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    Is Bitcoin the Future of SMB Payment Systems?

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    Last week, the U.S. House committee on small business was presented testimony on the pros and cons of the online currency Bitcoin. Proponents of the new virtual payment system believe that Bitcoin usage can help small and midsize businesses grow their online businesses both in the U.S. and overseas.

    According to Ripon Advance, the currency could allow businesses to significantly expand sales around the globe. Adam White, director of business development for Coinbase, an international digital wallet company that processes merchant and individual transactions for Bitcoin, explained how transactions could work for small businesses:

    “Because of the borderless and global nature of Bitcoin, a Bitcoin payment made by customer in New York looks identical to a merchant as a Bitcoin payment made by a customer in London, Buenos Aires or Tokyo. Moreover, there are no international currency conversion fees associated with Bitcoin payments, so merchants can sell low margin items just as profitably abroad as they do domestically. The ability to easily begin accepting payments from customers around the world can open up whole new markets for merchants and significantly improve top-line revenue.”

    But the virtual coin isn’t without a downside. Jerry Brito, senior research fellow at the Mercatus Center at George Mason University told PYMNTS.com that the decentralized currency is not a new idea, and although it makes sense on paper for small business transactions, it has cons:

    “It could also be an attractive electronic payments option for consumers, including the unbanked and underbanked. Risks include volatility and security, but these are not problems inherent in Bitcoin’s design. Its volatility is likely attributable to the fact that it is a new currency, still in the process of discovering its stable price.”

    For small businesses, the low-cost transactions via Bitcoin look very attractive. For a company with fewer than 300 employees, paying 25 cents plus 2 to 4 percent per sale for items can really cut into profits. Bitcoin currency is handled through merchant processors such as BitPay or Coinbase, and these services charge only 1 percent or sometimes less per transaction.

    According to the Bitcoin Wiki, because payment processing is simple and doesn’t require the fraud prevention measures that credit card companies rely on, Bitcoin transactions are considered final, so there can be no transaction reversal. This could also help businesses accept payments from those in countries where high fraud rates often prevent online transactions from being feasible.

    However, other issues with Bitcoin brought up during the hearing included the recent IRS ruling that digital currency be taxed as property and not as currency. Also, recent crackdowns on illicit activity and money laundering via Bitcoin have tainted the image of the wonder coin. So although Bitcoin sounds like it could be the future of online payments for SMBs and others, it is still not without issue and the House Committee plans to further use information collected from the hearing to give information to businesses considering the currency and to help Congress make informed decisions as virtual currencies become more common in usage.

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