The Drum Awards for Marketing - Extended Deadline

-d -h -min -sec

Digital Currency Disruption Bitcoin

Chomping at the bit: Should businesses be embracing Bitcoin?

Author

By Natalie Mortimer | N/A

July 25, 2014 | 9 min read

Since its launch in 2009 Bitcoin has fluctuated wildly in more ways than one. But as the cryptocurrency begins to break into the mainstream, The Drum’s Natalie Mortimer asks, shouldn’t businesses be embracing Bitcoin?

When paper money first emerged in 7th century China, the world was not quick to adopt. In fact it took another 1,000 years for a hesitant Europe to get on board with swapping goods and services for printed notes. Fast forward to 2014 and there’s a new kind of currency disrupting the way we make payments – the Bitcoin.

As part of The Drum Live, managing director of The Drum Diane Young hosted a panel with experts from from companies including BitPay and Future Coins to explore the future of the currency, as The Drum announced it would be accepting Bitcoin payment for the first time.

Introduced in 2009, Bitcoin is the first application of the so-called cryptocurrencies, a new digital form of money controlled by cryptography, rather than a central authority such as a government. It can be distributed instantly and new coins are created through the process of ‘mining’, where anyone can process transactions that are made (Bitcoin is open source) using special hardware. Customers who want to pay in Bitcoin need only download a mobile app or computer program that offers a Bitcoin wallet, which then allows them to send or receive the currency.

Like its paper counterpart, adoption of Bitcoin has been slow, largely stifled by its volatility, misunderstanding around its open source nature and negative media attention over its use by criminals in illegal activity.

But despite being shrouded in mystery, a growing number of businesses have begun to trade in the currency, using payment service providers like Bitpay to convert Bitcoin into local currency, and citing lower fees and fewer security issues as attractive benefits. VirginGalactic, Wordpress and Expedia are just a handful of brands that have shaken off the currency’s risks to accept Bitcoins as payment, with uptake growing sharply amongst notoriously closed economies such as China and Russia. A trend outgoing Weve CEO David Sear believes should be seen as an opportunity.

“The risk to you if you don’t embrace digital currencies as they emerge is the risk of not doing business with a slab of world. If you go online you can see where Bitcoins are being bought around the world because it’s open source and you can see it happening in real-time,” he says.

“If you watch that map for 10 minutes, you’ll see that the people buying this currency is a significant slab that is coming out of relatively closed economies, and particularly China.”

Last December the People’s Bank of China cracked down on Bitcoin and banned financial institutions from trading in it after declaring that it wasn’t a legal currency. However, the rules don’t apply to individuals, who are free to use it to make purchases around the world; a move that Sear says was actually just a “guise of prohibition” to allow the country to deal in it under its own strict regulations around currency in the market.

A number of new e-commerce web sites accepting Bitcoin have since sprung up, further fanning China’s flames as a growing powerhouse of internet retailers.

“The Chinese actually effectively sanctioned the purchase of Bitcoins by the general population and liberalised it in a very interesting way for their own e-commerce and m-commerce access to the rest of the world. [China] with the biggest population in the world, the largest economy in the world, and the most closed in the world is about to open, and one of the ways it does it is through this digital currency. So if you want to sell to China in next 20 years, you better get on board with some kind of digital currency,” says Sear.

As with any new and emerging currency or payment method, perception of Bitcoin as volatile has been a major sticking point in its adoption. It’s still in extremely early days in terms of the total value of the coins in circulation and the number of businesses currently accepting Bitcoin. This means that even small trades and business activity can significantly affect the price, which currently stands at around £363 per Bitcoin – a risk that Wouker Vonk, European marketing manager at Bitpay says is absorbed by payment service providers like the one he works for, who offer merchants a guaranteed exchange rate.

“For merchants there is definitely no risk if they want to start accepting it, and I think that’s the first step to get Bitcoin somewhere. There are people owning it and they want to spend it somewhere, and more merchants accepting it makes it more acceptable around the globe.”

Essentially, the more transactions that take place in Bitcoin, the more it begins to stabilise globally.

Intellectual property lawyer Eitan Jankelewitz at law firm Sheridans, which accepts payment in Bitcoin from its clients, says the cryptocurrency works for them like any other payment channel. “Because of the way the payment processor works, we receive what we would have received anyway the next day. So if the bill is for £1,000 or £2,000, that’s what we get.”

The company issues electronic payment invoices to its clients which includes a link back to the Sheridans website. A QR code then pops up and via a wallet application the client can transfer the funds.

“The client pays in that particular moment and we receive what we want at that particular moment,” says Jankelewitz. “To us it works like any other payment channel. There are partners in the firm who have bought Bitcoin but we’re not buying them in return for our advice. We convert them into Sterling which is the same as what we do with the Dollar and Euro – we convert into Sterling because that’s what our expenses are in.”

Sear too eschews the fears around Bitcoin’s volatilityand says fluctuations are a normal part of any currency.

“This currency is younger and we’re more uncertain about its value, and therefore it has a varying degree of volatility at the moment. Don’t be under the illusion that volatility is a problem in relation to this currency – it’s a normal state of affairs for any currency. Anyone who pre-paid for a holiday in the United States from the UK six months ago would have got a significantly worse deal than they would do today.”

As Bitcoin becomes more ubiquitous its stability will increase, and it will be less volatile in the way that people hold on to it or use it, according to Sear.

“I would expect if you look further forward, this kind of currency would become a replacement for the Dollar as a means of international trade and therefore become one of the most stable currencies in the world for having that value of exchange. That would be the ultimate aim.”

Mixed messages and varying jurisdiction around the legality of Bitcoin has also added to the confusion. In Singapore the government offers a specific tax guidance for Bitcoin businesses, whereas in the UK HMRC only recently revised its stance, advised by Jankelewitz, to move from classing Bitcoin as a ‘singleuse’ voucher to create a full tax treatment.

“It shows a great deal of understanding,” says Jankelewitz. If you are a business and you’re holding Bitcoin, it tells you what to do with capital gains tax and income tax and if you’re an individual how you treat it.

“It’s all there, and amazingly if it’s your operational currency, you file your accounts in Bitcoin as a result of this statement. We have clients who don’t have a bank account – they get paid in Bitcoin and they pay their expenses in Bitcoin.”

Whether businesses will fully adopt Bitcoin and abandon their bank accounts as standard is a question for the future – Bitcoin is still technically in beta – but Sear believes digital currency could help businesses avoid a stock market crash when it comes to ensuring their profits and margins are fully protected and hedged against foreign currency fluctuations.

“You’re seeing something where you’re bringing currency into the 21st century and you can exchange real value as quickly as you can exchange a text message. In all honesty, buying a burger is good fun and interesting PR, but it isn’t what this is about. It’s about how it really shifts a dial in remittance, in international trade and moving money in a way that makes sense in a digitised world.

Watch the full video of the Bitcoin session at The Drum Live here.

Inspired to jump into the world of Bitcoin? The Drum is one of the first UK magazines to accept Bitcoin. Subscribe using Bitcoin here.

This feature was first published in The Drum Live issue, the content of which was created in a day. Get your hands on a copy here.

Digital Currency Disruption Bitcoin

More from Digital Currency

View all

Trending

Industry insights

View all
Add your own content +