About half a decade ago, a programmer or a group of programmers under the pseudonym ‘Satoshi Nakamoto’ gave birth to a software system named ‘Bitcoin,’ which can run across multiple networks of machines called miners and anyone across the globe can operate these miners.
Thus the new ‘internet currency’ was dispensed all over the world and became a sensation, as it is free, quick, easy to use and has ‘no terms and conditions’. Also known as ‘Cryptocurrency,’ bitcoins rule most of the internet-money-transactions nowadays and are expected to get, even bigger in years to come. Big, corporate, business companies have accepted bitcoins as a mode of fund transfers and deciding whether to use it for small businesses too needs a bit of insight into the mechanism and functionality of bitcoins, as given below.
Bitcoin For Small Business: What is bitcoin?
Bitcoin is entirely a digital/virtual form of money that can be exchanged between persons with no intervention by governments, financial institutions or banks. Purely cryptographic, for the definition of bitcoins, you need to know how it works. A transparent ledger named blockchain monitors all the transaction between bitcoin-wallets and the transfer can be made through a unique bitcoin-address generated by private-keys designated for each wallet. The processing of bitcoin transactions is termed ‘mining,’ which confirms the transfers only by unanimous approval of all the systems under blockchain for the transaction to occur. In general terms, all this means that no one can launder bitcoin transactions as they are under strict scrutiny and network rules. Hence bitcoins can be said to be the promising future of digital currency system.
Keep an eye on your finances and taxes
Bitcoins are not different from physical currencies when it comes to paying taxes and accounting. You need to be aware of the current value of Bitcoins at the time of tax payments, as you can’t pay IRS directly in bitcoins So, it might happen that the dollar value of your bitcoins differs vastly from their initial price. Hence, tracking the finances and taxes of your business is important. Use your Bitcoins the way you would your dollars at times of transactions, sales tax payments and annual tax payment as per your business profit.
Get your tech ready for bitcoins
Using bitcoins is very easy with just a little understanding of the technological aspects of the mechanism. For a rookie, the first step is to install a bitcoin wallet on your gadget (laptop/mobile), and you are there! The wallet will make your first bitcoin address which you can share with your friends for transferring money. The only catch here is for every transaction there will be new address. The bitcoin relies on blockchain (the public ledger), which is run by cryptography. The point is, for using bitcoin, some additional technological features are required on your gadget.
Low risk of cyberthreats
To understand how bitcoins prevent cyberthreats, a little detail of its transactional mechanism is required. Blockchain stores every confirmed transaction between Bitcoin wallets, which keeps the private key or seeds. Now for every transaction, the specific seed will generate a unique bitcoin address which is final and cannot be unaltered for that specific transaction. Unlike the high-risk payment gateways of debit/credit cards, the blockchains confirm transaction based on mathematical proof that the money is coming from the right wallet. To tighten security further, blockchains store and broadcast the confirmed transaction publicly and eliminates any threats of stealing or miscalculation of bitcoins.
Decentralized payment system
Bitcoins can be called an ‘internet currency’ owing to its complete digital identity. Fully decentralized currency under no government jurisdiction, bitcoins can be spent or received anywhere in the world, as long as the other party also uses bitcoins. Thus, if your business adopts bitcoins as a mean of fund transfer, no geographical boundary can restrict the exposure of your business across the globe.
Enables frictionless, cross-border transaction
Bitcoin transactions are a type of peer-to-peer online digital currency transfer process, which involves no middleman between the buyer and seller. This means a bitcoin transaction made between Tokyo and London would be as simple and hassle-free as hand-to-hand currency exchange between two parties. As discussed earlier, the very decentralized and digital characteristics of Bitcoin make it smooth for cross-border transactions to happen.
Allows customers another way of payment
Bitcoins enable digital cash transactions (unlike credit-card transactions) through the internet and hence are not bound by a central authority or any other political party schemes. Obviously, this makes bitcoins more suitable than credit card payments, PayPal, etc. which tend to be blocked in many countries by the authorities from time to time. With bitcoins, the only thing needed is a bitcoin wallet, and your business payments/finances can reach customers all over the world irrespective of any such restrictions.
Know limitations and risks of your business
Though very feasible and transparent in nature, the market price of this digital currency is volatile and thus very unpredictable for making business plans. So it is imperative to be aware of your business status and limitations before using Bitcoin for business. You need to evaluate the financial back-up of your business in case there is a fall in bitcoin prices. Knowing the limitations and risks of your business, before using bitcoins, would guard you in such adverse condition if any arise.