Bitcoin: The Hidden Danger to Your Business

July 1, 2013

Bitcoins (BTC) are a growing new form of digital currency created in 2009 by Satoshi Nakamoto, who envisioned them as a peer-to-peer, electronic cash system. His goal was to create a decentralized currency, not backed by any central bank or country, therefore allowing the free market and determine the worth and pricing of the bitcoins. New bitcoins are “mined” electronically and the rate of creation is halved every four years until the total number of coins reaches 21 million.

There are a few reasons why businesses should stay away from accepting bitcoins as a form of payment for goods or services. The first is their extremely volatile exchange rate. The value of a single BTC rose steadily from 2009 to early 2013. In April 2013 the value was nearly $270 per bitcoin. Shortly after reaching this peak value the currency plunged in value to around $50 per BTC. While the value did rise again in the following months, it stabilized around $100 in value. The threat here to the business is that while there is a real value behind this currency, it fluctuates more rapidly than the rate of the USD. This can expose the business to losses if the value drops suddenly.

Another reason that business owners should not accept bitcoins is the exposure the company can suffer as it pertains to business intelligence. One point that supporters promote is the anonymity of transactions while using BTC. While this is true for the most part, determined individuals can associate real-life identities with the unique addresses assigned to Bitcoin wallets. All BTC transactions are recorded in a public ledger. Therefore, any company or individual that makes a payment to a company has their unique wallet number and can use it to track future transactions.

The threat to businesses from this is their future transactional data is public record. Information such as supply chain details, spending habits, and financial data could become available to competition. This knowledge can be analyzed to take away competitive advantages and undermine market share of your business.

Bitcoins can also be the target of theft. Because of their electronic nature and being stored on either a personal computer or mobile device they are subject to hackers trying to gain access to your digital wallet. Over the last few years, there have been incidents where over USD $8 million have been accessed and removed by hackers from exchanges.

Finally there are concerns that federal regulators could step in and enforce responsibility of companies to ensure that customer’s personal data remains private. The Federal Trade Commission (FTC) has been assessing the privacy of customers that use bitcoins to pay for goods or services from businesses and how security practices may need to be updated in light of new financial products.

When you boil down all these facts about the exposure a business experiences when dealing with this new currency, the risks greatly outweigh the rewards. Merchants should evaluate what level of risk they are willing to be subject to before diving into this market that is still in its infancy. Host Merchant Services can provide secure and reliable payment processing at a low cost to your bottom line. Contact one of our payment experts today at 877-517-4678 for a no obligation evaluation of how we can help your business.

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