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Bitcoins (Part 2 of 2): The Silver Bullet for Small Businesses

5/8/2014

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Bitcoins are accepted in this cafe
Bitcoins are Accepted in this Cafe. Image source: Wikipedia.org
In our last Bitcoin post “Bitcoins (Part 1): What’s All the Fuss About?” we spoke about how they worked. We explored some advantages and disadvantages of using digital currencies such as Bitcoin. In this post we will explain why we think the biggest winners in the adoption of Bitcoins will be small businesses.

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.

Lower Risks
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.

International Business
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.

Free Publicity
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.

Attract Cool
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.

Flexible Finances
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.

Taxation
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 hello@vocatys.com.

References:
https://en.bitcoin.it/wiki/How_to_accept_Bitcoin,_for_small_businesses
http://www.coindesk.com/small-businesses-enjoy-success-accepting-bitcoin/
http://www.coindesk.com/survey-results-59-merchants-accept-bitcoin-boost-ecosystem/
http://www.washingtonpost.com/business/on-small-business/bitcoin-presents-promising-but-risky-payment-alternative-for-small-businesses/2014/04/02/6637aad8-ba7b-11e3-9a05-c739f29ccb08_story.html
http://readwrite.com/2013/11/06/why-small-businesses-have-the-most-to-gain-from-bitcoin
http://en.wikipedia.org/wiki/List_of_digital_currencies
http://en.wikipedia.org/wiki/Digital_currency
http://en.wikipedia.org/wiki/Cryptocurrency
https://coinmarketcap.com/
http://www.abc.net.au/news/2014-06-30/tax-office-delays-ruling-on-bitcoin/5559816
http://en.wikipedia.org/wiki/Chargeback_fraud
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Bitcoin (Part 1): What’s All the Fuss About?

22/7/2014

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Everything about Bitcoin
Image source: bitcoinexaminer.org
Technology is disrupting everything these days. Even things we didn’t think could or should be changed. Bitcoin is disrupting money as we know it.

Like money, Bitcoin is a payment system. Unlike regular currency, which is regulated by a government and comes out of a central bank, it has no single administrator and is not physically stored in any particular location. Payment are made and received electronically using various wallet applications on mobile devices and computers.

Every payment is recorded in a public ledger called Block Chain Ledger. This is maintained by a network of servers that anyone can join. Every single Bitcoin transaction is recorded in this ledger and can be examined by anybody. In return for maintaining these ledgers, owners of those servers forming the network are rewarded with newly created Bitcoins. This only method of creating new bitcoins is called Mining.

Due to its decentralised nature, governments across the world are either treading carefully, hesitant or completely closed to Bitcoin. A currency that cannot be controlled and tracked does pose a number of issues. Australia is among very few countries that is open towards Bitcoin and has released tax guidelines around its use.

What’s awesome about it
Here are a few things we find incredibly amazing about Bitcoin.
Low or No Fees
In the vast majority of cases and unlike banks and credit cards, there are no fees to hold and transact in bitcoins. Some merchants may charge a fee of less than one percent but that’s only if you need them to prioritise the processing of your transaction for faster payments.

Immediate Use
Starting an account does not require paper work, identification documents, huge security deposits for businesses and lengthy complicated approvals processes. Simply use one of many bitcoin wallets available for free and start paying and accepting bitcoins.

Secure and Fraud Proof
It uses military grade cryptography that makes it almost impossible to steal unlike your credit card details. For businesses plagued by chargeback frauds this is a great way to accept payment as Bitcoin payments are irreversible.

Simple and Fast International Payments
With most banks charging high fees and still delaying transaction for up to 3 days, international payments with Bitcoin can be completed in 10 minutes irrespective of the location. It’s free in most cases but may attract a fee of less than one percent for even faster transaction times.

Multi-signature
For business and in some cases personal use where spending requires multiple authorisation, Bitcoin can be set up where payments will need more than just one person to sign.
What’s scary about it
There is no light without dark and although an evolution, Bitcoin comes with its own set of issues.
Volatility
As a currency, Bitcoin is very new, the supply is limited and trading volumes are low. These are some of many speculated reasons for high volatility in its value. Starting at US$0.30  in 2011, peaking at US$1135 but dropping to $693 three days later and today 22nd July 2014 at US$624.85 (AU$665.47).

Pricing
For businesses, this volatility makes it very hard to correctly price their products and services which in turn can affects consumers. 

Taxation
Countries are starting recognise the validity of bitcoins and in case of Australia have released tax guidelines. However invoicing, general accounting and reporting in bitcoins can become complicated and cumbersome.

Irreversibility
It comes at a cost but credit cards and pay pal transaction do protect consumers from fraudulent businesses. With bitcoins, once the payment is made it cannot be reversed. This means you need to do your homework well before you pay anyone for anything.

Anonymity
Transacting in bitcoins is completely anonymous. Great feature when your identity needs to remain unknown. But for businesses legally required to verify the identity of their customers, bitcoins can be debilitating.
In conclusion…
We believe in the future, the very near future, all money will be digital. Bitcoin is among quite a few digital currencies that are pushing their way into our lives. So far Bitcoin has been the most popular and widely accepted yet it is still under development. Technically speaking it is still in Beta. Its exact future is anyone’s guess but for now its advantages far outweigh its disadvantages and we think it’s here to stay.

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 hello@vocatys.com.

References:
  • https://bitcoin.org/en/
  • http://en.wikipedia.org/wiki/Bitcoin
  • https://www.kabbage.com/blog/does-accepting-bitcoin-make-sense-as-a-small-business-owner
  • https://coinreport.net/coin-101/advantages-and-disadvantages-of-bitcoin/
  • http://finance.yahoo.com/news/bitcoin-pros-cons-consumers-merchants-140041526.html
  • http://bitcoinembassy.ca/about/what-is-bitcoin/advantages-disadvantages
  • http://en.wikipedia.org/wiki/Legality_of_Bitcoins_by_country
  • http://www.abc.net.au/news/2014-06-30/tax-office-delays-ruling-on-bitcoin/5559816
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    The Vocatys Team writing on Breaking News on Emerging Technology, How-To's, Why-To's, Company News and some seriously mundane ramblings!


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