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Should Your Business Accept Bitcoin as Payment?

Should Your Business Accept Bitcoin as PaymentBitcoin is the most recent currency for online payments for goods and services. In the accepted timeline, Satoshi Nakamoto started working on the concept in 2007; however it is unclear whether this is one person or the pseudonym for a group of persons. One year later, in 2008, Neal King, Vladimir Oksman and Charles Bry jointly apply for a patent for an encrypted payment application. All three of them denied any connection with Satoshi Nakamoto, the alleged inventor of the concept. On the 18th of August 2008, the Bitcoin.org domain is registered and this is the recognized official date for the creation of the Bitcoin trading platform.

The Main Pros and Cons of the Bitcoin
Over the years, the bitcoin has alternately gained and lost legitimacy. The strongest argument made by its detractors is connected to the Silk Road – a dark web marketplace for illegal transactions with drugs, weapons and regulated substances, which used bitcoin as payment method. In fact, during the raid of 2013, the FBI seized the equivalent of USD 3.6 million of bitcoin, becoming at that moment the largest bitcoin holder in the world.

With all this negative reputation attached to it, should we still discuss bitcoin as legitimate currency? Yes, we should. Over three years have passed since the Silk Road scandal and more companies accept bitcoin as payment. The bitcoin simplifies international trade: when dealing with emerging economies, such as those in Africa or the Middle and Far East, it is difficult to establish financial equivalents between their currency and the US dollar. Even if your company does not do business in these corners of the world, you should not dismiss the bitcoin without analyzing the pros and cons.

Here are our thoughts on the issue.

1. Pro: Bitcoin Transactions Are Cheaper
Many businesses see their margins reduced by credit card fees and bank transfer fees. Even PayPal charges on each transaction and, over time, these fees will make up a significant amount.

Bitcoin transactions are free of charge. You do not have to pay even to register with a bitcoin merchant; all you have to do is to download the free software and you can start accepting bitcoins as payment.

2. Con: The Value of the Bitcoin Is Volatile
As the newest currency, and a 100% digital one (no federal reserve backing), the bitcoin is subject to sudden increases and decreases in value. With this change in value, the equivalent of USD 5,000 today could be worth USD 3,000 next week. However, the BitPay system is currently mitigating this risk: it allows you to convert bitcoins in regular currency as soon as you have received the payment.

3. Con: Security Risk
The bitcoin is a cryptocurrency – a piece of computer code. Like anything pertaining to coding and the internet, it can be hacked. In fact, it has already been hacked a few times already, the Mt. Gox Tokyo-based bitcoin trading exchange having been hit twice, in 2011 and 2014.

However, the bitcoin industry is working hard to fix this issue in order to increase its legitimacy. As a result, there have been few bitcoin thefts reported in the last two years.

4. Pro: Large Companies Have Started Accepting Bitcoins
The bitcoin is currently an accepted form of payment for companies in the Silicon Valley. Even billionaire mogul Richard Branson, the owner of Virgin group, encourages other companies to join him in accepting bitcoins.

At the other end of the line, customers of companies which accept bitcoin are very loyal to them. They are usually paid in bitcoins themselves and are more willing to deal with a company which accommodates their choice of paying for products in this currency.

5. Be Aware of Taxation Issues
The IRS has declared that any payment in bitcoins exceeding the equivalent of USD 600 is treated as property, not currency. Therefore, if the bitcoin value increases, that extra amount is treated by the IRS as short term capital gain for your company and it is taxable. This means that you have to keep a clear record of the payments you received in bitcoins and include them separately in your tax return.

As you can see, bitcoins have lots of pros and cons right now. Maybe you want to be an early adopter and reap future advantages. Or maybe you want to wait a little longer until both tax and security issues clear up. At any rate, the bitcoin seems to be here to stay and we will hear more of it in the near future.

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