Bitcoin has gained quite a bit of popularity in the past few years. While plenty of businesses are adding Square, Apple Pay or PayPal to their payment options, an increasing number of businesses are now accepting Bitcoin as a payment method as well.
For this purpose, this article will explore the potential advantages and disadvantages of accepting Bitcoin as a payment method.
In this article we will look at:
- What is Bitcoin and what are the benefits?
- What are the benefits of accepting Bitcoin as a payment method?
- What risks are involved?
- How can your business accept Bitcoin?
What is Bitcoin?
Before we go into a more detailed explanation about the benefits of using Bitcoin, let’s go through the basics first.
Bitcoin is a decentralized digital currency, and the most valuable cryptocurrency available. The blockchain technology which Bitcoin is based upon allows any participant to exchange value, no matter where they are in the world. All you need is a Bitcoin wallet and an internet connection.
Bitcoin transactions are fast, and cost very little to execute, especially compared to traditional banking transfers.
The decentralized part of Bitcoin’s definition implies s that there is no governing body that controls Bitcoin. As long as you want to transfer Bitcoin, no bank or government will be able to stop you.
Finally, Bitcoin is a finite resource. New bitcoin are created by “mining”, where computers solve complex mathematical puzzles to issue new coins. This process will continue until il the total supply of BTC (21 million BTC) has been reached.
Benefits of using Bitcoin
1) Ease of Use
We have come a long way since the beginnings of Bitcoin and the paper wallets of yore. Bitcoin is easier to use, with new options and digital wallets being introduced to the market on a daily basis.
You can now buy bitcoin with a multitude of payment methods, like your bank account or credit card. You can also safely store your bitcoin on your smartphone mobile wallet and make digital payments to anyone, anywhere.
Wallets are easy to set up and they are getting increasingly secure.
Transactions can be as simple as scanning the merchant’s QR code when making your purchase, and the network will do the rest.
2) Fast International Transfers
While it’s quite convenient to use your Bitcoin for daily payments, it gets even better when transferring funds internationally.
Anyone that has tried to transfer money to another country has had their fair share of gripes. Slow transfers, astronomical percentage-based fees, multiple ID checks, only to count a few.
With Bitcoin, it’s a whole different deal. Due to its peer to peer, borderless, and permissionless nature, your Bitcoin transfers are delivered at the same speeds if you were using a local transfer.
Furthermore, fees are very low compared to those of traditional currencies. You can even choose the cost of your fee depending on how fast you want your transaction to be executed.
3) No third party meddling
As we stated before, Bitcoin is a decentralized, peer to peer network. But what does this mean for the user, exactly?
To begin, it means that Bitcoin doesn’t rely on any bank or centralized governing body for control. The true owners of Bitcoin and the blockchain are its users. No one can decide to turn off Bitcoin or withhold your funds.
Second, this lack of control from banks and governments makes Bitcoin a safe haven for storing value. If a bank faces bankruptcy, your assets may be affected. Bitcoin doesn’t pose this threat to its users.
4) Global Access
More than a billion people in the world do not have access to proper banking systems. Due to bad infrastructure, corruption, accessibility, or other issues, they are unable to effectively transfer value.
However, what these people have, are internet connections and mobile phones. Bitcoin allows the unbanked to access a secure and robust financial system to transfer value through their computers and mobile phones, locally or internationally.
5) Decreased risk of fraud
Bitcoin is an extremely safe asset for handling value online.
Transactions are pseudo-anonymous, which means that you don’t share personal details with the merchant. Your name, address, or credit card number all remain hidden.
But more than just anonymity, Bitcoin’s cryptographic nature makes it act like digital cash that hackers cannot intercept in any way.
Finally, transactions are one-way and cannot be reversed. This incapacitated scammers that rely on charge-backs or Paypal refunds.
6) Deflationary by design
One of the main reasons Bitcoin was created was to fight inflation. Inflation occurs when governments print more money as the prices of everyday products rise.
This, in turn, devalues the currency and can result in hyperinflation scenarios like the ones we’ve seen recently in Venezuela, Libya, and Argentina.
On the other hand, new Bitcoin cannot be arbitrarily printed and there’s a finite supply of 21 million that will ever be created.
Additionally, the difficulty of mining Bitcoin increases dynamically as there are new miners joining the network. And finally, every four years, the reward for solving the puzzle decreases by half.
These properties add up to Bitcoin’s scarcity and its innate ability to not depreciate in value over time, unlike fiat currencies.
7) Massive Investment Returns
While it used to be considered a risky investment in the past, Bitcoin has shown that it’s actually very profitable for long term returns. A claim that is easily verifiable, as its value has increased 3 million since its release.
It might be a risky venture for those that are looking to make a quick buck, but for long-time investors of Bitcoin, it has been a blessing in disguise. And if we take in account historical market movements, the best might be yet to come.
What are the benefits of accepting bitcoin as a payment method?
1) Attracting new customers
Small businesses and even existing businesses can grow their base and attract new customers by adding a cryptocurrency-based payment system to their list of payment methods. A survey done actually showed that 39% of people would prefer the addition of Bitcoin as a payment method for general purchases.
2) Lower cost of transaction
Transaction costs can make a huge dent in business profits but with cryptocurrency being decentralized and having no regulatory authority, the fee doesn’t exist. Transactions via cryptocurrency is quicker than regular bank transfers.
3) Curbing fraud and chargeback protection
When it comes to digital payments, secure payments are a definite game-changer. Cryptocurrencies are supported by blockchain technology and because of that transactions are final and can’t be reversed. Bitcoin does not offer debts or loans so mining and transactions cannot be overridden. It is impossible to spend money that people do not have which is great because it prevents both fraud and chargebacks which makes monetary transactions simple.
4) Increased sales and worldwide access
With crypto’s decentralized nature, small businesses can expand and open their doors to international buyers for whom their services or products where once inaccessible. It has the potential of being a global currency and there will be no boundaries to business’s digital assets. Cryptocurrency has eliminated the obstacles of cash flow on a global scale for processing international transactions and high costs associated with exchange rates.
5) Brand Visibility
When announcing that your business is accepting Bitcoin, you set up your business and distinguish it from the competition. There is also a passionate community of users when it comes to cryptocurrency that are keen on buying from or supporting a business that accepts this mode of payment.
What risks are involved?
1) Regulatory Uncertainty
Accepting Bitcoin globally means that proper taxes on transactions and gains need to be properly reported. Regulatory landscape is subject to change in the near future and lawmakers are still crafting regulations that may need your business to adapt.
2) Cryptocurrency security
It is not insured or backed, which may incur a heavy loss if anything were to happen. There is no assurance that cyber-criminals may not be able to get their hands on any digital wallet.
3) Cryptocurrency Volatility
The highest risk involved is the extreme unpredictability due to the floating rate of bitcoin. Exchanging the digital currency using a merchant service may help to insulate small businesses against this volatility.
4) Technical barriers
Cryptocurrency and digital wallets are new concepts that haven’t been tested to their limits. There are many technical obstacles that are yet to be discovered that may create a problem for small businesses that are unaware of the technology.
How can your business accept cryptocurrency?
To accept cryptocurrency, you need a cryptocurrency wallet or digital wallet that stores private keys and public keys. Unique identifiers are used to mark the ownership of tokens.
What are digital wallets?
Cryptocurrency wallets exist as either software wallets or hardware wallets that hold and exchange cryptocurrency. They allow market makers to partake in the cryptocurrency trading landscape and hold these digital funds.
Trading these currencies comes with a substantial transaction fee that these digital wallets charge. Customers are not able to access their own digital funds directly. The companies handling these digital wallets become third-parties and hold the custody of the customers’ cryptocurrency.
Which digital wallets should you choose?
A great number of startups such as crypto.com, Coinbase, and TenX, offer platforms on which market makers’ can trade using these digital funds. These digital wallets contradict the whole idea of cryptocurrency – ‘no involvement of a third-party’. Those companies provide an extra layer of safe and effective transaction and make an easy connection.
If you are an entrepreneur or small business looking to accept Bitcoin, you should be able to be prepared to adapt to and pivot around periodic changes that comes in regards to blockchain technology. With more countries standardizing the use of cryptocurrency, small businesses can prosper if they learn to overcome the technical obstacles and mitigate these problems.
Cryptocurrency shows more potential as an ideal form or payments with the flaws being discovered and treated on a daily basis.
As the mainstream media is introduce to the benefits of using Bitcoin, mass adoption is slowly creeping up.