Why Small Businesses Should Consider Bitcoin?
Bitcoin has made quite a few headlines recently. Bitcoin, the first and the most prevalent form of cryptocurrency, has lately hit record highs last year, surpassing $19,000 per coin in December 2017. But, what exactly is this obscure “cryptocurrency” everyone has been talking about? Is this the right time that your small business should start accepting it too? Let’s unfold these questions further on why Bitcoins for small business.
What is Bitcoin?
Bitcoin is a cryptocurrency, usually referred as a decentralized digital currency or to describe it in a better way, we can call it as “an electronic asset.” Bitcoin depends on a technology system known as “Blockchain,” that keeps your bitcoins safe and secure from fraudulent activities.
What makes Bitcoin exceptional is that it’s purely peer-to-peer (P2P) technology, with no involvement with banks, government bodies or financial institutions standing in the way between you and your money. The currency’s digital format offers faster, cheaper, easier exchanges of cash, from which many small businesses may benefit from.
Currently (Feb 2018), there are approx 16 million bitcoins that have been created, increasing by 25 bitcoins every 10 minutes, with an agreed limit of 21 million, which would be created a little before the year 2140.
What is bitcoin designed for?
Bitcoin clearly justifies the concept of “electronic cash,” the cash being an asset owned solely by you, such as the cash in your pocket which you can spend without taking any permission from a third party. Before Bitcoin, there was never electronic cash. The numbers were stored in the database of a financial institution like Paypal or Bank. You had to comply with their rules in order to open an account and seek their permission to transfer the money. This is where Bitcoin stands apart from these platforms.
With the increasing demand for bitcoin recently, you may want to know more about the perks of using it.
Perks of Using Bitcoin
1. Negligible Fees: We are all well aware of the high bank transactions fees. Especially if you want to send money overseas or through different banks. The fees for bitcoin is much lower than that of traditional platforms. There are no recurring fees, limits, and other abundant restrictions. Bitcoin transactions usually cost between zero to 1% of the funds. Since Bitcoin doesn’t require any bank to verify your transactions, you are free to send money to whomever, whenever you want, without the high bank fees. However, you’ll usually have the option to pay a small transaction fee to speed up the processing.
2. Bitcoin is an Investment: Unlike any other cryptocurrency, bitcoin’s value fluctuates much more than your imagination. This definitely scares many people from accepting it, but in reality, it is beneficial. To see it in the broader view, a single bitcoin grew from being worth just a few cents to over $1,000 from its creation to 2016. Since then, it has jumped to over $13,000 at the end of 2017. Undoubtedly, its value has fluctuated since then, but millionaires are known for taking risks.
For small businesses that are on the outlook for growth opportunities, bitcoin serves the perfect choice when compared with other potential investments.
3. Bitcoin is Global: Usually, small businesses that deliver things in and out of their country faces numerous processes before they are fairly paid for their services and products. But, with bitcoin, borders are a thing of the past. With Bitcoin, payments can be sent to anywhere in the world. It is because bitcoin isn’t tied to a particular government entity and there aren’t any shifting exchange rates or transaction fees while dealing with other countries.
4. Bitcoin is Fast: Bitcoin is much quicker than virtually any other payment type because it doesn’t require verification from some different institutions. Blockchain does it for you. There’s no need to wait as long to receive your payment.
Bitcoin payments can be speedily delivered from a customer to the business directly, ensuring that there aren’t any additional hiccups that make further difficulties down the road. For small businesses that deal with larger clients, prompt payments can be the difference between keeping the business running for another month and shutting down.
5. Bitcoin is Innovative: This point may not be as appealing as the other ones, but it is still worth considering. For small businesses, word-of-mouth is just as valuable as the nature of the services and quality of their products. By accepting bitcoin, a small business can directly join a group of elite businesses across the country. This novel position makes it appealing for those who frequently use bitcoins in their daily life, particularly if the business is the only one in its industry that currently accepts bitcoin.
Challenges of Accepting Bitcoin
It’s always necessary to be aware of the possible dangers, as well. Check these three biggest impediments to operating a business with bitcoin.
1. It’s unstable: Bitcoin has become more stable over time, even lately beating out gold. However, it is fundamentally a currency that isn’t supervised by a particular financial institution and thus can fluctuate drastically in value depending on its demand.
Many observers may find this “unstable” quality beneficial as the bitcoin market has no resistance. However, keep in mind the other side as well, as it could also make things tough for your small business if that market suffers. You’ll definitely want to figure out your aversion to risk before investing big in bitcoin.
2. It’s unregulated: Decentralization in a bitcoin is a plus, but bitcoin’s lack of support from government may frighten people from accepting it. The U.S. government acknowledges bitcoin as a legitimate commodity, and perhaps it has even given a confident influence on financial regulation, but many other countries have banned or restricted the use of bitcoin.
3. It’s hard to plan for: With a volatile, decentralized, and purely digital currency, it can be tough to prepare financial statements, determine your prices and figure out the taxes.
How Does It Work?
A group of computers around the world verifies and keeps track of bitcoin payments, and assures that they are recorded accurately by being combined with an ever-growing list of all the bitcoin payments that have been made.
Keeping track of payments: The Bitcoin Blockchain
A file named,”The Bitcoin Blockchain” is present on thousands of computers globally. You can compare the word “blockchain,” with “database” or even “list,” to have the right kind of idea.
This is a sort of ledger that contains the data about all the bitcoin transactions; the bitcoin payments made from one account to another. It is very much similar to a bank’s ledger which keeps a record of payments between bank accounts.
The bitcoin network: The computers having this recorded file usually connect with other computers operating the same software over the internet. Thus, a network of computers is formed which communicates with each other, transmitting information about new payments and it updates to The Bitcoin Blockchain. Every 10 minutes or so, a new “page” or block of legitimate transactions is established and is assigned to all of the computers on the network. When you make a bitcoin payment, a payment instruction is sent to the network. The computers on the network verify the instruction and transfer it to the other computers. After some time has passed, the payment enters in one of the block updates and is attached to The Bitcoin Blockchain file on all the computers across the network.
Peer-to-peer: Bitcoin works with the distribution of data on a peer-to-peer basis, instead of client-server. Peer-to-peer is like a gossip network. It means everyone will tell each other people the news, maybe about the new transactions and new blocks, and ultimately, the message will get to everyone in the network. This is a complete opposite of client-server, where a boss tells subordinates the news, and the boss is a fundamental point of reference, and possible failure.
One of the main benefits of peer-to-peer (p2p) over client-server is that the p2p network doesn’t depend on one central point of control, which can fail. This supports the idea of decentralization of the network, and also makes any hacking attempt of a bitcoin transaction nearly impossible, as this information is processed by thousands of computers around the world at the same.
What happens when I make a bitcoin payment?
The bitcoin payment is like an instruction. It releases some bitcoins from your controlled address and moves it to your recipient address.
Your payment instruction carries everything you’d expect, including:
- which bitcoins you’re sending
- which address you’re sending them from
- which address you’re sending them to
Digital cryptographic signatures: The instruction is secured with a digital signature. The payment you make via bitcoin is digitally signed with the private key of the address which currently holds the bitcoins. This digital signing illustrates that you are the owner of the address in the question because only you are aware of the private key.
Payment instructions are then sent from the wallet software to any of the computers on the network also known as “nodes” or “payment validators”.
Validators: Now that the computer receives the instruction, it verifies the related technical details and the required business logic details. For instance, have the coins that are being sent here already sent anywhere else? Does my payment try to generate bitcoins out of nothing?
If the information passes these tests, then the computer transmits it to other computers on the network, who also run the same validation tests. Also, keep in mind that in this network, computers can’t afford to trust each other, so they have to run the same tests every time they receive the information. Ultimately, all computers on the network know about this payment, and it arrives on the screens everywhere in the world as an “unconfirmed transaction.” Now you may think if it has passed all the tests, then why it is unconfirmed? It is unconfirmed because although the payment has been verified and passed around, but it isn’t entered into the ledger yet.Why Small Businesses Should Consider Bitcoin? Click To Tweet
How are BitcoinsTracked?
Bitcoins are tracked with the process known as “Mining.” Now, What is mining? Remember solving those complex mathematical puzzles? Yes, mining is the same process. The information about transactions is passed in between these specialized nodes and then added to the blocks to form the blockchain. There is nothing complex about this process, and you can do this by hand without a calculator; it is just designed in a way that it takes many computational steps without shortcuts.
Mining: Mining is a complete guessing game, where your chance of winning relies on how promptly your machine can execute calculations compared to other miners’ similar calculations. Whoever guesses the accurate number first, wins the right to attach a new block of transactions to everyone’s blockchains. Then, each computer executes a fast validation of the block, and they accept that the block and transactions adhere to the rules, and finally they add the block to their own blockchain. But why does the miner need do this? Because as part of the block, they get to grant themselves with some amount of new bitcoins. This block-adding occurs roughly after every 10 minutes on the network.
Due to this bonus, bitcoin mining is becoming very competitive. Companies are developing specialized hardware, called ASICs, which are very sharp and steady at the guessing game and related number-crunching.
Bitcoin’s protocol and code assure that it takes around 10 minutes for the network as a whole to guess it accurately. Thus, this is the speed that transactions take to be approved by the blockchain.
Slow for security: By making it slow and computational to participate in this process, it also makes it financially expensive for frauds to buy enough processing power to write their own irregular blocks of transactions into the blockchain. Keep this in mind that even if someone were to do this, all the other computers would need to agree with all of the transactions, so they still cannot insert transactions that break the business logic rules.
With the creation and use of bitcoin and the blockchain, other cryptocurrencies have been developed to further upgrade the features of the technology of bitcoin, and for providing other services to users.
Others major cryptocurrencies
With the growth and popularity of the cryptocurrency space, hundreds of cryptocurrencies have been developed to address everyday problems or provide new services to users around the world. Some of these have groundbreaking technology which will indeed re-shape the way we see the technology in the future, and others are mere gimmicks.
Here are five of the major cryptocurrency in use today:
Ethereum: Ethereum is second to Bitcoin in size with a market cap of $78 billion. It went live in 2015. It is a decentralized software platform that allows Smart Contracts and Distributed Applications to be built and run without any downtime, fraud, control or interference from a third party. Its platform-specific cryptographic token, “ether” helps in running the applications.
Ether is backed by a blockchain, much like bitcoin, but the technology is somewhat different and intended for a particular use case: smart contracts. The cryptocurrency ether is wanted by developers who desire to build apps on the Ethereum blockchain and by users who require access to communicate with the smart contracts on the platform.
Ripple: With a market cap of $29 billion, Ripple markets itself as a cross-border payments solution for big financial institutions based on blockchain technology. Ripple is pretty different from Bitcoin and Ethereum, having a more corporate image and backing, and is actually a decentralized transaction network rather than a straightforward cryptocurrency. With this aim for financial institutions, it can verify transactions within a few seconds, must faster than bitcoin or ethereum. Ripple’s structure doesn’t require mining. Hence it lessens the usage of computing power and reduces network latency. With a thought that ‘distributing value is a compelling way to incentivize certain behaviors,’ Ripple is currently planning to distribute XRP essentially “through business development opportunities, incentives to liquidity providers who give snapped spread for payments, and selling XRP to institutional buyers who want to invest in XRP.”
Bitcoin Cash: It is an offspring of Bitcoin, founded on 1st August 2017 from a “hard fork” in the Bitcoin blockchain. It has a Market cap of $16 billion. This “hard fork” represents the result of tension between those who considered bitcoin as an investment over transactional cash. Some Bitcoin miners demanded to increase the speed of transaction times. As a result, some Bitcoins split to form a new cryptocurrency with a faster transaction time, called Bitcoin Cash. Bitcoin Cash is useful for people who want to acquire their income streams from cryptocurrency or aim to make lots of fast business transactions.
Litecoin: It was launched in the year 2011. It is among the cryptocurrencies following bitcoin and is often referred to as ‘silver to Bitcoin’s gold. It is the closest rival of bitcoin. Its market capitalization is currently $8 billion. It was released in 2011 and was an offshoot of Bitcoin. Its operation is nearly identical to Bitcoin’s in almost every way, except that it has a much faster processing speed than Bitcoin, and can currently process transactions at about four times the speed of Bitcoin.
Dash: Also known as Darkcoin, Dash was launched in January 2014. This cryptocurrency was created and developed by Evan Duffield and can be mined using a CPU or GPU. It is a more reserved version of Bitcoin. Dash allows more anonymity as it works on a decentralized master code network that executes transactions almost untraceable. Dash encountered an escalating fan following in very less time. In March 2015, ‘Darkcoin’ was rebranded to Dash, which stands for Digital Cash. It operates under the ticker – DASH. The rebranding didn’t modify any of its technological features such as Darksend and InstantX.
The advent of bitcoin has indeed changed the way we view currency and wealth, and provided another means for the transfer of value. While bitcoin may be liked by some and despised by others, it seems that this new form of cryptocurrency may be here to stay for a while. The benefits of bitcoin may open up new doors for how we transfer value, and for how companies do business. Time will tell the effect bitcoin will have in our lives.
Disclaimer: If you would like to know more about bitcoin or cryptocurrencies, it is better to seek professional advice regarding this. Note that this is not financial advice, and we do not offer financial services and any financial advice on this. However, we can guide you to professionals who can offer these to you. Connect with us to know the details and take a smart decision for your business in Hong Kong.
Please note that it’s very difficult to open a bank account for bitcoin or blockchain related companies around the world. While Hong Kong is an advantageous place for blockchain and cryptocurrency technology, still many Hong Kong banks may not open an account for these types of companies. Therefore, we are currently working with other providers and banks to help open bank accounts for customers dealing in blockchain or cryptocurrency related businesses. Please contact us for more information on banking options or for incorporating your company in Hong Kong.