Q: Some of our overseas competitors have recently started accepting bitcoin payments, and we are wondering if we should do the same. Can you tell us if bitcoin is safe, how it works, and how we should get started?
A: The JofA has mentioned bitcoin in several articles dating to March 2014, mostly pertaining to bitcoin investments and accounting for a client's bitcoin transactions when preparing tax returns. While the complex details related to using bitcoin exceed the scope of this article, presented below is a little more information that you may find useful.
Perspective. We tend to think of currencies as being created and backed by specific countries, but we also use other forms of payment today. For example, widely used payment alternatives include prepaid Visa credit cards, American Express Travelers Cheques, and Walmart MoneyCards. Given the emergence of alternative forms of payments, new digital payment options such as bitcoin seem like a natural and expected progression. Today, many large organizations—among them Expedia, Newegg, Overstock.com, TigerDirect, and WordPress—now accept bitcoin. The number of bitcoin transactions has increased steadily to more than 100,000 per day.
Getting started. To try out bitcoin, visit bitcoin.org and click the Get started with Bitcoin button. On the resulting Getting started with Bitcoin webpage, click the Read more button and make sure you understand what's on the "Some Things You Need to Know" page. To continue, return to the Getting started with Bitcoin webpage, click the Choose your wallet button, select your desired platform (mobile, desktop, hardware, or web), and educate yourself about the various wallet providers, which function similarly to how stockbrokers assist you in buying and selling stocks—your wallet provider assists you in buying and selling bitcoin. Your wallet isn't actually used to store your bitcoin as all bitcoin and all bitcoin transactions (even historical transactions) are stored on a giant public ledger called the blockchain; however, you will need a wallet to buy and sell bitcoin (using your public key to receive bitcoin and your private key to send bitcoin). Presented below are the procedures I followed to set up and purchase my first bitcoin. Before you follow my lead, please note that bitcoin changes in value—often rapidly and dramatically— and a prominent bitcoin developer, Mike Hearn, recently called bitcoin a "failed experiment" and wrote that he sold all of his coins because bitcoin's "fundamentals are broken," which he asserts will result in prices falling in the long term. In addition, I don't endorse or discourage bitcoin use, but I do advise caution with all decisions that put your money at risk.
In my case, I selected and downloaded the U.S.-based Coinbase wallet option (simply because it is the most popular wallet) by visiting coinbase.com, entering my email address, and clicking the Get Started button. Next I created a username and strong password, confirmed the verifying email confirmation, signed into my Coinbase account, added and verified my phone number, and added and verified my payment information. (By default, for added security, Coinbase will require you to enter a unique security code sent to your mobile phone each time you access your account.)
Next I clicked the Buy/Sell Bitcoin option and followed the simple on-screen instructions for purchasing a bitcoin (at the time of my purchase one bitcoin was worth $437.62). Similar to buying gold or silver, the bitcoin's value will fluctuate up or down, and there are no assurances that it won't fall in value or become completely worthless. For this reason, bitcoin is not considered an investment, rather it is an alternative payment method you might use to facilitate a monetary transaction. Presented below is a chart depicting the value of bitcoin since the alternative currency's inception.
Bitcoin's value. The value of a single bitcoin reached its highest point of $1,145 on Nov. 29, 2013, but has fallen considerably since then. In 2014, bitcoin made news for negative reasons—the FBI arrested two bitcoin users in January 2014 for alleged money-laundering activities, and a February 2014 snafu led a bitcoin exchange (wallet provider) to suspend trading for several days to troubleshoot technical issues related to updating the bitcoin blockchain.
Bitcoin's market price in U.S. dollars
It is difficult to predict the future of bitcoin because public confidence is an important key to maintaining the value of any currency. Perhaps the shroud of possible black market/criminal activities may hinder bitcoin's future, or perhaps bitcoin will break out to become a trusted and widely accepted currency worldwide. You probably should not hold bitcoin as an investment, and accepting it and cashing it out on a timely (immediate) basis might lessen your financial risk. Despite the setbacks mentioned above, at the end of 2015, hundreds of bitcoin ATMs were operating worldwide—more than 150 in the United States alone.
The effort involved in setting up and accepting bitcoin is minimal, and as long as you deal in low-value transactions and redeem your bitcoin for cash immediately, your risk may be somewhat mitigated. Perhaps your decision to accept bitcoin payments should be predicated on accommodating your customers' payment preferences more so than the possibility that bitcoin will be a passing payment fad—if your customers want to pay using bitcoins, then you should consider accommodating them.
About the author
J. Carlton Collins (email@example.com) is a technology consultant, a CPE instructor, and a JofA contributing editor.
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