Despite some early hiccups, crypto-currencies like Bitcoin are gaining traction. Should your business start accepting them?
Crypto-currencies burst into the public consciousness about a year and a half ago, when bitcoin – the most well-known of them all – surged to a value of $1,150. It didn’t last, but crypto-currencies still have many advantages. But are they worth considering from a business perspective?
What is a crypto-currency?
Quite simply, it’s a virtual currency that doesn’t physically exist, but nonetheless can be traded for goods and services. Just like a standard currency with an exchange rate, its value fluctuates.
It works through a peer-to-peer network of machines connected over the internet. These maintain the ledger, which is a list of every historical transaction ever made using the currency. While bitcoin is the most famous, there are hundreds of crypto-currencies, each with its own ledger, which is known as its ‘block chain’. This monitors the balance of every wallet address, as well as transactions to and from them.
In order to use a crypto-currency, you’ll need a wallet client, which lets you send and receive currency much as you would emails from an email address. Unlike credit cards and other forms of payment, the transactions to and from each wallet address are available for anyone to see.
The advantages for business
There are a couple of big advantages that make crypto-currencies attractive to businesses. One is that the transaction fees are a fraction of those of a credit card. While credit cards typically charge about 2.75 per cent per transaction, crypto-currencies charge as little as 0.01 per cent. On top of that, they don’t allow chargebacks (whereby the consumer reverses charges, making you incur a loss and a chargeback fee). They could save you a small fortune.
Because they’re not bound by the rules and status of any one country’s currency, international transactions made using crypto-currencies also tend to be much smoother and quicker.
The other main advantage is that they’re practically impervious to forgery. Because the ledger lodges every single transaction ever made, no one can create an address on that ledger with an amount of crypto-currency without having received that money from another wallet on the same ledger. Of course your wallet account is susceptible to being hacked, but so is your email address and online bank account. As long as you’re careful with your security, you shouldn’t have any problems.
However, it’s not completely foolproof. Back in 2013, Mt. Gox, one of the world’s biggest bitcoin exchanges, filed for bankruptcy after losing $400 million (€350 million) of its customers’ bitcoins due to a hack. It claimed some of these bitcoins were kept in an old wallet.
Some are put off crypto-currencies because of their fluctuating value. Many businesses are waiting until the currencies are more stringently regulated.
What the future holds
Of course, it’s notoriously hard to predict what the future holds for any technology. But steps are being taken to make crypto-currencies more attractive for legitimate businesses and more hostile to illicit users.
In the 2015 budget, the UK government set out plans to launch a new research initiative to find out the opportunities and challenges for digital currencies. The government will increase training and develop existing techniques to identify and prosecute people using crypto-currencies for illegal means. It will also apply anti-money laundering and know your customer regulation – so you’ll have to show ID and proof of address before you can buy or sell any of the currency – to digital currency exchanges.
Indeed, the Isle of Man has incorporated bitcoin into its anti-money laundering laws thanks to the Designated Businesses Bill. The Bank of England has hailed crypto-currencies as having the potential to “reshape the mechanisms for making secure payments”. But it’s not just in the UK. Members of the French and German governments have asked the European Commission to regulate crypto-currencies.
More standardised regulation will mean greater mainstream acceptance as the bugs are ironed out. Though crypto-currencies are already accepted by businesses as diverse as taxi firms, pubs and e-gaming companies, alongside household names like Amazon, Microsoft and Virgin.
While they’re not perfect, crypto-currencies are slowly becoming more widely accepted. One day, they could be as commonly used as websites and online transactions. Do you really want your business to miss out?