Is digital currency the next big thing? The Winklevoss twins sure think so! After winning their battle with Facebook, they are now moving on to bigger and better things, which in their minds is Bitcoins! In fact, they think it may even have a bigger impact on the world than Facebook and have heavily invested into it.
“Bitcoin potentially could be more impactful because being able to donate 50 cents to someone across the world has more impact than potentially sharing a picture…”
Accommodating your site to accept digital currency may be an interesting feature to your online store, however it’s definitely something that needs to be thought about and researched before implementing it. Despite the Winklevoss’ optimism towards Bitcoins, Goldman-Sachs recently warned potential investors about Bitcoin’s inherent volatility. Here’s the the basics you should know about this new, mysterious craze before you decide to dive in further.
Digital currency is a form of virtual currency or medium of exchange that is electronically created and stored. They are used without a middleman, meaning no banks! Like regular currency that we’re all familiar with, digital currency can be used to buy both intangible and tangible goods and services. However, unlike regular currency, the CRA has two different tax rules on digital currency based on whether the transaction was income or capital in nature. Transactions with the purpose of purchasing goods or services are taxed according to the ‘barter transaction rules’, while trading for investing gains could be taxed for their gains and losses. There are various types of digital currency but the most popular and commonly known is Bitcoin, which was also the very first cryptocurrency created in 2009. Some other cryptocurrencies include Litecoin, Peercoin, and Robocoin. These cryptocurrencies are a pseudonymous, peer-to-peer and decentralized electronic payment system. What does this mean?
All Bitcoin transactions are recorded in a public log known as the Blockchain, which keeps the system secure from fraud and abuse. However, each tracking only shows the wallet IDs, so no names are ever revealed. People can also have several wallets making tracking one single person as impossible as tracking the use of cash.
ITS A PEER-TO-PEER, DECENTRALIZED ELECTRONIC PAYMENT SYSTEM
Bitcoins are decentralized, which means that there is no central body controlling the network. It is entirely managed and regulated by its users making the system transparent and value extremely volatile since it is based on speculative trading.
HOW DO YOU GET DIGITAL CURRENCY
Bitcoins can be acquired in a few different ways:
Buy them on Bitcoin exchanges using credit cards or wire transfers
Buy them in person using cash
Mine them using computers
Once you get your Bitcoins, they are stored in a digital wallet. You can keep your digital wallet in the cloud or on a computer, think of it as a virtual bank account.
Now you can just keep your Bitcoins as an investment, or you can spend it normally as you would regular currency except no credit cards needed!
SHOULD YOU ACCEPT DIGITAL CURRENCY
As a merchant, there are some pros and cons to using Bitcoins. Here’s a short list of them:
Since Bitcoins are decentralized and not attached to any particular country, it has the same value anywhere in the world. It makes international payments cheap and easy.
The cost of using Bitcoins is much cheaper than using credit cards. The associated fees equal about 1% while credit card fees are at 3%.
A big reason consumers feel reluctant with online shopping is because they fear for their financial and personal security online. Those with this fear would likely feel more comfortable shopping with Bitcoins since their identities are anonymous.
Since Bitcoins can be transferred freely without middlemen, it makes micropayments much more efficient! If you wanted to, you could sell small products or services for tiny charges. For example, $0.10 for a single newspaper article.
SMALL USER BASE
This is probably the biggest con to using Bitcoins at the moment; it is just not widespread enough yet. Considering how many people are in the world, 200 000 registered wallets is a very minimal portion of the population. It is currently targeted towards younger millennial consumers who are used to adapting to changing technology, but it is going to need a huge amount of educating to get the point of being mainstream.
Since its establishment in 2009, Bitcoin prices have varied from $13-1200! The high volatility of Bitcoins can make returns and refunds problematic since the value is changing on a daily basis. Let’s say you sell a pair of jeans today for 0.7 Bitcoins, which is worth $50. In a few days, those 0.7 Bitcoins could be worth $100. You could always restrict refunds and returns when shopping with Bitcoins, however that is eliminating a key feature valued by many consumers.
As mentioned above, Bitcoin wallets can be stored in the cloud or on your computer. Wallets in the cloud could be hacked into and wallets on a computer could be deleted. A couple of years ago, Mt. Gox, the biggest Bitcoin exchange collapsed and filed for bankruptcy after cyberthieves allegedley made off with around $460 million of its customers bitcoins. Some were later found in an “old online wallet”.
Since Bitcoins are decentralized, there are currently no regulations on the use of it. This, coupled with the fact that its anonymous has resulted in it being involved in illegal activity, such as in the underground site Silk Road. This has definitely caught the eye of government officials which may cause some regulations to be placed. China has already banned financial institutions from Bitcoin transactions a few months ago, which has dropped the value of the volatile currency.
Although Bitcoins don’t have mainstream usage yet, it definitely has the potential to get there. Especially with PayPal integrating digital currencies into their wallets, and the internet and technology becoming more and more integral to our everyday lives, who knows how far digital currency will go. So will you be accepting Bitcoins on your eCommerce site? Share your thoughts on the comments below!