Bitcoin is one of the most hotly debated business issues of the moment and, with some big scandals over the past couple of months, the topic has been almost impossible to avoid.
You might not be interested in the complicated algorithms behind how it works, or how governments across the world are struggling with how to tax it – but what will interest you is how Bitcoin could totally reshape the small business landscape.
First, a quick definition for those who need it. Most people will describe Bitcoin as a ‘virtual currency’ but, although this is technically true, it’s actually more complicated than that. Bitcoin is a distributed network – a bit like the Internet itself – but specially designed for making instant, virtually fee-less, cryptographically signed transactions to anywhere in the world.
Still not quite sure why this is such a big deal? Here are the five ways that this could change small business and entrepreneurship forever.
1. Low transaction fees
Bitcoin removes the middle man in payments. As long as both you and your customer have a Bitcoin wallet, then you can get paid in Bitcoins, without any permission needed from third parties and no transaction fees to pay, apart from a small donation (<1%) to help maintain the network. This is a massive saving on what companies have to pay on current transaction services.
Companies like BitPay even use the Bitcoin network to allow customers to pay in their local currency and for you to receive payment in yours. There’s a bit more of a fee for this service, but still a lot less than other payment options.
2. Access to markets
Currently, if you do business across borders, you’ll have to worry about paying international bank transfer charges and fees for currency exchange. Bitcoin eliminates both of these concerns, allowing smaller businesses to better compete in the international market.
It has also been speculated that Bitcoin will help people in developing countries who have the Internet, but not access to a bank account, to pay for items online. This could potentially open up markets that were not previously accessible.
3. Smart property
The Bitcoin currency is not the only thing that can be transferred using the Bitcoin network. Projects like Mastercoin and Ethereum are developing ways to tie any kind of property – digital or otherwise – to unique tokens that can be traded using the Bitcoin infrastructure.
Bitcoin uses cryptography to authenticate transactions, which allows users to digitally sign anything they transfer. Transactions are also all recorded on a public ledger, which helps to reduce the risk of fraud.
4. Lowering payment barriers
Because all Bitcoin payments are cryptographically signed, this means that payments can be authenticated without the payer having to give any of their personal details. Although all transactions are visible on the ledger, the identity of the parties is not.
On one level, this could lower payment barriers for people buying goods and services where the payer does not want their identity revealed, such as in the adult industry.
What’s more likely to make a difference is how much faster the Bitcoin payment process is. Bitcoin has been compared to digital cash – just one click and the payment is instantly handed over.
5. Automated accounting
The accounting world is already becoming heavily automated, with online accounting firms competing to streamline the process as much as possible. One of the main functions of accountants is to maintain a general ledger – this is something that Bitcoin does automatically.
Although no companies have developed a way to do this yet, it would be possible to use the Bitcoin network to almost fully automate the accounting process, eliminating the need to pay accountants for bookkeeping services at all.
Author: Nick Chowdrey is a staff writer at Crunch Accounting. He also contributes frequently to a number of business and technology blogs and online magazines.