How can SMEs use bitcoins?
With more than 12.7 million bitcoins now in circulation, it’s no surprise that Overstock, eBay and Virgin have all started to recognise and accept bitcoins as an authorised method of payment. With more businesses planning to jump aboard the bitcoin bandwagon, how can your SME make use of this digital currency? By Sean O’ Farrell.
By Sean O’ Farrell
What the internet has done for publishing, the bitcoin is now doing for finance, revolutionising the way we pay for goods and services online and in an increasing number of high street stores. Choice Loans have put together this infographic with everything you could ever possibly wish to know about the world’s newest currency.
Computer Exchange has become the latest high street retailer to provide customers with a facility where they can trade sterling for bitcoin at a rate of 0.00386 bitcoins to the pound. That’s all well and good, but let’s not run before we can walk, so just what on earth is the bitcoin?
The bitcoins’ beginnings
The birth of the bitcoin is shrouded in mystery after its anonymous creation in 2009 under the alias of Satoshi Nakamoto. However, a recent investigation suggests the bitcoin is the handiwork of a resident of Los Angeles going by the name of Dorian S. Nakamoto.
What makes the bitcoin different?
The bitcoin differs from conventional currency in that no middle men are involved in transactions, and no outside influences such as banks, governments or individual organisation can control or manipulate the currency’s value. There are no fees involved in processing or making payments and no requirement to give your real name during a transaction.
Why might you choose to use the bitcoin?
There are a number of benefits associated with bitcoins over traditional currency types. Firstly, they can be used to buy merchandise anonymously, as although transactions are recorded in a public log, the personal details of buyers and sellers are never revealed. For this reason bitcoin has become the currency of choice for individuals buying drugs on the infamous online market Silk Road.
Bitcoins are also well suited to making international payments as they can be transferred quickly, easily and cheaply. As the bitcoin is not tied to a specific country, it is also not subject to regulation.
There are also no transaction fees associated with bitcoin. While a credit card transaction will attract a 2-3% fee for retailers, bitcoins can be used to purchase an increasingly diverse range of goods and services without any fees. It’s hardly surprising then that Overstock, eBay and Virgin have all started to recognise and accept bitcoins as an authorised method of payment.
Is bitcoin a stable, legal and secure currency?
The legality of the bitcoin in the US is fairly certain after law enforcement and financial representatives reported to the Senate that they were not worried about the Bitcoin. Wider investigations were carried out, and of those countries surveyed, only Brazil, China and a few smaller countries had any regulations for the bitcoin in place.
The bitcoin is still very much in its infancy, having celebrated its fifth birthday in January of this year. Such an embryonic currency can never be described as stable, and recently the bitcoin enjoyed a speculative bubble. Currently the value of one bitcoin is $339, which is its lowest value since the 2012 Cypriot financial crisis. In January 2014, the price spiked at $1000 for one bitcoin, although this quickly settled at $800-900.
At that value, you can see why bitcoins are far too precious to lose, which is where the bitcoin wallet comes in. The bitcoin wallet is a simple program or app which allows you to store, backup and spend your bitcoins. However, this does not mean they are impossible to lose, as poor James Howells from Wales can testify. Having ‘mined’ bitcoins by solving complex maths problems and receiving bitcoins in exchange, the hapless Mr Howells then threw away his hard drive containing 7,500 bitcoins, which, given the current exchange rate of $339, would have been worth somewhere in the region $2.5million.
Bitcoins for business
Many early bitcoin investors have cashed in on some unbelievable returns, but despite the falling exchange rate, investors are still pouring millions of dollars into the bitcoin. The market is still incredibly young and susceptible to significant jolts, potentially dropping by 20 percent in just one day, but if you’re happy to play the long game and willing to accept plenty of drops, money can still be made from a bitcoin investment.
Where can you buy Bitcoins?
Bitcoins can be bought at a wide range of online marketplaces and paid for by bank transfer, credit card or cash. Simply search ‘buy bitcoins’ to find a seller. It is always a good idea to read reviews and look for feedback from previous customers before you make a purchase.
Why might a business use bitcoins?
Bitcoins are an extremely secure and inexpensive method of handling payments, which is a big boon for businesses of every size. Bitcoins make it possible to make and receive payments with almost no fees. Fees are only charged if you require faster confirmation of your transaction.
Bitcoins also include an element of antifraud protection. Any SME that receives credit card or PayPal payments will be all too familiar with the problem caused by payments which are then reversed. Chargeback fraud leads to increased prices for customers thanks to the charges incurred by merchants. However, bitcoin payments are both secure and irreversible, so the cost of chargeback fraud is no longer shouldered by retailers.
Bitcoins provide a great method of making fast international payments. Bitcoins can be transferred to the other side of the world in 10 minutes, with no limits, no delays and no excessive fees.
Bitcoins are a great method of attracting new customers. By becoming one of the first businesses in your market to accept bitcoins, you can steal a march on the competition by providing new customers with a way to spend their bitcoins.
The PCI Standards are a group of requirements that the majority of online businesses must satisfy in order to process credit card payments. Bitcoins are not PCI compliant, which means merchants do not carry the costs that come with processing sensitive credit card information.
Will you join the bitcoin revolution?
It’s still early days, but the advantages of making and receiving bitcoin payments for businesses and private individuals are clear. Over the past few months, the bitcoin has grown in popularity, with established retailers such as Overstock and eBay now recognising bitcoin as an authorised method of payment. So, the stage is set for the Bitcoin revolution, but is this real progress, or another example of digital hocus pocus…
About the author
Sean O’Farrell is the Managing Director of Choice Loans, who advises businesses on alternative forms of finance options such as P2P Crowd Funding, Invoice Finance, which have exploded in popularity in the past couple of years.
Choice Loans is an independent finance broker that works with all major UK Lenders and specialist finance agents in each field. They specialise in many of the more "alternative" sources of finance both for businesses and individuals.