By John Lawson, small business expert and chief consultant at ColderICE Media.
There is a huge debate going on right about whether Bitcoin is the future of commerce. Some believe Bitcoin has many benefits, such as more payment freedom and low fees, while others believe it is just another Ponzi scheme. As an online business, I am sure you’ve asked yourself whether you should jump on the Bitcoin bandwagon or wait it out to see whether this ecommerce trend will last.
To help you decide, below are answers to some of the most common questions ecommerce businesses have about Bitcoin.
What is Bitcoin?
Launched in 2009, Bitcoin is a type of digital currency that is increasingly gaining popularity in the world. It uses encryption techniques to regulate currency and the transfer of funds. In other words, it can be used for online purchases. Bitcoin is not the first of its kind, but it is considered the most successful form of virtual currency that holds value.
Unlike other virtual currencies, Bitcoin is decentralized – meaning it operates independently of a bank. There is no main server that handles its transactions, generation, and monitoring. Instead, people around the world are producing Bitcoins through software programs that follow a mathematical formula.
Which businesses already accept Bitcoin?
As of now, a few big companies and prominent organizations are already taking advantage of this currency, such as Dell, Expedia, Newegg, Zynga, Virgin Galactic, TigerDirect, Sacramento Kings, Overstock, Dish Network, Clearly Canadian, and Atomic Mall.
What are the benefits of Bitcoin for ecommerce businesses?
Ecommerce operators can benefit a lot if they add Bitcoin to their payment options:
- First, your customer base will grow. There is no age restriction for owning Bitcoins. So, for instance, if your business deals with gaming, there will be no need for underage consumers to get their parent’s credit card and permission. Additionally, since Bitcoin is a currency without borders, you’d open up your store to more international audiences.
- Second, Bitcoin has a low transaction fee (around one to two percent). This virtual currency also has protection against chargeback and reversal – when the transaction is done, it is done. No need to worry about any follow up faults.
- Lastly, it will allow people with limited payment options to make purchases from your online store. For example, PayPal is not available in all countries in the world. Also, some people may have issues with their bank that can disallow them to apply for a credit card. Bitcoin would give these people another method to buy from you.
What are the risks of using Bitcoin?
It’s important to keep in mind that Bitcoin is still an experimental new currency, which means that while its user base is growing, it is still not as established as standard currency.
There are specific features of Bitcoin that are of concern to some people and that online businesses should be aware of:
- Bitcoin can be used anonymously. While each Bitcoin transaction is recorded in a public log, the names of the buyers and sellers are not revealed – only their Bitcoin wallet IDs. Since transactions are private, dishonest people may choose to take advantage of this.
- The price of Bitcoin is volatile. Because the currency is still new, the price of Bitcoin is unpredictable and can increase or decrease at any time. If you decide to receive payments with Bitcoin, work with service providers, such as PayPal, that can convert them to your local currency as soon as possible.
- Government taxes and regulations still need to be applied. While Bitcoin is not an official currency, the same government taxes and regulations apply. Before you start accepting this form of payment, you need to make sure you understand the requirements from your jurisdiction.
Should you implement Bitcoin now?
If you understand the risk and tasks you will face, then why not? The important thing to keep in mind is that Bitcoin is there to open your online business to more people who prefer this virtual currency for transactions. If you are concerned about the volatility of Bitcoin prices, you can sell your Bitcoins as soon as you receive them.
As long as you set your price right and are swift with exchanging your Bitcoins to money, you will not have to worry about losing any amount – you could even gain more!