The fall of the banking system, the ever-advancing Blockchain and the mysterious Satoshi Nakamoto – Bitcoin is an innovative product with fantastic potential which business leaders need to understand. The volume of Bitcoin in circulation is growing, and along with it, the number of people who are using it. In fact, businesses worldwide are beginning to adopt Bitcoin – why? This article explores the current state of Bitcoin use in retail as well as the benefits and challenges for anyone looking to accept Bitcoin payments. First, some background.

CRACKING THE CRYPTOCURRENCY

Cryptocurrencies are a new form of currency that have the potential to change the global banking system. The likes of The Economist, The Wall Street Journal and Forbes have been in hot debate as to the nature and value of cryptocurrencies. A person, or group of persons, known as Satoshi Nakamato, created the most famously discussed, Bitcoin.

Bitcoin is a digital currency, meaning that there aren’t any ‘coins’ as the name would suggest. Instead, their value resides in cyber space, stored in digital wallets that are identified by a string of characters. The values of these wallets are assigned by the Blockchain that acts as a decentralised public ledger for all to see, describing the transactions that have taken place over the Bitcoin network. The system is much the same as our current one: money (in this case, Bitcoin) is stored in an account (wallet), the value of which is described by recorded transactions (Bitcoin uses a public ledger, instead of one defined by the bank). Hopefully that gives you a quick background, but if you want more, check out this video from WeUseCoins.

THE BITCOIN MARKET

There are a multitude of ways that consumers are using Bitcoins to make purchases right now. One such example is through a debit card by Xapo in which one can deposit their Bitcoin such that when the card is called the Bitcoins are exchanged for the required currency. Another example is through gift card systems where you can purchase cards for many of the most common stores with Bitcoin. Further to this, if you are looking for any online items Brawker will send your order request to another user allowing them to make the purchase on your behalf in exchange for some Bitcoins.

Now, if you’re sharp, you’ll notice that we haven’t really ‘spent’ Bitcoins here. We have used them as an added layer on top of our typical currencies. Because of this, many businesses don’t see the need to adopt Bitcoin as a form of payment. People have found this to generally hold true, and as such, it’s difficult to buy goods and services using Bitcoin directly. However, it is possible. A couple in Utah (@LifeOnBitcoin) showed that with a bit of marketing, it is possible to survive and even travel the globe using nothing but Bitcoin. In fact, over 100,000 businesses worldwide accept Bitcoin including Virgin Galactic, Microsoft, Dell, WordPress and Expedia.

Across these businesses, growth has stabilised with around 5,000 bitcoins per day (roughly £800,000k at the time of writing) being used for retail transactions. After a fourfold growth in 2013, retail volume in 2014 has seen only a little, if any, increase. So, while there is a market out there, businesses should be aware that currently there is limited growth in Bitcoin spending, though this is liable to change significantly if consumers’ views on Bitcoin improve.

A SYSTEM THAT WORKS FOR YOU

Bitcoin brings many benefits to businesses and customers alike. Proper understanding of these benefits will help in forming a business case for Bitcoin adoption.

For any business in which customers’ anonymity is of high value, the use of Bitcoin can be a big enabler. Transactions made with Bitcoin don’t require an account in the same way a regular transaction would. As such, it is almost impossible to track a person if they make payments in Bitcoin. As privacy issues become increasingly important, offering anonymity will allow customers to feel free.

For small businesses that make maany transactions (think cafes, restaurants) Bitcoin can drastically reduce point of sales fees. Not only is Bitcoin a easy to set up payment system, it’s cheap. With each transaction made, there is an associated 3 cent fee (about 0.1% of your average meal) which is significantly less than the 2-3% typically imposed by credit card processors. Then, when the business would like to convert from Bitcoin to their local currency, there is generally no fee associated with these larger transactions.

If dealing with refunds is painful, Bitcoin can offer a solution. Due to its nature, reverse transactions are impossible. This means that once a transaction has been confirmed there is no way for either the customer or seller to reverse the transaction, even if both parties are agreeable. It gives the power to the merchant to decide whether or not to offer another form of refund, possibly as in-store credit.

Another thing to note is that Bitcoin unlocks a new customer market for businesses. A study by Colas showed that the majority of Bitcoin spenders are tech savvy males, aged 25-40, with an above average income. This may be a traditionally hard-to-reach market for many organisations so by simply accepting Bitcoin they may open up those doors.

THE DOWNSIDE TO DIGITAL

While there are many benefits to the adoption of Bitcoin, there are associated risks, which are typical of any new product.

In both Iceland and Vietnam, the use of Bitcoin is illegal. In Mexico and India, the views are contentious. Much of Europe and the US are still investigating Bitcoin meaning that regulatory action may still take place. Any businesses that are earlier adopters could face trouble if regulations are imposed, as they would be stuck between customers’ needs and the government’s regulations.

With digital currency, there is a risk that a security flaw in the software behind it is discovered. If this were to happen, there could be many downsides including the ability to commit fraud, control the transfer of funds, and ultimately, corrupt the system leaving Bitcoins with no value. This is very unlikely to occur, and for businesses, the risk can be mitigated by ensuring that funds are transferred out of Bitcoin in a regular manner.

A risk for customers is that they don’t fully understand how the security of Bitcoin works, which could lead to theft. Though this isn’t the direct responsibility of any organisations choosing to accept Bitcoin, they should be careful to make sure their consumers understand exactly how Bitcoin works. This could be through simple advertising, linking to useful resources or partnering with a Bitcoin wallet provider who can assist in this area.

ADOPT NOW, ADOPT FAST

The payment systems of tomorrow are here. Bitcoin allows customers tremendous freedom and allows businesses many benefits. That said, nothing is ever perfect and so the regulatory and security risks will need to be properly managed to ensure any Bitcoin implementation is a success.