Will that be cash, check, credit or Bitcoin?
Will that be cash, check, credit or Bitcoin?
How does it work?
Set up a Bitcoin ‘wallet’ on your mobile device or computer by going to www.bitcoin.com. The currency is valued by the basic laws of economics – supply and demand. Unlike traditional currency which is backed by governments and often gold or other ‘valued’ commodity, Bitcoin has no ‘backing’, just the perceived value of its ‘credits’.
The virtual currency is currently valued around $340 per unit, but you can earn Bitcoins by doing some of your own free mining. To become a miner, you must “set your computer to work performing cryptographic calculations to decode elements of the currency system and confirm the validity of transactions, which are then added to the main virtual ledger of all Bitcoin transactions ever circulated,” says a report on Bloomberg Business Week. For your hard work and efforts, you will be rewarded 25 Bitcoins. The hitch? Only one person every ten minutes will win this hallowed prize and the solutions to these cryptographic problems now require a high-powered computer.
Owners should store the electronic ‘keys’ for Bitcoins in a safe, separate location, not on your windows PC or device. For example, the wallet 1933phfhK3ZgFQNLGSDXvqCn32k2buXY8a, currently owns 111,111 Bitcoins, which roughly translates to more than $15 million dollars, is sitting on an anonymous hard drive. Hackers love to try to steal these keys and can effectively wipe out an entire wallet with just a few clicks. Without the keys, an owner has no access to his or her Bitcoin and would be out of luck in retrieving them.
Bitcoin Foundation, Patrick Murick, General Counsel for Bitcoin spoke before Congress about the founders of Bitcoin, but the anonymity of the leadership behind the virtual currency still remains a pressing matter. Founded by a person or group named Satoshi Nakamoto, the regulation of Bitcoin is also still up for grabs. There are some eight Federal agencies all struggling to find a way to grasp how Bitcoin works and ways to regulate the currency.
Faster than a speeding internet – it’s a bird, it’s a plane, it’s Bitcoin.
Credit card fees can be as high as 3% of sales. “Bitcoin services typically charge less than 1%,” says a WSJ report. Another small business upside, Bitcoin transactions are final so that means less accounting and unplanned refunds later. Bitcoin retailers can decide to offer refunds if they choose. According to Manchester, NH Stomp Romp Guitar owner, Zach Harvey, Bitcoin transactions clear even quicker than Paypall or credit because the payments are processed ‘within minutes.’
With worries that the Bitcoin won’t catch on, many small retailers don’t want to ‘hold’ the currency for long and a majority who choose to accept the currency only do so in small quantities. There are still those early adopters. Silicon Valley coffee houses and restaurants are starting to accept Bitcoin in lieu of U.S. dollars, and there are stories of other businesses jumping on the Bitcoin popularity train. Alpaca farmer David Forster started using Bitcoins in trade for product (he believes himself to be the first to sell a product for Bitcoins), “Bitcoin sales were a third of our sales last year for alpaca socks,” says Forster in a Fox Business news report. He also reported that because Bitcoins don’t have the high transaction costs associated with credit cards, that he’s saving money and increasing profitability. Because Bitcoin has deep international reach and greater acceptance, Forster can also sell his alpaca items to new markets.
Is your business ready for Bitcoin?
While you may be an early adopter when it comes to technology and cutting-edge business ideas, take a little time to understand Bitcoin, including how it works, what you need to do to track and exchange it, and how to accept it from customers. Then make a well-placed call to your accountant or tax advisor to be sure that you have the tracking mechanisms in place and fully understand how your transactions (both domestic and foreign) will be taxed and traced.
Start small, talk with other early adopters on the Bitcoin forum. There you can learn about how to speculate, mine and cash in Bitcoin. Watch the video here. The majority of the U.S. is still very slow to accept the virtual currency.
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Copyright 2013 Professional Association of Small Business Accountants