Bitcoin currency – a fad or the future for business transactions?
What are the pros and cons of Bitcoin for small businesses? Entrepreneur William Berry takes a closer look
Crypto-currency Bitcoin has had many column inches devoted to it globally and in the UK, but are British businesses using it and should you be?
Some call it the future of money but others call it a fad, and speculators on this virtual currency have made millions as interest rockets.
So far there have only been a smattering of forward-thinking businesses in the UK that have set themselves up to accept the currency – including bizarrely a dental practice in Manchester – but as the first UK Bitcoin exchange floor, Coinfloor, launched in December it could entice more businesses to jump on board.
The downsides to Bitcoin
The cons of using Bitcoins are well-reported and at the top of the list is security. As Bitcoin operates below the radar to a certain degree it could be more susceptible to online theft and fraud; a Texan has already been charged with running a Bitcoin Ponzi scheme in the US and two executives of a Bitcoin exchange had been arrested on money laundering offences, again in the US.
And two Bitcoin exchanges – Tokyo-based Mt. Gox and Canada-based Flexcoin – have closed after being hacked, causing more concern.
However, in January the world’s first insured Bitcoin storage facility, Elliptic Vault, was launched in the UK, which alleviates theft fears somewhat.
Other protective measures can also be put in place such as encrypting your online ’till’ or ‘wallet’ and ensuring that only small amounts are left in there with the rest being transferred into a more secure vault – a bit like putting deposits in a bank.
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The upsides to Bitcoin
The huge pro of Bitcoin for businesses, particularly small and mid-sized businesses without a huge payment infrastructure, is the simplicity of the model. It allows smaller companies to accept and make payments on smartphones and tablets and is significantly cheaper than using more established payment methods.
Vendors taking card payments get charged around 2% to 3% per transaction by card companies but Bitcoin transactions cost nothing.
It is also much simpler and quicker to set up Bitcoin payments than more traditional payment methods and Bitcoins can be transferred almost instantly with no delay.
It is worth nothing that the popularity of Bitcoin had caught the eye of the regulator and Britain is set to be the first country with a taxation policy for the currency.
There are fears that HM Revenue & Customs does not regard it as a currency and so purchases of the coins will be subject to VAT. Although the policy is unclear, if HMRC can find a way to tax it then Bitcoin must be here to stay.
Other countries are taking a more liberal approach than HMRC, and a Bitcoin ATM has even been opened in Canada and more of the same is planned for Australia and New Zealand.
For UK small and medium-sized companies doing international business the ease of use and lack of exchange rate expense could also prove a huge plus. The flipside is you do not know whether a country will shut-down or taper trading in the currency as policy is drawn up to try and regulate it.
As the currency is so new and original there is no precedent for regulating or taxing it meaning there is a lot of uncertainty surrounding it.
For many businesses accepting Bitcoin payments is a clever way to get publicity and brand yourself as a trend-setter but the day-to-day reality is the currency is just to volatile and too niche for many to take a punt on at the moment.
Adopting a wait and see approach to Bitcoin might be the safest option; give it time to work through its problems and then we’ll really see if it’s a fad or the future.
William Berry is a serial entrepreneur and in 2006 was named a Young Gun by Growing Business. He is the founder-director of accommodationforstudents.com, and Vincentbond.com. William is also CEO of the new video start up p6.com, based in California.