Want to Accept Bitcoins? What You Need to Know
Wondering if you need to jump on the bandwagon and start accepting Bitcoin at your business? You're not alone. The fervor over this cryptocurrency is at an all-time high, even if the value itself has dipped recently.
One recent report says Bitcoin could change business as we know it. New and well-funded start-ups like Coinbase and BitPay are creating some investment momentum. Recent news about Shopify accepting the currency have also spurred interest.
But what the heck are Bitcoins anyway? (You're not alone here either.)
How They Work
First, the virtual coins work essentially like real money. To purchase a Bitcoin, you use a service like Coinbase. In most cases, you have to link a bank account. You keep Bitcoin in a wallet and, at checkout, you can use a third-party service like BitPay to conduct the transaction. Or, you can manually copy and paste a Bitcoin "address" (or passcode) from your wallet into a checkout payment field.
That code is the magic formula: it isn't directly tied to your wallet like a username and password, it's just a one-time code that enables the traction.
Importantly, there are minimal transaction fees. That means most retailers who accept Bitcoins are probably small companies that do not want to pay Visa or Mastercard fees.
What makes Bitcoin confusing is that the value can shift wildly. Just a few weeks ago, the value for one Bitcoin (or BTC) hovered around $100US. Today, the value is around $1000US. Of course, you can also purchase a small percentage of Bitcoin--say .1 or even .05 without paying the whole 1BTC amount, which makes them more flexible. For any merchant, the fluctuation can be a blessing--and a curse.
"Be wary of Bitcoin conversion rates," says Jesse Ness, a spokesperson for shopping cart provider Ecwid, which currently accepts the currency. "The price of a BTC versus the US Dollar has changed rapidly, so make sure your pricing reflects this. But there's a 'cool factor' involved, at least right now. Some techies have really embraced Bitcoin, so if a merchant offers it, this may provide a competitive edge."
What to Know About Accepting Bitcoins
For a retailer thinking of accepting Bitcoins, there are a few things to keep in mind, other than the fluctuating currency rates and the fact that this is all a brave new world in payment technology.
One of the most important lessons: You may not pay a transaction fee for accepting Bitcoins, but you may have to pay a monthly fee to the provider. Braydon Moreno, the CEO at start-up Robo 3D Printer, told me his company accepts Bitcoins, but he pays about $30 a month for the BitPay service.
There is also a question about reporting the income. In my view, there could be a temptation not to report sales from Bitcoin transactions because they are not currently monitored by the US government (as far as we know). At least, once you fill up a wallet, you can conduct transactions without any formal arrangement between your bank and a credit card company. There is no formal, worldwide reporting agency that tracks your Bitcoin income as a retailer. It's really a peer-to-peer exchange.
Watch the Value
Dealing with the fluidity of the currency is a challenge as well. Gregory Nemitz runs BeefJerky.com and just started accepting Bitcoin this year. The main impetus had to do with foreign customers who viewed his beef jerky as inexpensive compared to other goods. (Two large packs cost about $35US, which is not cheap, but it's only a small BTC amount.)
"If someone got 10,000 BTC at $1.00 each, and now BTC is $800 each, they can buy $80 worth of beef jerky, and their actual cost out-of-pocket is only USD $0.10," he says.
That escalating price is compelling for new merchants. Tim Fillmore, the president of a start-up called Titan Mint that makes an actual Bitcoin coin, says we're in a Bitcoin boon.
"Businesses that accept payment in Bitcoin are cropping up almost daily," he says. "Using a company like BitPay, its possible for merchants to accept Bitcoin as payment without ever having to touch a Bitcoin themselves, as BitPay converts the payment into dollars (or your currency of choice) and deposits the funds into your account on a daily basis."
Still, whether you pocket the income from those BTC sales is a brand new challenge.
"If you choose to accept Bitcoin, take care to quickly exchange to your usual currency enough value to cover your product costs and direct expenses. If you think Bitcoin will continue to rise in value, try to retain all your profits from Bitcoin sales as BTC," says Nemitz, hinting at the tough decision new merchants have to make.
Is it all just a bubble waiting to pop? No one is quite sure. BTC value seems like it is growing now because of the holidays and because it is a new form of currency. But by next month? Merchants could grow weary of watching the value fluctuate and bail. Stay tuned.