A leading tech magazine Techzim today reported that “Bitcoin (BTC), the leading cryptocurrency, reached a high in Zimbabwe today as more people look to convert their bank balances to “real money” as well as getting their money out the country.”
Bitcoin has been gaining acceptance as a legitimate form of payment for retailers, but this unregulated cryptocurrency comes with risks. Before your clients accept Bitcoin for their next transaction get the latest insight from Nick Graf.
The #1 Small Business Concern of 2017, Cybersecurity
Bitcoin. You may have seen it in headlines, but what exactly is it and how does it work? In a nutshell, Bitcoin is an electronic cash system that works directly person to person. The history of Bitcoin is somewhat mysterious. In 2008, a white paper was published under the name Santoshi Nakamoto, which is believed to be a pseudonym for multiple people behind the project. This paper described the currency and addresses the problem of double spending.1 While a few people have claimed to be Santoshi, there is still much speculation as to who actually created Bitcoin.2
You’ll likely hear Bitcoin referred to as a “cryptocurrency” as it utilizes encryption to verify the authenticity of transactions and to control the creation of additional Bitcoins.3 (You may have heard of less popular cryptocurrencies, including Dogecoin, Litecoin and Peercoin.) There is no central bank authority that governs Bitcoin, making transactions anonymous.
But what does all this mean for businesses and business owners?
First and foremost, there is a cybersecurity concern. The value of one Bitcoin has fluctuated like a commodity since its beginning. When first introduced, a single U.S. dollar could buy you 1,309.03 Bitcoins. Today, a single Bitcoin costs north of $600 U.S. dollars (value has gone as high as $1,100 in November of 2013).4 Having a value that can fluctuate greatly, Bitcoins have been the subject of many cyber attacks. Hackers have crafted malware specifically designed to steal cryptocurrencies owned by the target.5 Malware has also been designed to utilize victim computer resources to “mine” Bitcoins for the attacker.
Furthermore, attackers have targeted the Digital Currency Exchanges themselves. In 2014, a large exchange, Mt. Gox, had to file for bankruptcy after revealing it had lost $500 million dollars in Bitcoins, 90 percent of which were owned by users who had kept them on deposit at the exchange.6 Unlike a regulated bank, there is no FDIC insurance for Bitcoin deposits.
Many users may have also heard of Bitcoin in relation to Ransomware, as most attackers will demand ransom payments in Bitcoins due to its anonymity it affords them. Bitcoin may also get a bad rep due to the amount of Bitcoin transactions for drugs, guns and other illicit items.
However, Bitcoin is being used – at an increasing amount – for lawful and legitimate transactions. Both Microsoft and Dell Computers accept Bitcoin, as well as Overstock.com, among other vendors.7 A number of gift card businesses also accept bitcoins that can be used at major retailers like Walmart, Amazon, Target and Nike.8
People are turning to the Bitcoin currency for a variety of reasons. There are cheaper or no fees for a Bitcoin transaction, whereas credit cards charge either the buyer or the merchant. Also, Bitcoins don’t require any personal, private or sensitive information, so others can’t steal payment information as they could with a credit card. A major selling point is that Bitcoin gives users complete control over their money. There are no restrictions, penalties or fees.9
Businesses that are interested in using Bitcoin have two options: 1. They can purchase Bitcoins with regular currency or 2. They can “mine” them. Without getting too technical, the cost of electricity and time required to “mine” Bitcoins makes it not financially feasible for the average individual or small- to medium-sized business. So, if businesses turn to option 1 to buy Bitcoins, there are numerous websites where this can be done, similarly to other normal internet transactions, and there are even physical ATMs where local currency can be exchanged for Bitcoins.10 These sites work with (or are themselves) Digital Currency Exchanges to allow the conversion of digital currencies to conventional money.
For the vast majority of businesses, continuing to conduct financial transactions via historically stable methods (credit cards, purchase orders, cash and check) is likely the best option. Most businesses do not require or benefit from the increased anonymity that cryptocurrencies offer. In addition, the wildly fluctuating values and lack of federal deposit insurance have already caused some business to retreat from cryptocurrency payments.
If your company is interested in accepting Bitcoin or another cryptocurrency, ensure you partner with a legitimate currency provider who can process payments and assist in vaulting, preferably with the option of offline or cold storage. Regardless, things can change quickly in the world of technology. Being aware of how cryptocurrencies change and mature may make their acceptance mandatory for mainstream business in the near future.
1 Bitcoin: A Peer-to-Peer Electronic Cash System. Satoshi Nakamoto (Accessed Sept. 14, 2016)
2 Satoshi Nakamoto Wikipedia (Accessed Sept. 7, 2016)
3 Crypto Currency. Andy Greenberg Forbes. April 20, 2011 (Accessed Sept. 14, 2016)
4 Bitcoin Price Breaks $600, Bullish Indicators May Take it Higher. Jamie Redman Bitcoin.com. Sept. 4, 2016 (Accessed Oct. 24, 201)
5 Bitcoin stealing malware evolves again. Luke Parker Brave New Coin. Feb. 11, 2016 (Accessed Sept. 14, 2016)
6 Mt. Gox Bitcoin Meltdown: What Went Wrong. Mathew J. Schwartz DarkReading. March 3, 2014 (Accessed Sept. 14, 2016)
7 What Can You Buy with Bitcoin? CoinDesk. Oct. 19, 2016 (Accessed Sept. 13, 2016)
9 Why would I use Bitcoin? Why should I use Bitcoin? CoinBase Support. July 6, 2016 (Accessed Sept. 16, 2016)
10 Buying Bitcoins (the newbie version) BitcoinWiki. May 15, 2016 (Accessed Sept. 7 2016)