Can you afford to ignore Bitcoin? That's the question many businesses are asking themselves. A handful of New Zealand companies have already embraced it, and more will no doubt follow.
Paul Salisbury of XBT Consulting, founded to help companies through the process of adopting Bitcoin, expects to see more retail, creative and startup businesses accepting Bitcoin this year.
"These businesses will be looking to pay for services using Bitcoin, creating a micro-economy that is less reliant on the New Zealand dollar and doesn't bear the inefficiencies of traditional banking and money transfer services," he says.
Smaller to medium businesses, particularly in the tech space, are best placed to be early adopters, particularly when their target audiences may already be looking to use Bitcoin themselves. Web designers, for instance, may have clients around the world – while they might not necessarily be on the cutting edge of tech, they understand the pain of dealing with payments and being gouged by transaction fees. Anyone can start a Bitcoin wallet and launch an e-commerce website, so barriers to entry are low.
"This really opens the door for young entrepreneurs, and more importantly, people who are denied access to financial services due to political unrest or poverty," Salisbury says.
Security and Bitcoin - what you need to consider
Companies thinking about adopting Bitcoin need to consider the security aspect, he warns – the security of computer systems against spyware, the physical security of devices, and security of the private key against theft by employees.
"This last point is the most interesting in terms of delegated authorities within a business. If only a single executive has the private key, then there is a risk of losing access to the company's bitcoins. Inversely if multiple executives have complete control over the private key there is a corporate fraud risk," Salisbury says.
"Putting in place responsible systems for security and access control is important for any business that will hold bitcoins. Until these systems are in place we recommend business to accept payments in bitcoins but convert them to local currency for appropriate accounting and to rely on existing business bank account authorisation to control the access to funds."
There are many sites that facilitate the buying and selling of bitcoins, though the largest exchanges are overseas ones (and we may soon see Bitcoin ATMs popping up). E-commerce solutions like Shopify now offer Bitcoin integration, and Coinbase, which is like a PayPal for Bitcoin, is used by many businesses to handle transactions. According to its website:
"As a merchant, you never need to hold bitcoin or expose yourself to any exchange rate risk if you don't want to. Most merchants set prices in their local currency and get paid in their local currency."
Tourism and Bitcoin
Salisbury says the tourism sector in particular stands to benefit from Bitcoin.
"Looking beyond 2014, the biggest impact for the New Zealand economy is likely to be in tourism as Bitcoin adoption globally will help tourists to save on credit card and foreign exchange fees while they are abroad, leaving them with more money to spend on hospitality and local experiences during their stay."
A handful of Auckland bars and restaurants already accept Bitcoin; while some retailers see this as just another burden to deal with, others appreciate the potential publicity that's there for the taking. (Which should not be underestimated. Vesna Sic, co-owner of the Lekkerurlaub guest house in Berlin, tells BusinessWeek that visitors seek them out from all over the globe because they accept Bitcoin. “We had one man from Texas who has nowhere at home where he can spend his bitcoins, so he came to Berlin for a week to spend them.”)
As with most things, Australia is a few steps ahead in this regard but Canterbury's Pyramid Valley claimed to be the first winery down under to start taking Bitcoin last year and a few other businesses around the country also accept it as a form of payment.
The 'chicken and egg' conundrum
Some might say they're in good company. Wordpress, Zynga, some Vegas casinos, even Richard Branson's Virgin Galactic are on the Bitcoin bandwagon. Come March, you'll be able to buy NBA tickets when the Sacramento Kings start accepting Bitcoin. And US-based Overstock.com recently made headlines for being the first major online retailer to embrace Bitcoin.
“We want a money that some government mandarin can’t just whisk into existence with a pen stroke,” chief executive Patrick Byrne told Wired. “Bitcoin is that. What’s more, it lets you store your money in a place that’s outside the control of big banks. It just makes the world a better place."
Everyone's talking about Bitcoin. As venture capitalist Marc Andreessenwrote in the New York Times:
"It is perhaps true right at this moment that the value of Bitcoin currency is based more on speculation than actual payment volume, but it is equally true that that speculation is establishing a sufficiently high price for the currency that payments have become practically possible. The Bitcoin currency had to be worth something before it could bear any amount of real-world payment volume. This is the classic “chicken and egg” problem with new technology: new technology is not worth much until it’s worth a lot. And so the fact that Bitcoin has risen in value in part because of speculation is making the reality of its usefulness arrive much faster than it would have otherwise."
For risk-averse businesses, wait-and-see might be the prudent approach. One Reddit user has written about the IT issues faced by major retailers. And if reading Reddit gives you a migraine, there's a summary of the key points over at Pando.