Bitcoin Hearing For Small Businesses
Last Wednesday, the Committee on Small Business held a hearing aimed at exploring Bitcoin, the benefits and risks for small businesses. The hearing was attended by financial, legislative, economics and leading Bitcoin professionals. “Bitcoin: Examining the Benefits and Risks for Small Businesses,” was one of the first hearings to be entirely focused on how Bitcoin can affect small business.
Those appearing at the hearing to give testimony were Jerry Brito, Senior Researcher at the Mercatus Center; Adam White, Director of Business Development and Sales at Coinbase; Mark Williams, Master Lecturer in Finance at Boston University School of Management; and L. Michael Couvillion, Ph.D., Associate Professor of Economics at Plymouth State University. Wednesday’s hearing was overseen and moderated by Missouri Republican and committee chairman Sam Graves.
The meeting on Capital Hill gave insight into the ins and outs of Bitcoin for small business. Chairman Sam Graves began the discussion by explaining the purpose of the meeting: “We have invited a distinguished panel of experts who will explain what Bitcoin is, how it operates, why it might be a good fit for small businesses and what are the risks associated with Bitcoin.” Throughout the hearing, the committee hoped to provide information in order to put small businesses with a better position and understanding regarding adopting Bitcoin, and if it could be a way to increase customers.
Also discussed was the inherent benefits of Bitcoin in commerce, providing merchants a way to process payment in a manner that eliminates fraud, has low processing fees and allows for market expansion. Adam White of Coinbase stated in his testimony,
“Bitcoin enables individuals to push payments to merchants without having to share personally identifiable information that can be intercepted by criminals and used for fraudulent purposes. This push functionality gives Bitcoin a unique characteristic that eliminates the risk of fraud, something that merchants, card processors, and banks spend billions of dollars per year combatting.”
White obviously focused on the positive traits of Bitcoin, however other topics discussed were related to price volatility, tax implications and dangers of illicit activities. Overall, the hearing gave positive insight into the use of cryptocurrencies as payment method, while also providing extensive information and first hand experience. Rather than making quick judgments and conclusions, the committee has set a great example of how to handle new and disruptive technologies like Bitcoin. The hearing proposed obvious benefits and challenges for small businesses choosing to accept Bitcoin as payment for goods and services.
Lower Processing Fees and Global Payment – The entire panel spoke of the reduction in fees that Bitcoin makes possible. Additionally, Bitcoin also allows users to bypass costly exchange rates, meaning that businesses can transact globally without affecting profit margins. “If you are a small-margin business, that difference could mean doubling your profits,” stated Jerry Brito.
Elimination of Fraud – Bitcoin can protect small businesses from chargebacks and transactions reversal from third parties, because there is no central intermediary. The fraud fees from credit card transactions could be detrimental to a business’s future by getting kicked out of the credit card networks. Bitcoin requires agreement by both parties to complete a transaction.
New Market Expansion – Because Bitcoin is a new technology in the payment space many companies are jumping on board, which differentiates their business from the competition. The cryptocurrency can also help drive sales. For example, in two months since the decision to accept Bitcoin, Overstock.com reported over $1 Million in Bitcoin transactions.
Volatility – Price volatility tends to be one of the biggest challenges faced by the growing cryptocurrency. How can something financially viable fluctuate in price so heavily? The expectation is that Bitcoin should be perfect right away. The reality, there is more work to be done, as with any new technology seeking widespread adoption. However, businesses should not worry because there are many companies in the Bitcoin community that allow merchants to settle Bitcoin in their local currency.
Security – In terms of security, the hearing contained discussions in regards to, as Mark Williams states, the “virtual bank heist” of Mt. Gox and others as vulnerabilities of Bitcoin. The committee also explored the risks of wallet theft, while Brito observed the absence of an intermediary to replace stolen Bitcoins.
Also discussed in the hearing was tax implications surrounding the IRS announcement to treat Bitcoin as property as well as illicit activity and how it relates to the cryptocurrency.
What does the hearing do for the future of Bitcoin in small business?
The hearing held by the Committee on Small Business is a step in the right direction toward better understanding of Bitcoin and what it can provide for business of all sizes. Entrepreneurs and company leaders will likely look closer into how virtual currency like Bitcoin can benefit their operations.
According to L. Michael Couvillion, “Bitcoin represents a much cheaper payment processing system compared with credit/debit cards. Its swipe fee is $0.15 compared with $0.25 for credit cards, and a typical Bitcoin wallet provider has a 1% fee compared with about 3% for credit cards. This results in cash flows which are between 7.5% (for micro sales) and 1.6% (for large sales) higher If a customer chooses to pay with Bitcoin rather than a credit card.”
The idea that Bitcoin can not only save money on processing fees, eliminate chargebacks and fraud, all while making global transactions possible makes complete sense to many business owners already accepting Bitcoin. For those that haven’t taken the first step, luckily there is an abundance of information to be found on the topic, as well as an entire community available to help along the way. Bitcoin has the ability to change the small business economy by increasing savings on transaction and fraud fees, and enabling businesses to transact with an expanding global marketplace.