8 Ways Your Business Can Benefit from Cryptocurrencies like Bitcoin
Bitcoin and the underlying blockchain technology has been invented almost a decade ago. It solved many long-standing problems all at once:
- Allowed the transfer of value over the internet without the need to rely on a third party, like a bank or payment processor
- Created a safe method of payment that can be used over the internet without risks even if the payment address is compromised
- Allowed the storage of value in digital form on the owner’s device as opposed to relying on a third party like a bank
- Implemented monetary policies such as the issuance of new money and inflation without a central authority
- Incentivized many independent agents (miners) to secure the network
- Removed single point of failure risks by decentralizing the network
- Created a global currency that works seamlessly across borders
- Implemented pseudonymous payments
Since then, the development of Bitcoin and other cryptocurrencies that build on the original Bitcoin idea has come a long way. Although they remain the core application, cryptocurrencies do more than transfer value. Bitcoin and its ecosystem are now mature enough to be relied on for business applications.
Is there an advantage to using Bitcoin or other blockchains for your business? This question is still unresolved, as many think the impact and implications of Bitcoin’s technology on business and society are still unknown. Today, the situation with cryptocurrencies is similar to the state of development of the World Wide Web 20 years ago. None could foresee the societal impact of the web across all industries.
Here are 8 ways businesses can use cryptos. See if any of them apply to your business situation:
1. Accept crypto payments
The most obvious option. You can open your business to international customers by accepting Bitcoin and other cryptocurrencies.
There are billions of people in the world without access to credit or debit cards, and even in the developed world, many individuals prefer the security and confidentiality of Bitcoin payments. There are several payment processing systems, and many allow you to convert any incoming payments into local fiat currencies immediately if that is required for cash flow or account reasons.
Holding Bitcoin is unnecessary if a company worries about currency price fluctuation.
As a merchant, you will benefit by not paying the 2-5% credit card and other payment processing fees associated with accepting credit card payments. You could even pass some savings to your clients to attract more customers. Credit card payments have drawbacks, such as slower processing times and higher fees. Credit card transaction fees can discourage small businesses from accepting credit card payments due to their high cost. Credit card transactions and chargeback fees can also add a significant financial burden, making Bitcoin a more cost-effective option. When a chargeback occurs, the credit card company retrieves the funds from the merchant and levies an additional fee of $5 to $15, which Bitcoin can help avoid.
As a non-profit, accepting Bitcoin payments on a static address can provide transparency to your supporters, which is very difficult to achieve with traditional methods.
2. Purchase supplies and services with Bitcoin
Once you start earning Bitcoin from your customers, you can use Bitcoin to pay your expenses. You can virtually buy anything online for Bitcoin. You can even pay your phone bills or get gift cards for most businesses with Bitcoin.
This way, you don’t need to worry about conversion fees or credit card security. Suppose you need to make many cross-border payments.
In that case, you can save significant amounts by switching to Bitcoin (provided your partner accepts it) because the cost of Bitcoin transactions is less than a dollar, compared to US$20-30 for a wire transfer or 3-5% for PayPal payments.
Integrating cryptocurrency payments with accounting systems can streamline business transactions, ensuring that revenue recognition and accounting rules are applied similarly to traditional methods. Merchants can facilitate a crypto transaction using crypto payment platforms like BitPay or Coinbase, where customers scan a QR code and enter a private key for verification.
3. Use timestamping
The Bitcoin network allows you to immutably record any digitally encoded information at any moment.
No one can change such a timestamp, and it proves the existence of a certain file or document at that given time.
Typically, similar services are provided by lawyers, but that is not a mathematically provable method besides being expensive and slow.
Suppose you are handling any information that benefits from proving that you had a certain piece of information at a certain time. In that case, you have a good business case for using timestamping on a blockchain, especially if you need to do it over the internet and at scale.
4. Run deterministic contracts
Bitcoin, especially the Ethereum blockchain, can execute relatively complex business logic deterministically, incorrectly referred to as "smart contracts."
In practice, this means that contracts can depend on certain actions and execute certain predetermined actions without human interaction and without the ability for anyone to change the rules.
Some triggers in such contracts could be completely automated, such as the passing of time in a retirement contract.
Others must be anchored in real-world events, like an airplane's arrival delay, which a trusted human or organization must report to execute an insurance contract. Such third-party actors are called oracles.
As a business, you can build your business logic within such a deterministic contract to automate processes, reduce fraud, and improve efficiency.
5. Be an oracle
If you read the paragraph above, you know what oracles are.
If you're in a trusted position and have access to certain information that deterministic contract operators can use, you can offer your services for a fee to provide such information.
For example, in the above example, if you have reliable information about airplane arrivals, you can provide such information to an insurance company that runs a deterministic contract that pays out when a plane arrives late for any reason.
6. Build products for the digital currency ecosystem
The crypto ecosystem requires many types of businesses to serve the various needs of cryptocurrency users, including those dealing with digital currencies.
In addition to cryptocurrency exchanges, various digital and hardware wallets, BTMs (Bitcoin ATMs), nodes, security devices, and other specialized services will likely gain great demand shortly.
Digital currency, such as Bitcoin, is a decentralized currency that operates independently of traditional banking systems. Businesses accepting digital currency must be aware of the tax implications, as the IRS classifies Bitcoin as property, necessitating meticulous record-keeping and accounting to avoid penalties.
You can even create and sell merchandise, as the crypto community is passionate.
7. Be a lightning network node
While mining bitcoins can be profitable, it's very energy-intensive. As a business, you would have to compete with farms close to the cheapest excess energy sources in the world.
However, an upcoming technology will allow for a different type of "mining" of bitcoins. It doesn't require much energy; it just requires a good computer with a reliable internet connection and bitcoins to fund payment channels.
The Lightning Network is a second layer on the Bitcoin network, allowing instant, confidential, and extremely cheap payments. It is based on nodes that can route money to other nodes for a small fee.
A typical lightning network payment passes through several such nodes to reach its destination (called hops), and each node can charge a tiny fee to route such payments.
Currently, the lightning network only consists of a few thousand nodes. Still, it's growing aggressively, and we will likely see exponential growth once lightning network-enabled wallets hit the app stores.
Nodes that open many channels to services will likely earn small fees from millions of payments, adding to significant earnings.
A related future business model is a watchtower. This service monitors the Bitcoin network in real-time and resolves disputes for lightning network users, even if they are completely offline. One could charge a small subscription fee to run such a watchtower.
8. Raise funds with an ICO
ICO is short for Initial Coin Offering. You can represent any real-world or digital asset with tokens issued on a blockchain.
You can either create a clone of Bitcoin (hundreds exist) to create a new coin representing your asset or use an existing blockchain to issue tokens and use those tokens to represent your asset.
Then, you can sell those coins or tokens to investors who want to benefit from the increasing valuation of your tokens.
This successful business model raised hundreds of millions of dollars for companies that started ICOs despite the potential capital gains taxes involved.
ICOs are regulated in many countries, so one must carefully apply local regulations. Additionally, businesses must understand the tax implications of accepting cryptocurrencies, as the IRS classifies them as property.
This leads to the necessity for detailed record-keeping of transactions to avoid legal issues.
In summary, even if your business is not a good fit for any of the above-mentioned use cases, it is reasonable to explore the crypto economy as the industry is moving fast, and new business models are made possible at an increasing rate.
Being a first-mover here could benefit your corporation greatly.
Q&A: Understanding Bitcoin for Your Business
What is Bitcoin, and how does it work?
Bitcoin is a decentralized digital currency operating on a peer-to-peer network without a central authority, such as a bank. Transactions are recorded on a blockchain public ledger, ensuring transparency and security. Businesses can accept Bitcoin as payment, invest in it, or use it as part of a broader digital strategy.
What are the benefits of accepting Bitcoin for my business?
Accepting Bitcoin can lower transaction fees, attract tech-savvy customers, and offer a fast, secure payment method. Additionally, it can provide your business with an innovative image and open up international markets without the complexities of currency exchange.
Are there risks associated with using Bitcoin in my business?
Bitcoin's price can be highly volatile, affecting your revenue. There's also a learning curve in understanding and managing Bitcoin transactions. Additionally, the regulatory environment around cryptocurrencies is still evolving, which could impact how you use Bitcoin in the future.
How can I start accepting Bitcoin in my business?
To start accepting Bitcoin, you must set up a digital wallet to store the cryptocurrency and choose a payment processor that can handle Bitcoin transactions. You’ll also need to update your point-of-sale systems to accommodate Bitcoin and train your staff to process payments swiftly and efficiently.
Can I convert Bitcoin to cash, and how does it work?
You can convert Bitcoin to cash through a cryptocurrency exchange or a payment processor that offers automatic conversion. This can help you manage Bitcoin's volatility by immediately converting payments into your local currency.
What legal considerations should I be aware of when using Bitcoin?
Legal considerations include ensuring compliance with local regulations, reporting Bitcoin transactions for tax purposes, and understanding the consumer protection laws that apply to cryptocurrency transactions. It's advisable to consult with a legal expert to navigate these issues.
Is Bitcoin a good investment for my business?
Due to its volatility, Bitcoin can be a speculative investment. While it offers high potential returns, it also carries significant risks. Before allocating resources to Bitcoin, assessing your business's risk tolerance and investment strategy is important.
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Mark Hope
Partner, Asymmetric Marketing
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About the author
Mark A. Hope is the co-founder and Partner at Asymmetric Marketing, an innovative agency dedicated to creating high-performance sales and marketing systems, campaigns, processes, and strategies tailored for small businesses. With extensive experience spanning various industries, Asymmetric Marketing excels in delivering customized solutions that drive growth and success. If you’re looking to implement the strategies discussed in this article or need expert guidance on enhancing your marketing efforts, Mark is here to help. Contact him at 608-410-4450 or via email at mark.hope@asymmetric.pro.