I have never been a Bitcoin fanatic. Part of that comes from being a long-term, buy-and-hold investor with a minimal risk tolerance. The bigger part is just that I’m a miserable curmudgeon who can’t get into the idea of Bitcoin being genuinely useful.
For the record, I’m wrong. Bitcoin has a very important – I think – use for small businesses, especially those that take online payments or charge small fees.
That’s not the main point here, though. The point is, the technology that underpins Bitcoin is both fascinating and useful. There are already a handful of applications for the blockchain with plenty more down the road.
I want to talk about three that you can put in place today – or maybe, like, in a week or so. I mean, stuff takes time, right?
A brief overview of blockchain
If you are both already a blockchain expert and somehow unclear on how it could work for your small business, go ahead and jump down to the next section. We’ll keep this overview short for everyone else.
Bitcoin is valuable and useful because it requires effort to generate and it’s completely transparent. It achieves this through a technology called the blockchain.
The blockchain is a series of transactional datasets formed into “blocks” of data. Each contains information about previous transactions so that you can trace the history of transactions back through time, verifying that each one is unique. This stops people from double spending Bitcoins.
The technical details of the blockchain are fascinating, but it would take more time and space than we have available to fully cover. If you’re interested, check out this blockchain primer from UC Berkeley.
For small businesses, the major benefits of the blockchain are its:
- Irreversible nature
- Low per-transaction cost
- Broad availability and global reach
I believe that blockchain technology is going to have a major impact on the day-to-day of business in the next five years. I’m not the only one, either, as many major banks are already working on blockchain-based financial and contractual solutions.
On to the applications.
The clearest and easiest way to start using blockchain tech is to start accepting Bitcoin – or another cryptocurrency – for payments. These payments are fine for peer-to-peer transactions, but they work even better for small businesses.
First of all, Bitcoin transactions are irreversible. Small businesses are often hit with unfair chargebacks, based on unhappy or untruthful customers. Since Bitcoin payments have no middle man for processing, there’s no one to demand a reversal from. That means, once you’re paid, you can rest assured that the cash is going to stay in your digital wallet.
Because there’s no middle man, you also pay substantially less in transaction fees by using Bitcoin – again, just the most common currency, feel free to use any option you like.
According to a Bitcoin fee tracker, the average transaction costs the equivalent of about $0.30 – which is around 31,000 satoshis, the goofy Bitcoin subunit name.
Finally, you can get those cheap, one-way payments from anywhere in the world. The cryptocurrency network doesn’t care where you are. If you sell a digital product, you can accept payments from anywhere and “send” item to the buyer without ever having to worry about international payment acceptance.
The major downside to accepting Bitcoin payments is that Bitcoins are not pinned to a currency. This is a real problem. Over the last year, Bitcoins have been worth everything from $380 to over $1,125. You can flex your prices to reflect the day’s rate, but you have no way of knowing what Bitcoin will be worth in the future.
There is a major “user beware” aspect to running a business solely on Bitcoin.
Funding your small business
This is very close to accepting payments, but managing a fundraising campaign with a blockchain-based currency has plenty of benefits.
First and foremost, you can raise capital from anyone, anywhere without taking on major fees for doing so.
Beyond that basic setup, though, the blockchain also allows you to issue unalterable contracts and digital shares linked to a transaction. Using the blockchain, you could raise funds locked into contracts regarding revenue-based funding or profits sharing without having to employ traditional financiers.
Again, there is some exchange risk here, but you can mitigate it by making immediate transfers to your bank of choice. While this eliminates some of exchange risk. There’s a great overview of how this sort of risk works over on Quora.
I think the next big thing for the blockchain is going to be its use in escrow. Right now, the blockchain mainly supports a series of alternative currencies like Bitcoin. These currencies are supported by the difficulty they require to create and the transparency they have once created.
The goal with those currencies is to create a product that has value in itself, can be a replacement for fiat currencies, is usable across the world, and that has no government oversight. However, that’s not all there is to the blockchain.
Using smart contracts – which are small sets of rules that can live in a block – you can create escrows that don’t require third party oversight. A small business can setup a series of rules, for instance, that would manage the escrow and release the deposited cash only when specific conditions were met.
In this way, you could sell digital products with the guarantee that the customer would not have to pay until the product was delivered. At the same time, you would be able to guarantee that the product wouldn’t be made available to the buyer until money for the purchase was deposited.
As the escrow world expands, you’ll be able to use it for even more interesting transactions. Delaware is working to put liens and asset ownership on the blockchain, allowing businesses and customers to make real world transactions using immutable smart contracts.
One day, you’ll buy a house using the blockchain instead of relying on a third party escrow.
2017 and beyond
This year is going to be great for the blockchain. Keep an eye on Delaware’s Blockchain Initiative, which is working to make blockchain technology both accessible and viable for popular consumption. Basically, the goal is to make it more aligned with existing finance and business laws.
If you’re starting a business up, consider the pros and cons for working with the blockchain – through Bitcoin or another alternative currency – from the start. For more finance trends and tech, check out the Capterra Finance Blog.
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