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Is the currency of international business set to change?

Over the last thirty years the way we do business has been transformed by technology, from communication to location, the average UK business would now be unrecognisable from its former self. As technology makes the world a smaller place, it’s becoming easier for businesses to transact across borders and subsequently across currencies. So if the way we do business is changing, why isn’t the way we pay for business changing?

What is alternative currency?

The issue with our current currency system is that it is subject to influence from foreign exchange rates and overseas transaction fees meaning UK businesses pay more to transact their trade with the rest of the world.

The Rise of Bitcoin from Duncan Elms.

Enter Bitcoin. As a decentralised virtual currency, Bitcoin presents business owners and consumers with a truly flexible and transparent payment system. Introduced in early 2009, Bitcoin allows users to transact directly without the need for an intermediary and allowing an international freely tradable currency vehicle. Since 2009 more and more institutions are accepting Bitcoin payments and specific Bitcoin exchange markets exist to convert the virtual currency into local currency. In 2013 the first Bitcoin ATM began operating in Canada and to date over 14 million Bitcoins are in circulation, to put this value into perspective the current exchange rate for GBP to Bitcoin is 171.6 – 1, representing over £2.4 billion in market capitalisation, and this number is consistently growing in an upwards trajectory.

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Advantages of Bitcoin to UK businesses -

  • Increased fraud protection – As Bitcoin payments are non-reversible, it cuts down on the chargeback fraud that is associated with credit card payments and exposing the business to less fraud risk meaning prices can be kept down for consumers.
  • Transaction fees – typically credit card transaction fees cost a business between 2 – 5% per transaction. With Bitcoin the transaction fees range from 0 -1% representing significant savings for businesses.
  • Transparency – All Bitcoin payments are listed on a public ledger in the form of a block chain. This allows for greater transparency and means transactions do not incur double spending. An additional benefit of the block chain system is the transparency of accountancy on the ledger results in greater consumer trust in a brand.
  • Fast international payments – As Bitcoin is a decentralised currency, there is no need for international payments to be converted at either end. A payment from London to Dubai will be processed just as quickly as one from London to Reading.

Disadvantages of Bitcoin -

  • Volatile market- Bitcoin is still relatively young and is still in a stabilising process. It’s value in terms of local currency fluctuates greatly. On 04/12/2013 the value of Bitcoin to GBP was 1 - £751.38, fast forward 3 months and the value has dropped to £166.99. Its worth noting that in 2015, fluctuations are far less severe but still damaging enough to lose investors significant amounts of money.
  • Security- As an open source tool it lies with the user to secure their funds and wallet whilst using Bitcoin, this may result in those less familiar with the currency to be at risk from hacking.
  • Taxation- trading internationally in Bitcoin requires knowledge of local legality of Bitcoin use and its relation to tax.

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Should my business invest in Bitcoin?

Whilst larger companies can afford to experiment with Bitcoin transactions, it’s a little more risky for small businesses. The potential benefits may seem appealing but they are not without risk, from market fluctuations to security breaches, it’s probably best to wait until the currency stabilises. The most notable reason for small UK businesses to wait before adopting Bitcoin is its popularity, it’s not popular enough. For the currency to show real benefits to UK SME’s it will require trillions of global market capitalisation not billions. SME’s may find that there is a relatively small market of Bitcoin users.

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