal in some countries, and it is highly volatile.
So should your business accept Bitcoin? The answer depends on what products or services you are selling and for how much. Because businesses need to keep track of how much the Bitcoin was worth when they received it and when it was sold, this can be complicated if you have to do so for many small transactions. However, in the case of high-priced luxury items, it can make sense to accept Bitcoin payments.