Is it smart for a corporate enterprise to deal in bitcoins?
The real answer is that volatility is no friend to a business, since each business should have an established budget of what they have to earn to stay in business, let alone be profitable. Since the value of a bitcoin fluctuates up and down, a business would have to look up the current price of a bitcoin at the moment of the transaction in order to properly recoup the equivalent of their product or service in the standard currency. Then, immediately after receiving the bitcoin(s) from the customer, the business would have to immediately cash the bitcoin into an exchange for the current exchange rate of the currency.
A business can choose to deal in bitcoins if the business has an efficient solution to get the real-time currency equivalent quickly. Keep in mind that switching between currencies also allows the possibility for errors to occur.
Here are a few big name companies that accept Bitcoins as payment:
- OkCupid.com – online dating site
- Overstock.com – online retailer
- Reddit – news site
- Sacramento Kings – NBA team
- WordPress – blogging platform
- Virgin Galactic – space tourism
- Zynga – mobile gaming company
1. Recent Bitcoin Crash Should be Alarming for Businesses
The recent bitcoin crash should be a concern for anyone that deals in bitcoins. This CSMonitor article reports that the value of one bitcoin reached an all-time low on Monday, February 09, 2014. On Monday morning, the value of a bitcoin was around $500, and ended on Monday at $595.74. On Friday, February 07, 2014, the price was $692.
Even more problematic is that the Japan bitcoin exchange – Mt. Gox – officially stopped all bitcoin withdrawals on Feb. 7 due to technical issues. Mt. Gox admitted that they found a “bug in the bitcoin software that could allow transactions to be altered.”
If you are a corporate enterprise or business, it is best to remain cautious about allowing customers to pay in bitcoins, because of possible transaction issues, and the possibility that your money could be frozen if a bitcoin exchange decides to freeze all assets on a whim.
The volatility and lack of consumer protection surrounding the bitcoin currency are both good reasons that businesses should remain cautious before accepting bitcoins as a form of payment.
2. Global Differences in Bitcoin Acceptance
New York’s New Regulations for Bitcoin-accepting Businesses
On Tuesday, February 11, 2014, New York’s financial regulator announced that their state’s currency regulations are being updated to account for new digital currencies, such as bitcoins. The new regulations require any New York businesses that wish to accept any cyber currency to register with the state to obtain a “Bitlicense”. These new regulations are being set in place to hinder businesses to be transparent in their accounting of where payments are actually coming from.
The superintendent of New York’s Dept. of Financial Services, Benjamin Lawsky, commented on this announcement: “Our objective is to provide appropriate guard rails to protect consumers and root out money laundering – without stifling beneficial innovation…”
Russia Bans Bitcoin Usage Altogether
Russia isn’t taking any chances with bitcoins. Russia’s Central Bank released an official message on January 27, 2014, stating: “Citizens and legal entities risk being drawn – even unintentionally – into illegal activity, including laundering of money obtained through crime, as well as financing terrorism.” Russia does not allow any currencies other than the official currency – the rouble – and the Russian Prosecutor General will not tolerate individuals or businesses to use or accept bitcoins. This news was reported by Reuters on February 9, 2014.
China Businesses Unsure About the Future of Bitcoins
One China business owner, Malcolm Casselle, spoke to the International Business Times about the unsure future of Bitcoins in China: “The rumor to date has been that moving money into and out of a bank account for a [bitcoin] exchange is basically a ‘no-no’. Some exchanges have already implemented compliance and some are ignoring it.”
Back in December 2013, the value of the bitcoin crashed from $1,000 to around $500, prompting the bitcoin exchange in China – BTC China – to freeze all further bank deposits from its users. The chief executive of BTC China believes the freeze was because of government regulation, saying “We have to play by the rules of the government of China. It is what it is.” BTC China started allowing bank deposits again on January 30, 2014 – which happened to be just one day before strict new Chinese regulations were set to be in effect.
China’s Central Bank’s new rules no longer allow payment processing corporate enterprises or financial institutions to deal in bitcoins. The new regulations prevent any exchanges in China to convert the yuan to bitcoins, or a bitcoin back into the yuan.
3. Lack of Consumer Protections
Any business still considering to accept virtual currencies as a form of payment should remain cautious because there are no consumer protections in place to protect corporate enterprises from losing money with this digital currency.
The recent news of Russia and China banning bitcoins (and virtual currencies altogether) show that the transactions can be viewed as questionable, and that the money could have been obtained illegally. Any business should err on the side of caution, with the concern that their business could be hurt by any questionable transactions found on their ledger.
New York’s new regulations on bitcoins look promising for future U.S. states to regulate virtual currencies, but only marks the beginning of how businesses can receive payments in virtual currencies.
The best advice for businesses and corporate enterprises “on the fence” is to wait and see how fast other U.S. states follow New York’s lead on virtual currency regulations.