Maybe you heard about bitcoins when they made their debut in 2009. Or maybe you’ve read about the hacking and bankruptcy of Mt. Gox, formerly the world’s largest Bitcoin exchange.
Many companies in the United States and beyond already accept bitcoins as payment for goods and services including giants like Overstock.com, PayPal, OkCupid and WordPress. But how do you know if you should start accepting bitcoins at your facility?
Before you decide for or against it, it’s vital that you understand what they are, the security risks, and the advantages and disadvantages of offering this new payment method.
It’s basically a peer-to-peer payment system that differs from currency you’re used to because it isn’t regulated by the government. There are some regulations, though, including that there will never be more than 21 million bitcoins in existence.
Miners use specific computer software that solves mathematical computations to make new bitcoins. There are very specific regulations and guidelines the miners must follow before the new currency will be accepted. Once the bitcoin is made, each bitcoin is tagged with a digital signature, which makes them extremely secure.
“This process is referred to as "mining" (as an analogy to gold mining) because it is also a temporary mechanism used to issue new bitcoins. Unlike gold mining, however, Bitcoin mining provides a reward in exchange for useful services required to operate a secure payment network.” – Bitcoin.org.
Even your “wallet” is virtual. You can use them to buy anything on the Internet, but the catch is that the company must accept bitcoins and most don’t yet.
The average bitcoin owners only need to understand the user side. Imagine you pay money for a beautiful apple but realize what you really want today is an orange. You know that many stores in town only accept U.S dollars and will scoff if you try to exchange your new apple for an orange. You find the one store in town that will accept apples as payment. You trade it for three oranges because that’s the current exchange rate.
It really is that simple. You will buy the bitcoins from an exchange, and either keep them hoping they will increase in value like stocks or use them to buy something from the companies that will accept them as payment.
(2007) The creator of this cryptocurrency, Satoshi Nakamoto, has remained anonymous since its introduction. Rumor has it that Nakamoto started working on Bitcoin in 2007. Many people believe that Nakamoto is a pseudonym for a group of people who designed the concept and programming. Conspiracy theorists say the creators are linked to Cicada 3301, but many believe that’s not true.
(2008) Bitcoin was born. The domain Bitcoin.com was registered at a site that allows users to register anonymously.
(2009) The first version of the software was released in January. The code was so complicated that the theory arose that it was more than one person. In October, the first exchange rate was created. Back then, US$1 = 1,309.03 bitcoins (BTC) but at the time of writing this article, the current exchange rate is US$601.95 = 1 BTC.
(2011) Silk Road launched. You may have heard about the controversy surrounding Silk Road. In its glory days, you could buy any drug imaginable on the online marketplace with bitcoins. The fact that the currency is untraceable made it perfect for this digital black market. The FBI brought down the site and arrested the alleged owner, Ross Ulbricht, in 2013.
(2014) Obviously based off the current exchange rate, Bitcoin has come a long way in the last seven years. Bitcoin has had its share of setbacks, but it’s also growing rapidly. More and more businesses are accepting bitcoins as payment and the first Bitcoin ATM opened up in the UK earlier this month.
You’ve probably read or heard about the many bitcoin hacks that have happened since its inception. None of these hacks are Bitcoin getting compromised, but the exchanges and those who hold your wallets.
“There are often misconceptions about thefts and security breaches that happened on diverse exchanges and businesses,” Bitcoin’s website remarks.
Although these events are unfortunate, none of them involve Bitcoin itself being hacked, nor imply inherent flaws in Bitcoin; just like a bank robbery doesn't mean that the dollar is compromised.” – Bitcoin.org
The biggest security problem facing people who accept bitcoins and send out invoices to customers, like storage facilities, is hackers stealing your information and sending out fraudulent invoices.
“False invoices could find their way to your customers who use bitcoin if your bitcoin information is compromised, and those payments could be sent to a random account where they will be exchanged for cash. At the moment there is no way to reverse bitcoin transactions like this.” – Kabbage.com
After searching online, I could only find one storage facility that accepts bitcoins and they would not return my emails or phone calls by press time. There are advantages and disadvantages for small businesses accepting this new currency.
One of the most compelling reasons small business owners start accepting bitcoins is that there are no bank or credit card processing fees.
They are also not an official government currency so they aren’t taxed (which is also a big reason customers like to use them).
People like options. Just having multiple ways to keep up with their self storage rent might draw in more customers.
The IRS hasn’t given an official ruling on income tax and bitcoins, so for now you’re left to your own discretion on claiming them.
Even though the technology is advancing, there is still the possibility that your wallet or account could be hacked.
Many people still aren’t using bitcoins. You could go through the process of setting up the payment option and find that no one is taking advantage of it.
At the end of the day, it’s up to you to decide whether this is the right move for your business. With the constantly fluctuating exchange rate, it could turn into incredible profits down the line or you could lose money. But the chances are that you have a small amount of customers, if any, that use bitcoins. Accepting the virtual currency could be a small risk for a potentially large reward.
If I owned a storage facility that was doing well and could take a small hit in profits, I’d jump on board with this new currency and see where the ride took me. Currency is constantly evolving. Hundreds of years ago, we exchanged animal pelts for food. Now, you can keep up with your credit card account in seconds from your smart phone.
Currency will keep changing, so keeping up with the times could mean a definite business advantage in the future. What do you think?