December 2, 2014 | 5-minute read (868 words)
Guest post contributed by Michael Dunworth, Cofounder and CEO of SNAPCARD.
You’ve probably heard about Bitcoin in some context or other during the past few years, and you might be curious about how it could affect your small business. If you’ve done any research on Bitcoin, you’ve probably found that much of the information that currently exists can be hard for new users to understand.
The truth is that Bitcoin, despite its somewhat esoteric nature, is a revolutionary technology that has the potential to reinvent the way existing financial systems operate. For that reason, many longstanding financial institutions have their eyes on Bitcoin, whether they see it as a threat or an opportunity.
As a small business owner, you might not immediately recognize the benefits of accepting Bitcoin, but doing so could open up new opportunities to grow your business. Bitcoin has several inherent advantages over the credit card systems that have a direct effect on your business. Accepting Bitcoin can help your small business increase its bottom line by saving money and attracting new customers.
You do not have to fully understand its intricacies to reap the benefits.
But before we get into the potential benefits of Bitcoin, let’s talk about what it really is.
What is Bitcoin?
Bitcoin is an online payment system that consists of a digital currency (Bitcoin or BTC), a peer-to-peer network (Bitcoin protocol), and a public transaction ledger (blockchain). The currency is stored in a digital wallet and value is transferred from one wallet to another. Each transaction is made possible through the work of others on the network and recorded on the blockchain, which effectively prevents fraud.
How do Bitcoin transactions work for a small business?
To gain a better understanding of how a Bitcoin transaction works for a small business, let’s look at a simple, “real world” example.
Now that you have a basic understanding of how a Bitcoin transaction works, let’s discuss how Bitcoin can benefit your small business.
- Alice wants to buy an apple from Bob’s deli for $1.00 using Bitcoin.
- Bob charges Alice $1.00 via an email invoice, which converts the price to BTC and generates a QR code with a public address to Bob’s account.
- Alice opens her wallet on her smartphone and scans Bob’s QR code with the camera on the smartphone.
- Alice confirms the payment on her wallet, and the funds are instantly sent to Bob’s merchant account.
- Bob’s Bitcoin payment processor converts the Bitcoin in his merchant account to U.S. dollars.
- Bob receives $1.00 in his bank account the next day.
Increased bottom line with Bitcoin
By virtue of its technology, Bitcoin is cheaper than any existing digital payment system. Miners who process transactions on the blockchain work with the incentive of winning Bitcoin rewards (such as?), so there are little-to-no transaction fees involved.
Whereas credit card payment processors charge upwards of 2% in fees for each transaction, Bitcoin payment processors typically charge less than 1%. Saving money on processing fees could make a big difference to a small business’ bottom line.
Quick payouts in local currency
Most Bitcoin payment processors make it easy for businesses by converting Bitcoin to standard currency. Bitcoin payments are virtually instantaneous, so next-day payouts in the merchant’s currency of choice are typical.
No fraud, no chargebacks
Bitcoin is similar to cash in that you either have it or you don’t. Transactions are instantaneous and added to the blockchain through a complex system called mining, which verifies funds and makes it effectively impossible to spend more than you own. Users are unable to make chargebacks.
International exchanges with no exchange fees
Bitcoin is an international currency that consumers can use anywhere in the world without converting to local currency. By spending Bitcoin instead of traditional currencies, vacationers avoid paying the exorbitant fees that come with converting currencies. If your business is located in an area that attracts many tourists, you may want to take advantage of this opportunity.
Becoming an early adopter to attract new customers
Accepting Bitcoin will gain you recognition as an early adopter. The community of Bitcoin users is rapidly growing and is passionate about driving widespread adoption of Bitcoin. Users are constantly looking for places to spend their Bitcoin, and accepting Bitcoin will open your business’s doors to these new customers.
Michael Dunworth is a Cofounder and the CEO of SNAPCARD, a San Francisco-based startup that facilitates spending in cryptocurrency by allowing merchants to accept Bitcoin as well as three other digital currencies and receive next-day payouts in over 20 local currencies. A serial entrepreneur, Michael got his start in the financial software industry. Prior to founding SNAPCARD, Michael cofounded restaurant booking website Full Society, which was later sold to Intermedia Group.
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