The Case for Coin: Bitcoin Pros and Cons

May 29, 2015 by Erik Robie, Guest Blogger
Posted May 29, 2015 by Erik Robie, Guest Blogger

If you’ve surfed the web at all in the last five years, you have probably seen the word Bitcoin floating around more and more. But like most people (virtually everyone, in fact) you’re not entirely clear on what it is, or how it can be used in business.

Until recently, I saw it as a fad that I could easily ignore, like the McRib or the Selfie Stick.

But now that my curiosity has shoved me into the pool, I realize that there’s more going on here than I thought. A lot more.

Defining Our Terms

What IS Bitcoin, exactly? I’ve read several dozen attempts to answer this very question, and they have all fallen short in one way or another. This complexity is both good news and bad news: It is good, because it is indicative of just how new this system is. There’s nothing else like it. As an economic system, it has the potential to be revolutionary on a global scale. The bad news is that the whole system is predicated on acceptance by the general public. If the general public can hardly agree on how to describe it, then it is self-defeating from gaining traction as a viable economic system.

If your head is already hurting, you’re not alone. After several pots of coffee and more than a few ibuprofen, I’ve come up with what I think is the most accurate and simple definition: Bitcoin is a digital global commodity, being used as a bartering medium. Can you pay for physical goods with Bitcoins? Yep. Does this mean it is an actual currency? No. We’re not there quite yet. But if anything is poised to become the first global currency, it will likely stem from something like Bitcoin.

On The Scales Of Public Opinion

The debate surrounding Bitcoin is a miasma of semi-informed opinions, with the occasional voice of wisdom audible among the noise. Taking a step back and looking at it objectively, this shows me that Bitcoin is, simply put, unproven. There is a lot of theory, and a lot of opinion, but the fact is that very little is solidly, concretely known regarding its long-term usefulness. It has epic potential, but potential can go either way.

There are a lot of reasons why a small business, particularly an e-commerce business, might consider enabling Bitcoin as a payment method. It has been proven throughout U.S. history that economic prosperity rests firmly in the small business sector. Anything that promises to streamline existing small business, or enable new ones to launch, makes me very enthusiastic. And this is where Bitcoin has seen the most success.
Unfortunately, many of these “revolutionary” ideas and products are a mere flash in the pan- a trend that sparks some new commerce, but doesn’t take root long enough to support sustained growth. Whether Bitcoin is going to reach legitimacy as a payment method remains to be seen. Until then, here are the highlights from the debate:

Pros

  • Inexpensive to Operate — Fees are about 60% cheaper than those of payment processors like PayPal. There are also no chargebacks, which is great news for small business in particular.
  • True Global Accessibility — There is no complicated exchange rate for global selling. Bitcoin is borderless.
  • Security — The whole Bitcoin network is a public one, and as such, is regulated and secured by tens of thousands of non-partisan computers. Fraud drops almost entirely out of the picture. As for cryptography of personal information, Bitcoin is still an astronomically secure system.
  • Trendy — Novelty attracts new business. Some consumers are beginning to request Bitcoin as a payment method, and will go out of their way to shop at retailers who provide it as an option.

Cons

  • Inevitable Opposition — Many financial institutions, governments, and private sector businesses, along with their millions of employees, will be enormously threatened if Bitcoin is ever taken seriously. The pushback will not be comfortable. That burden will fall squarely on the shoulders of small businesses and individuals- the very core of whatever economic stability and prosperity we currently enjoy.
  • Value volatility — Bitcoins (of which there will only ever be 21 million or less) have been known to sell for mere pennies to several thousand dollars, with this shift happening within only a few years. Even on a day-to-day basis, the agreed-upon value of bitcoins within the user network differs from the real-world value in common currency. Which means that if you buy two Bitcoins today for U.S. $1500.00, you might be able to buy them tomorrow for $80.00. Or $8000.00. So that bitcoin you just spent for a pizza could have been a pizza franchise if you’d waited till tomorrow. In theory, if Bitcoin (or something like it) was ever ubiquitously adopted as THE global currency, then such issues could level out. But we are far, far away from that happening.
  • Ultimately Deflationary — There is a limited amount of currency within the Bitcoin system, which will be reached by 2040. At that point, the total amount of currency will slowly and consistently decline again. This decline will occur as a result of things as simple as forgetfulness and common accidents. If you forget your Bitcoin password (known as a private key) then all the funds associated with that key will be lost to the aether. Due to the nature of Bitcoin’s inherent fraud-resistance, those Bitcoins will be permanently irretrievable.
  • Relies on public trust and optimism — This may sound like a good thing, but consider the implications; though the Trust Factor is a removed from regulatory agencies, it nevertheless still explicitly relies on the greater trust of consumers as a whole. Bitcoin works better and better the more people jump on the bandwagon, but it still necessitates a bandwagon. I am reminded of a dialogue from the movie Sneakers. Ben Kingsley (Cosmo) and Robert Redford (Bishop) discuss how perception can impact reality:

Cosmo: “Posit: people think a bank might be financially shaky.”
Bishop: “Consequence: people start to withdraw their money.”
Cosmo: “Result: pretty soon it is financially shaky.”
Bishop: “Conclusion: you can make banks fail.”

Bitcoin is absolutely not immune to this. More to the point, until it becomes the global currency, it will be MORE susceptible to this than financial institutions.

Personal Recommendations

Virtually all of the commentary which opposes Bitcoin does so from a future tense, rejecting it as a viable global currency. On the other hand, virtually all of the supporters of Bitcoin do so from the present tense, hailing it as a cutting-edge idea for boosting their bottom line.

I’d like nothing more than to break this down into “just the facts,” and offer an unbiased recommendation. Unfortunately, there just aren’t a lot of facts to be had just yet. So my personal takeaway from all my research is this:

As a global currency: Idealistically, Bitcoin is a great idea. It circumvents many of the existing problems with a global economy quite elegantly. Realistically, however, it introduces entirely new problems, which I think are fatal. This quote from digitaltrends.com says it best:

In short, all it will take for the price of Bitcoin to collapse is a hint of regulation. The second that happens — and it will almost certainly happen eventually — Bitcoin will likely crap itself and die. That is, if the government doesn’t murder it first.” —Andrew Couts

As a trendy commodity system: Go for it! As with anything involving an investment of your time or money, make sure you stay educated on the subject. With that in mind, Bitcoin is a very exciting idea in the economy of the digital age. I recommend enabling Bitcoin within your small business, but I also recommend doing so with a careful eye. Keep watching its impact on your sales, keep watching its value (as converted to USD,) and only risk as much in it as you are willing to lose. But most importantly, I recommend it only as an addition to your more traditional payment methods. Don’t put all your eggs in the Bitcoin basket.

Conclusion

Bitcoin supporters see everything good with the privatization of currency away from governments. I say “privatization,” but what I really mean is un-privatization, or perhaps even better, non-privatization. The idea behind open source software is that no one owns it, and therefore everyone owns it. It guarantees (and I use that term very, very figuratively) that the best practices will be widely adopted and defined as standard, while the nefarious or otherwise subversive changes will find no foothold. Bitcoin is a serious bid at the first open-source currency, maintained and regulated in the most democratic way imaginable.

This gives Bitcoin a lot of justifiable hype in the world of eCommerce. Still, the only thing that can really validate Bitcoin for your business is your own controlled experimentation. So, open it up. Try it out. You can easily start accepting Bitcoins in minutes, with Ecwid CoinPayments integration. Just make sure you’re keeping the overall success of your business in the real world.

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