A question a lot of small business owners are asking–or likely will be asking soon– is ‘should we accept Bitcoin?’
Bitcoin has been emerging from a very niche position over the last several years to a much more widely accepted form of payment.
As a business owner, you have to decide how you’re willing to accept payment–cash, check, wire transfer, credit card. And now, Bitcoin.
The internet never rests with new innovations for business.
What Is Bitcoin?
Bitcoin is just one example–although certainly the most well known–of what are called cryptocurrencies (or virtual currency). It was launched in 2009.
Bitcoin is not issued by any government or backed by any central bank. It can, however, be traded on exchanges for US dollars and other ‘fiat’ currencies.
Bitcoin is also subject to US taxation and financial crimes laws. You can’t just treat Bitcoin as ‘play’ money that can be handled and recorded as you see fit.
It’s based on a relatively new, de-centralized technology platform known as blockchain. (Blockchain technology also has other uses, besides digital currency.)
Blockchain is based on an open ‘ledger’ that uses encryption technologies. Its proponents argue that it is highly secure and accurate. If you’re interested, a good introduction to the concepts involved can be found here.
Bitcoin allows for direct, ‘peer-to-peer’ exchanges without any intermediary, such as a bank.
You can also learn more at Bitcoin.org.
The Pros of Bitcoin
One of the primary driving forces behind Bitcoin adoption seems to be not wanting to be left behind. There’s a newness or coolness factor.
Your business can look technologically astute when you declare you accept Bitcoin. You can probably use it to gain a little bit of attention, at least at first.
And there’s the possibility of attracting new customers–in particular, ardent Bitcoin advocates and users. There is a growing number of them.
There’s also no middleman involved. So there’s no bank fees or credit card merchant fees.
And advocates of Bitcoin will also argue that there’s actually increased security and protection from fraud when compared to using traditional banking and credit systems.
The Cons of Bitcoin
Probably the most prominent negative that argues against you deciding to accept Bitcoin is that you’ll end up with a currency whose value has been notoriously unstable.
Bitcoin is very volatile. Here’s what it’s value has looked like over the last year.
If you accept Bitcoin as payment at your business, you’ll be assuming some risk that it will be worth significantly less in the future. (Of course, it could be worth significantly more–but it’s a risk nonetheless.)
This risk can be lessened by using a third party payment processor such as Coingate or Coinbase, which will allow you to convert your Bitcoins quickly into dollars.
However, it should be noted, that all of these services have faced reports of not being able to process transactions at times of peak activity. Bitcoin is a new industry and the systems and processes aren’t as stable or reliable as more mature industries.
You’ll also have to consider the work required to properly document your Bitcoin earnings. In 2014, the IRS issued guidance that Bitcoin (and all virtual currency) is treated as property for tax purposes.
What this means is that as a business, you will be responsible for recording the cost basis of your Bitcoin holdings. You’ll need to treat it, for accounting purposes, like other assets that have evolving values.
When Bitcoin’s values fluctuate, you’ll have to keep track of it and record your losses or gains every time you use or exchange Bitcoins. It’s essentially an extra step of translating and recording values that you of course don’t need to do when dealing with US dollars.
The bookkeeping and accounting work involved can add up if you’re doing lots of business in Bitcoin.
More and More Businesses Are Accepting Bitcoin
An increasing number of businesses, from Subway to Microsoft, are accepting Bitcoin. It’s worthwhile considering it for your business.
Just be aware that there are risks involved and that processes should be in place for proper record-keeping. The IRS will not treat your use of Bitcoin as a game–neither should you.