Bitcoin is a pretty hot topic right now, and for some, it’s a bit mysterious and controversial. How can we have a global virtual currency that’s completely decentralized and completely unregulated? A type of money that isn’t controlled or regulated by any bank or government is enough to make some people uneasy, that is until you learn more about what bitcoin is and how it works. It’s one of the smartest, most forward-thinking innovations of our generation, and it might just reshape the way we do business.
What is bitcoin?
Bitcoin is a virtual currency that can be used to buy and sell and is exchanged over a peer-to-peer network. With the development attributed to an internet pseudonym by the name of Satoshi Nakamoto, the strength of bitcoin is derived from the coding of the network behind it. It’s completely open-sourced, meaning it’s there for the world and any naysayers to see. While it’s been heavily scrutinized time and time again, the consensus is that the coding is not only brilliant, but secure.
The coding and its network not only allows it to be exchanged, it also allows for the creation of bitcoins through a process called mining. Similar to how one mines gold to extract it from the earth, bitcoin miners have sophisticated computer setups that run continuously to extract it from the coding architecture. Miners must solve complex mathematical equations before they are rewarded with a certain amount of bitcoin and this is how bitcoins are brought into circulation. There is a hard cap on the amount of bitcoin that can be brought into circulation which is set at 21 million coins. Yes, I admit it is a strange concept, and it seems like something out of a sci fi movie, but they are gaining in popularity and fast.
In the past year, bitcoin have seen themselves increase in value from only a few dollars to over $1000 USD per coin. A n explosion in value. Currently at the time of writing, one bitcoin equals about $450 USD.
Why my business started accepting bitcoin
My virtual accounting firm in Canada, Xen Accounting, places a heavy emphasis on technology and the cloud to make accounting more convenient and less time consuming for small businesses. Naturally, many of my firm’s clients are in the tech space and those in the tech space tend to gravitate towards bitcoins.
After attending various meet-ups, I started to hear more and more about bitcoin and my curiosity peaked. I wrote several articles on the accounting and taxation implications of bitcoin in Canada and one day received a call from the Canadian Virtual Exchange, a bitcoin exchange – wanting to know if my firm wanted to start accepting bitcoin as payment. The lightbulb flicked and I immediately said yes.
From there, Xen Accounting became the first professional accounting firm in Canada to accept bitcoin as payment. Not only did it open up to a whole new market, but it also better accommodated existing clients wanting to pay by bitcoins.It was a win-win.
Why your business should accept bitcoin
Accepting bitcoin can help satisfy two critical goals for most businesses: increase sales and service your customer base.
When you accept bitcoin, you open yourself up to a whole new market. Some people prefer to pay by cash, some prefer credit card, and today, some prefer to pay by bitcoin. The boom has created overnight millionaires and these people are looking for something to do with this money. The daily volume for bitcoin transactions can go as high as US$100 million – that’s nothing to sneeze at. People are trading bitcoin around the globe – it’s time to get in on it.
As bitcoin becomes more mainstream, a good chunk of your current customer base will likely be dabbling in it as well. Offering another way to pay for your product or service is just another way to accommodate your clients and give them a choice.
Your business could get media attention. Xen Accounting for instance, was featured in several articles, interviewed on the radio and featured in our local newspaper. The media is infatuated with bitcoin – It’s a great story. When a local business starts accepting this exciting new form of currency, the media wants to tell that story.
How to begin accepting bitcoin as payment
Accepting bitcoin can differ depending on where you are located in the world. In Canada, we had to register for a merchant account with our local bitcoin exchange and from there we could issue invoices, as well as receive payments in bitcoin, convert them to Canadian currency, then transfer to our business bank account. If you want to transfer your bitcoin to a bank account, you’re going to find an exchange in your country that is legally authorized to do so.
If you don’t care about having your bitcoin converted to your local currency and just want to trade them elsewhere, you can register for a free online wallet at Blockchain.info. From there, you can give anyone your bitcoin wallet address and they can send you bitcoin. You can then send your bitcoin to any other wallet in the world.
If your bitcoin is stolen, there’s no getting them back as there’s no central authority. There are many security precautions you can take, just Google it.
The price of bitcoin is volatile, which is a risk if you are accepting bitcoin. If you hold on to them, you could gain or you could lose from the fluctuations in price, but there are steps you can take to mitigate this risk.
For instance, to avoid price fluctuations, some of the exchanges allow you to translate your bitcoin to local currency immediately upon receiving them.
There are also services that act as an intermediary for bitcoin transactions, such as Bitcredits.io in Canada which has developed a widget for your e-commerce site that allows you to accept bitcoin without your business having to touch it. Customers scan the barcode widget with their phone and bitcoin is sent through the widget as payment. Bitcredits will then process the bitcoin and send you Canadian dollars in turn.
Accounting for bitcoin is a mess, largely because most governments haven’t given any tax guidance for how it should be treated. Furthermore, my advice is specific to Canada, or to the U.S. to a certain extent.
Bitcoin is entirely new, so to find an accountant that understands how it works is not going to be easy. Dig around and find one that understands the basic concepts of bitcoin before moving forward with them. They may not have all the answers, but they should at least be able to apply their knowledge of bitcoin to the accounting standards in the country that best applies. That is about all we can do right now.
The future is bitcoin
We’re now seeing what is likely the greatest disruption of our generation since the internet. Our monetary system was designed decades ago and currently sits on an old, slow, regionalized foundation; it was not designed for the internet and globalized trading. This is where bitcoin comes into play – to create a truly globalized currency.
Will bitcoin be the MySpace or the Facebook of virtual currency? No one knows. But what I do know is that bitcoin, or a variant of it, is here to stay. I would bet my bottom dollar (or bitcoin!) on it.