Before we dive into it, it is worth reiterating that Bitcoin is only one of many digital currencies out there. It is often referred to as a cryptocurrency, which is a form of digital currency that relies on principles of cryptography for secure exchange of information. Since its creation in 2009, there have been quite a few that have cropped up. As of May 2014, there were more than 275 cryptocurrencies being traded in online markets. Bitcoin certainly leads by a long way in terms of popularity and adoption.
Irrespective of which cryptocurrency eventually wins the race or if they all end up existing concurrently like our physical currencies, Bitcoins and the like are here to stay. Hence for simplicity, small businesses adopting Bitcoin will experience some extraordinary results. While not exhaustive, the following should cover most bases.
Low Operating Cost
Normally with Bitcoin there are no fees, except when payment needs to be urgently processed. These fees again are negligible, often less than one percent. This would allow small businesses to receive payment without high friction rules like minimum EFTPOS limits and credit card surcharges.
Go to Market…Fast
As compared, it is extremely easy to set up an account and start accepting Bitcoins. New businesses starting up and old businesses changing direction, often struggle when it comes to setting up transaction accounts and merchant facilities, resulting in delays in ‘go to market’ strategies. Adopting Bitcoins will dramatically streamline that process.
According to a LexisNexis report in 2013, merchants pay up to US$2.79 for every $1 lost in fraudulent transaction. Chargeback frauds can have a devastating effect on a small business. With all onus on the merchants to verify the transaction, a chargeback will still result in the merchant being held solely accountable. Bitcoin transactions, however, are irreversible thus significantly reducing such fraud risks.
Rampantly growing ecommerce is forcing even the most traditional businesses to have an online presence. But buying and selling online, especially if trading internationally, results in businesses having to navigate the multi-currency conundrum, not to mention the incessant international transaction fees. International transactions with Bitcoin happen within 10 mins and attract none or very little fees. Bitcoin allows small businesses immediate pathway to international trade with almost no hassle.
Given the popularity and the publicity that goes with everything Bitcoin, a lot of small businesses are advertising they accept Bitcoins just for the press. Accepting Bitcoin does not cost much, if anything at all, to setup but it will undoubtedly have a positive impact on the brand image.
At the moment, the decentralised nature of Bitcoin makes it cool. We are talking sub-zero! Small businesses accepting Bitcoins are automatically cool. This will attract an entire subculture of customers that would not normally shop with them. It’s simply cool to buy with Bitcoins. Likewise it will widen the scope of suppliers to select from as well.
Challenge the Big Dogs
One of the key areas where larger competitors often hold a distinct advantage is operations. Emerging mobile and cloud technologies are already closing that gap. Bitcoins with its ability to attract new markets, reduced risks and low operational expenses like bank and merchant fees, will see marked improvement in operations, therefore allowing them to effectively compete with the big dogs.
Businesses where finance is controlled by multiple people and need multiple authorisations for even small spends, can often be caught short if one of the authorising individual is not physically available. Bitcoins can be set up for multiple authorisations and with easy access through various mobile wallet apps, everything becomes location independent and easy.
Governments are generally approaching Bitcoins in two forms viz. as Currency or as Property. Earlier this year, the Internal Revenue Service in the US ruled Bitcoin as a ‘Property’ for tax purposes. The Australian Taxation Office is still in the process of making the call on that. If declared as Property, Bitcoins will be subjected to capital gains tax which should not affect businesses that do not intend to hold on to them for extended period of time and/or intend to use an exchange to swap them for equivalent cash immediately. If declared as Currency, however, Bitcoins will be considered as foreign currency and will come with certain tax breaks.
With the right strategy small and medium sized businesses can make Bitcoin their silver bullet. Bitcoin adoption is still in its growth phase. Early adopters will yield the biggest reward.
This article was written by Austin D'Mello, Managing Partner of Vocatys, an emerging technology consulting company. If you liked this article please share it with your network. You can also subscribe to the monthly Vocatys newsletter by emailing us at firstname.lastname@example.org.