Primer: Think about accepting bitcoin.

Many friends label me a Bitcoin fanatic, however let me first state that Bitcoin alone will not save your business, will not make you wealthy, and is not essential for a successful business; at least not today.  Bitcoin remains small[1], but important in a growing niche payments technology space.  We will see more of it in the future.  In 2009, Bitcoin introduced two fundamental innovations[2]; the blockchain: a secure public ledger managing the possession of a cryptographically scarce counterfeit resistant digital token.  That token, bitcoin with a small ‘b’ is what a merchant may accept at the register alongside cash and credit cards.  That token, BTC (aka XBT), in the last 7 years, has achieved a real world value which fluctuates[3] similar to the way the Yen fluctuates against the Euro.  bitcoin are convertible to local currency.  Volatility can be high.  Tax accounting must be considered[4],[5].  Despite these hurdles, the emerging ecosystem of Bitcoin services has developed solutions permitting any merchant (Brick and Mortar or Online) to accept bitcoin as a payment instrument from anyone anywhere, as they would credit cards or cash, with competitive & often lower fees, with near complete disregard for exchange volatility and non-existent fraud/chargebacks.  Merchants simply price & invoice for goods & services in local fiat currency.  The choice to keep the bitcoin as bitcoin or immediately convert them to local currency deposited in your bank account is the merchant’s.  The transfer of value (the transaction) occurs over the Bitcoin network/ecosystem rather than the credit card or debit card network.  Due to the irreversibility of Bitcoin transactions, Bitcoin customers will expect to get what they pay for. There is little they can do to claw back bitcoin that they have spent.  Bitcoin is certainly novel.  Are there reasons to be at the vanguard of payment systems?  I will argue yes & that it is low risk in this introduction, but that solutions should be chosen carefully to not disrupt the business and to reap Bitcoin’s full benefits.

An individual needs only a bitcoin wallet to receive bitcoin.  Wallets come in all flavours, simple, complex, mobile, PC, tablet, hosted, merchant, secure, super secure, and complex.  The individual provides the payer a bitcoin address, the payer sends the bitcoin over the Bitcoin network.  Within seconds, the transaction is visible globally, in about ten minutes the bitcoin are in your bitcoin address, within an hour the bitcoin transaction has been confirmed an additional 5 times and the bitcoin are effectively irreversibly under the recipient’s control.  For a merchant this is an easy way to learn about and experiment with Bitcoin.

This is the simplest method to accept bitcoin, but requires some technical familiarity with Bitcoin and requires the receiver to manage volatility, foreign exchange, security, reporting, fraud protection and much more.  The truth is that most businesses need much more to integrate bitcoin as a payment instrument into their business operations and payment workflows.

With the right tools and services, accepting bitcoin can be as economical and easy as accepting credit cards using an integrated Point-of-Sale system at the register.  Modern POS systems include register functions, credit card processing, refund processing, inventory management, configurable menus of goods and services for sale, accounting and tax reporting, printing of receipts, and to a limited extent customer loyalty and data gathering functions.  bitcoin received for goods and services can easily & quickly be remitted to your account in local currency without currency exchange volatility risk.  If desired, accepting bitcoin can be entirely transparent to everyone from your staff to your accountant to the local tax authorities and only represents an additional payment choice that your customers may exploit.  The majority of customers who wish to pay with bitcoin are very well informed and will require little support.

A number of reasons for a business to accept bitcoin exist.  (1) merchant is a bitcoin enthusiast, wishes to learn more and may want to support the use of bitcoin and the network (2) customers have additional payment options which may draw new customers (the technorati) (3) bitcoin is a very fraud resistant payment instrument which effectively eliminates credit card chargebacks (4) captures revenue from high risk customers (international orders/card not present transactions) by offering a robust payment mechanism – this can be very important if offering goods and services online (5) unlike many (not all) credit card processing services, most bitcoin processes remit local currency to the merchant’s account within days rather than at the end of the month which keeps accounts receivables low and aides in the management of daily cash flow (6) fees for bitcoin transactions approach 1.0% (7) merchant wishes to acquire bitcoin – accepting bitcoin for goods and services is a very easy way to acquire bitcoin when compared to using an exchange.

Customers may choose to pay with bitcoin because (1) they are enthusiasts (the technorati) (2) they posses bitcoin that have real world value that they may wish to spend (the bitcoin wealthy) (3) they wish to make online purchases from high risk areas, e.g. ordering a mobile telephone online located in London from Kiev.

I do not wish to endorse any of the specific companies mentioned in this essay, but it is useful to examine which services they provide when thinking about integrating bitcoin payments as a merchant.  Unless the merchant is very familiar with bitcoin and highly motivated it is best to use an integrated solution or a combination of the available payment solutions.  Extensive customer service and implementation support is often available for free.

Tablet based, integrated POS systems are inexpensive and are in widespread use.  Many small businesses use these systems as the center of their till operations, have configured a list of services and goods available, and do inventory management and reporting from within the application or export data to other applications like quickbooks[6] or freshbooks[7].

If the merchant’s payment processing operations are entirely separate from all other functions, that would represent the simplest environment to introduce bitcoin payments into.  That would be the least integrated environment.  Simply implement a wallet, accept bitcoin, treat as cash, pay your taxes.  You could post a bitcoin address on paper near the register, or use a more sophisticated unique address per transaction system, or use a merchant wallet system running on a tablet on the side.  There are other ways.

This raises probably the most important question, what level of integration does the merchant need and then how to implement a compatible solution?  Looking at the BitPay website[8], we find a good listing of what is currently out there.  BitPay is not the only payment processor compatible with different setups, but is does have a particularly rich set of services, devices, functionalities that it is compatible with.  Most modern, (tech savvy or not) merchants who would consider accepting bitcoin use sophisticated integrated systems to manage their businesses operations which include payment processing.  Adding bitcoin must be thought through.

If I take the example of my favourite coffee shop, the owners, Edna and Mike are not particularly technologically savvy or familiar with concepts underlying cryptocurrencies.  They are located in a large metropolitan city in the financial district close to the stock exchange and near many technology companies.  The vast majority of their charges are less than 10 USD, but almost all are less than 50 USD.  They have a single register where they accept credit cards and cash via a Square POS terminal[9].  This is a fully integrated POS system[10] supporting reporting, inventory, configurable goods and services, employee timecards, payroll, dashboards and compatibility with a variety of other business applications such as QuickBooks[11].  Mike and Edna pay 2.75% in fees per credit card transaction.  In the past, they had a to manage all of this manually.

When Edna and Mike think about bitcoin, they think about how it will fit into their ‘system’.  Although Square has dipped its toe in the bitcoin waters, we continue to await integration into its physical merchant POS systems[12].  For Mike and Edna, they will either have to wait for Square, or accept bitcoin as a cash equivalent with an additional device or app and do all the bitcoin related accounting and reporting manually.  Like many merchants, they are not willing to abandon their currently working solution.  In their place, I would keep all in place and add a simple wallet based bitcoin payment processing service.  Now again, there are many choices.  BitPay does not offer Square integration.  However, Coinbase[13], which offers multiple services including wallets, exchange, online and brick and mortar merchant services is already co-operating with Square[14].  They would be my natural choice.  I speculate that Square and Coinbase together will add bitcoin payments to the Square register POS in the near future.  Nonetheless, without full integration, Mike and Edna will again be faced with some additional manual work if they accept bitcoin today.  To their POS, bitcoin transaction will be mislabeled as cash transactions.  The cash drawer will be missing cash replaced by bitcoin receipts printed via the Coinbase merchant application.  They could conceivably run the Coinbase merchant app on the same iPad that they use for the Square Register to save counter space.  Understandably, they are reluctant to add any complexity to their workflows.  Due to the low volume however, the workload would be minimal and I suspect would be acceptable to most motivated merchants.

For Edna and Mike, per transaction fees will be closer to 1% for bitcoin transactions rather than 2.75% for credit cards, but still higher than accepting cash 0.0%.  They are likely to attract a new cohort of customers (the technorati) if it is well advertised (signs & online bitcoin directories) that they accept bitcoin.  They also make on-site many shippable baked goods which they could sell online and be paid for in bitcoin.  There is a real opportunity to add new customers and revenue.  They would likely immediately convert the bitcoin they receive for deposit into their USD account on a daily basis.  As such their tax accounting would not be any different than their accounting for cash as they do not hold bitcoin for any length of time.  Coinbase, and all other reputable wallet-based bitcoin payment processors lock in the exchange rate at the time of transaction eliminating all concerns of bitcoin volatility.  There is no uncertainty how much will be deposited into their bank account in a few days.  There would also be no credit card chargebacks – fraud resistant!

Mike and Edna are a practical example illustrating some of the considerations and how they might begin accepting bitcoin.  There are too many possibilities to iterate through in this short essay and others have already adequately addressed many of the details[15],[16],[17],[18].

I have not written a one-size fits all for all merchants because that case does not exist except in the simplest case.  I have not listed all the service providers, but do dig through the bibliography.  I emphasize that a successful bitcoin implementation requires assessing the merchant’s current environment, matching the available tools so as to support, be compatible, and not disrupt the merchant’s business operations.  This is meant to be an introduction to the choices that a merchant will face during their implementation.

Bitcoin is only 7 years old, but has spawned numerous services that permit merchants to integrate bitcoin as a payment instrument while shielding the merchant from volatility, fraud, security concerns, and unnecessary complexity.  I do not wish to deter any merchants from experimenting because for well matched businesses, there are real opportunities to add revenue without bearing additional business risk[19].  For those who wish to test the waters before a full implementation, start with a wallet based bitcoin payment processor like Coinbase or Coinkite[20].  If you are fortunate, and already have a POS system already supporting bitcoin payments[21], just flip the switch.


Bryant Joseph GILOT

Consensus Ledgers, Digital Assets & Smart Contracts・Former Accenture Health & Financial Services Business Consultant・Certified Bitcoin Professional (CBP) ・MSc in Digital Currency from the University of Nicosia ・Doctor of Philosophy from the University of Oxford・Doctor of Medicine from McGill University・Bachelor of Arts from Duquesne University・Surgeon・Broad international experience in healthcare, research & industry・Strong information technology background・Proud e-Resident of Estonia・Based in Germany & USA

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