For many small business owners, the offer of low payment fees is a very attractive proposition.
Bitcoin – a digital currency that allows low-cost peer to peer payments – offers an interesting alternative to traditional payment methods. When you buy or sell with bitcoins, fees are set by bitcoin users. Typically those fees are much lower than the 2-3% transaction fees incurred in a typical credit card transaction.
Before you sign up for a Bitcoin account, keep these pros and cons in mind.
How Bitcoin works
Bitcoin is not real money – it is form of digital or “crypto-currency”. To buy and sell in Bitcoin’s virtual economy you will first need to purchase bitcoins. The value of the Bitcoin fluctuates based on supply and demand, which can make some business owners uneasy. Stored in a digital wallet, you can use bitcoins to buy anything from anyone who belongs to the Bitcoin network.
Although it is free to sign up for a Bitcoin account, there are admin fees associated with spending bitcoins. If you choose to pay a bit more, your transaction will be completed faster than someone who selects a lower fee.
Bitcoin’s merchant processors accept fees to help international businesses securely process transactions, convert bitcoins into their own currency and deposit funds into their bank accounts.
What you need to know
At this time, Bitcoin is by no means a mainstream alternative to other forms of online payment. As a business owner, you are limited to trading bitcoins with people already a part of Bitcoin’s virtual economy. On the one hand, this can lead you to new customers worldwide, but you will still need an online payment option to serve the majority of people who prefer to use their credit cards or PayPal.
Some other pros and cons to consider are:
- Security – Bitcoin users must take care to keep their digital wallets secure with advanced encryption and strong passwords. Transactions do not contain customers’ personal information, so identity theft is not an issue. But bitcoins can be lost forever if you do not have a backup. Security breaches can and do happen with online wallets, so it is recommended users only leave small amounts accessible in their digital wallets at any time.
- Government regulations – Although bitcoins are not standard currency, they are an asset. Business owners should not assume they will not have to pay income, sales, payroll and capital gains taxes on bitcoin transactions.
- Bitcoin may become more widely accepted over the coming years, but on the other hand it may not. Because the value of a bitcoin is attached to the number of people willing to exchange this digital currency, bitcoin may be a risky investment. It is wise to transfer the value of your bitcoins to your bank regularly in case the system ever experiences a crash.
Currency in the hands of the people rather than the banks may be an appealing concept for some business owners. Over the next few years it will be interesting to see whether Bitcoin catches on and becomes a must for business owners to accept this payment method. At the moment, it may make more sense for the average entrepreneur to observe from the sidelines or try bitcoins out on a small scale to see whether the benefits outweigh the costs.
For more information on how Bennett Thrasher can help your business with designing optimal accounting and business processes, please contact Shane George or Matt Grosvenor by calling 770.396.2200.