ITBusiness.ca Community Blogger Robert Burko was optimistic about bitcoin and adopted it as a valid payments method for his email marketing service last year. He believed in the upsides offered by the digital currency, but after stomaching a volatile market, he’s rethinking his position.
How do you define currency? If we jump back to the 17th and 18th centuries, then currency might be deer skin (…. after all, it’s why “buck” means dollar!)
In present day, currency might be the crisp $20 bill in your pocket. Or maybe currency is the arsenal of credit cards and ATM cards you keep in your George Castanza-esque thick wallet. Or maybe, just maybe, currency is a digital wallet tracked solely in cyberspace.
Ultimately, in my opinion, the goal of currency of any type is to facilitate commerce. If people accept something in exchange for goods, then by all accounts, it represents a viable currency. I’m certain an economist will read that and launch into a thrilling diatribe of the actual composition of a currency, citing government issued notes, but I don’t think anyone is interested in that. At its core, in today’s modern society, we realize that operating exclusively on a barter system for everything would be impossible, so we need something…. anything…. to streamline trade.
By that philosophy, can bitcoins be a legitimate currency?
- I can buy stuff with Canadian dollars. I can buy stuff with bitcoins.
- I can sell stuff for Canadian dollars. I can sell stuff for bitcoins.
- I can use an ATM to get Canadian dollars. I can use an ATM to get bitcoins.
- I can exchange other currencies for Canadian dollars. I can exchange other currencies for bitcoins.
Based on that list, it seems like bitcoins have the checklist pretty well covered.
The upsides of bitcoin
So, should Canadian businesses update their payment methods to include cash, Visa, MasterCard, American Express, and bitcoins?
At first, I thought the answer was yes. I thought the idea of a decentralized digital worldwide currency was brilliant. My company, Elite Email, was amongst the first in the country and certainly the first in our industry to accept bitcoins alongside Canadian and American dollars.
There’s actually a lot of upside to accepting bitcoins over typical credit cards that are appealing to businesses:
- No large credit card fees to be paid. (Does Visa really deserve about two per cent of our hard earned sale?)
- No risk of chargebacks. (Do I really want a statement of all the charges that have been reversed and lost?)
- No waiting for deposits. (Why am I waiting days for my next credit card batch settlement?)
- No extended application process. (Does anyone really want to fill out more forms?)
These are pretty solid perks. And, it’s not like the Canadian dollar is backed up by a room full of gold, which is a tangible rare asset that holds value. The gold standard was abandoned in 1931, so now we’re really just using the Canadian dollar based on the fact that it is backed by our stable government (also known as a “flat currency.”)
To me, the numbers I saw in my bitcoin wallet were as useful as the numbers I saw on my credit card settlement statements. In both cases I had something that represented value in one form or another. Plus, with just a few clicks, I could exchange my bitcoins for Canadian dollars.
Of course, my accountant had no idea how to treat these bitcoins, and certainly Quickbooks didn’t have a way to add it as an account. But, alas, those are just a few of the details that had to be ironed out.
A currency shouldn’t be a roller coaster ride
There was one massive problem with accepting bitcoins and that was the crazy insane roller-coaster that is the bitcoin exchange rate relative to other currencies. It is not for the faint of heart and, in all probabilities, not an acceptable means of trade for a legitimate business.
Allow me to highlight this dilemma from the customer perspective. I have a very good friend named Evren who lives in Finland, where bitcoins are more mainstream than they are in Canada. He was active in the bitcoin scene well before all the recent media hype. I remember him telling me years ago that he would walk to the hamburger restaurant near his home and buy a burger and fries. When it came time to pay, he would pull out his phone, the cashier would scan his bitcoin wallet QR code, and immediately one bitcoin was transferred to pay for his food. At the time, the one bitcoin represented $12 Canadian, which was a reasonable price for that tasty burger.
If, however, we use the bitcoin exchange rate for today, then that one bitcoin represents $885 Canadian. While I’m sure Evren enjoyed his burger, I don’t think it was delicious enough to warrant a price tag of approximately $885, and if it was, then we should all go to Finland immediately to try that burger!
The exchange rate swings are just far too dramatic to effectively price goods. We, as Canadians, won’t be able to tolerate the idea that a burger may cost $12 or may cost $870.
If consumers think that their bitcoin is going to skyrocket in value, then it’s just not worth it to buy that burger today. They’re going to save their bitcoins. They’re going to hoard them. They might read an article online about how bitcoins are going to continue increasing to thousands upon thousands of dollars. As a point of reference, a recent poll by CoinDesk showed that 56 per cent of the 5,500 people polled believe the price of a bitcoin will reach $10,000 this year. So, why buy a burger today when maybe that same bitcoin can buy a car tomorrow?
The same problem manifests itself from the perspective of the business. How can we accurately price our goods and services if the value of bitcoins increases or decreases by huge percentages in a short time frame? As an example, at the start of 2013, a bitcoin could be purchased for around $12. The highest recorded amount in the same year was around $1,200. That’s an increase of 100 times!
At Elite Email, we priced our subscription fees for email marketing services using the real-time bitcoin exchange rate. Some days that meant we were getting 1 bitcoin and other days that same subscription cost 0.0001 bitcoin. We couldn’t accurately measure the value of the currency we were collecting. Furthermore, depending on the moment in time the customer sent us the bitcoins, they could have been getting an amazing deal or a horrible deal purely based on what the value of bitcoins went to next. While some bitcoin merchant operations let you convert to an alternate currency immediately upon completion of a sale, which does help businesses ensure they don’t get stuck with a lot less (or more) than they expect, it certainly doesn’t alleviate the whole issue regarding rapid rate changes.
Ask any business owner in Canada that works with the US dollar how they felt when the USD to CAD exchange rate went from 1.17 in January 2007 to 0.96 in November 2007. That alone had big impacts on the Canadian economy. Now multiply that 10 fold or 100 fold and we’re operating in the world of bitcoins.
I’m not implying that this is the only problem facing bitcoins. You can read all about “Silk Road” and the black market uses of a non-traceable non-government regulated currency. All of those are very real concerns. But, for me as a business owner, while I don’t like knowing the bitcoin currency can be used for less than honourable things (news flash – criminals in Canada use Canadian dollars for bad things, too) what I care about is how it effects my company and my customers.
While the theoretical idea of bitcoins and the benefits it can afford to Canadian businesses are promising, until the value can stabilize at least as much as a more traditional currency, I simply do not think it represents a viable opportunity. The swings are too great, the risk is too high, and the future of this breakout digital currency is too unclear… at least for now.
What do you think?