By Dr Gordon Fletcher, Co-Director of the Centre for Digital Business, Salford Business School
Bitcoin has received a lot of attention over the last year. This has largely come from its spectacularly rapid rise in valuation 12 months ago when it raced past the USD1,000 mark, to the crash and disappearance of MtGox, one of the key bitcoin exchanges, followed by a gradual decline in value so that it is now ‘only’ worth about £234 today.
Focusing on the exchange rate of a cryptocurrency is only a small part of the story, and that is a story that is primarily of interest to speculators and hoarders. For the rest of us bitcoin is best regarded as a new currency that we can use — primarily at this stage for shopping online. A close comparison is found in retailers such as Debenhams, and others, who will happily accept Euros for your purchase even if the exchange rate offered can be something of a disincentive.
Bitcoin is more than just a fad — it is a currency that has unexpected but underlying real value that still justifies its current exchange rate.
Acceptance of bitcoin in the UK has been slow, but a sample of the current early adopting retailers reveals that the range of business types is as wide as retail itself. There are cab companies, chippies, bicycle stores, restaurants, photographers, pubs and farm shops. This is a far cry from the generally geeky image of bitcoin usage that the popular media has so far portrayed. But of equal significant, since May the CeX chain accept bitcoin across all of their stores — the earliest signs of high street acceptance.
When you start talking about bitcoin in its own right — rather than in terms of its prevailing exchange rate — the value and opportunities of bitcoin more fully emerge. As a currency, bitcoin isn’t burdened by being linked to a national debt or the politicized decisions of national governments. Instead its underlying technology — the blockchain — provides real capabilities for secure transactions of all contract types and not solely those of a financial nature. The blockchain in this way is best described as a public ledger of transactions, agreements and contracts. Both the Ethereum project and IBM’s Adept platform use the blockchain in this way and this brings with it the benefit of hundreds of independent computers all confirming the authenticity and accuracy of each transaction that is being put through the system. A currency founded on this transparency and certainty is, in the longer run, probably a stronger foundation for value than the current range of fiat currencies.
Taking this view of bitcoin, small business and entrepreneurs have a range of opportunities to explore.
1. Payment Acceptance is the most obvious opportunity. Accepting payment in bitcoin is increasingly straightforward and can bring a range of benefits including lower transaction fees, higher levels of fraud protection and greater accuracy of record-keeping. These benefits alone will make bitcoin a competitor to more conventional payment methods as more consumers hold bitcoins. The current valuation of bitcoin may make small purchases appear daunting but as a digital currency very small fractions of a single bitcoin are as simple as any other transaction.
2. Peer-to-peer lending becomes a truly a one-to-one arrangement with bitcoin. Small businesses can always benefit from a carefully planned injection of investment for expansion. With bitcoin the lender can be a current or prospective customer with real interest in the business rather than a commercial bank.
3. While bitcoin is still relatively new, a business can show off its digital awareness and credentials as a marketing feature. This benefit will have longevity when 50% of small businesses still do not have a website.
4. As a currency with international standing, using bitcoin provides small businesses with a chance to reach out to much wider audiences and extend the potential range of suppliers and products through a common trusted language of exchange. International business has not directly benefitted from the advent of digital business as cultural and national boundaries still represent a barrier to trade. The built in security of bitcoin enables greater degrees of trust with prospective trading partners.
5. As a completely digital currency bitcoin also paves the way for entirely new business products and services. The most obvious are finance based products. But with increased public awareness and some programming knowledge unthought-of business ideas could become very real. Bitcoin’s existing built-in secure mechanisms for exchange can be included directly into software and web sites.
There is a future for bitcoin with small businesses and entrepreneurs. In the long run bitcoin and its underlying blockchain could provide the mechanism for an off-the-shelf business structure that enables all the mechanisms for running a successful business, including all the legal and financial arrangements as well as all the external facing marketing activities. We could soon see complete business startups created in the same way that websites can be created with a single click of the button.