It may not yet be on the verge of toppling the pound, dollar or euro in your wallet – but the digital cryptocurrency Bitcoin is steadily gaining adoption.
As consumers slowly grow more comfortable with using digital currencies, which use complex algorithms to make secure person-to-person payments, the businesses they serve them are also beginning to accept Bitcoin and other currencies as payment.
Today, you can buy a Subway sandwich, a Namcheap domain name, crafts from Etsy or a pint from London’s Pembury Tavern in the new Bitcoin format.
So should other small- and medium-sized businesses join in? Should your business start accepting crypto-coins? Perhaps, but, first there are several key SME considerations for businesses considering Bitcoin journey.
First mover advantage – and disadvantage
The world of cryptocurrencies is still a minefield. The range of services for obtaining and trading in these coins is dizzying, and many are brand new and untried. Even some of the largest coin exchange platforms remain clunky, buddy and slow to update, making it hard to know how much money is really in your wallet.
Worse, many charge rates well above the true value to buy digital coins, often a premium of 10% to 20%. Things are improving, slowly, but all of this naturally limits the pool of consumers eager, or even able, to buy from you in Bitcoin.
You don’t accept crypto because you have a perverse love for these sorts of limitations. But erecting the “We accept Bitcoin” sign does tell the world that your business is modern, forward-thinking, flexible and prepared for the future. Today, many businesses that refuse to accept debit cards are losing customers to rivals – and I think the same will become true for cryptocurrency.
Made for trade
So, should you do business in crypto coins? Any business that offers customer refunds naturally needs a mechanism to do so. Whilst Bitcoin has no built-in chargeback mechanism governing disputed transactions, Bitcoin is no different from sterling in this regard when it comes to refunds. You can simply issue a payment in the reverse direction to your customer, albeit with the risk that the BTC rate against other currencies may have altered since the original payment.
But accepting Bitcoin makes it far easier to sell to overseas customers. Today’s mechanisms for accepting foreign-currency payments are archaic and slow. But a Bitcoin transaction is instantaneous, giving you the comfort that a payment has cleared.
Bitcoin also provides an additional strategy for staying ahead of recent fluctuations in regular currency, giving businesses a wider range of places to store cash away from negative movements.
By their very nature, cryptocurrencies are encrypted, but this doesn’t make them any more or less secure than dealing in normal currencies, as many people may think.
The only clue to the owner of a Bitcoin wallet is a 20-character long string. If something goes awry with your transaction, there is no central regulating authority to investigate on your behalf.
If someone were, somehow, able to walk away with your money, Bitcoin’s public ledger of transactions could trace him or her – but only after they draw the money out, for example, through a bank account. This output would give law enforcers vital evidence to go on, and traders the satisfaction that something could be done.
This is why it will benefit all businesses accepting Bitcoin to service customers who provide their real identity through a secondary ecommerce profile.
Accounting for taste
Just like anyone trading through PayPal must account for this business properly for tax purposes, the same is true for digital currencies. How do you do that?
Best advice is to set up a Bitcoin wallet connected to a separate bank account. For now, your accountant will just be thankful that you are accepting payments in some digital, recordable method, rather than cash, which can often go unreported. But managing Bitcoin will become a whole lot easier when cloud accounting software like ours starts to fully recognise the digital currencies.
To properly account for an expense or payment in BTC, you need to note down the sterling-equivalent value of that transaction at that point in time, something which can be done using a free online currency convertor like XE’s.
For anyone who expects to sell high volumes in Bitcoin, this will doubtless mean much more administration, until the software is upgraded. But, for anyone just experimenting with opening up to a new wave of customers, there is little extra work to do.
As you begin your Bitcoin odyssey, do your research, carry out due diligence on the wallet services you plan to use and, as ever, seek advice from your own professional accountant.