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What Is Bitcoin, and Should You Be Using It?

Few businesses accept Bitcoin, the fairly new virtual currency.

Currency risk takes on a whole new meaning for companies that have been willing to accept or process Bitcoin, the virtual currency that crosses borders and, according to its proponents, could one day be a threat to credit cards and popular money-transferring services.

For now, the currency is more of a novelty for the small number of businesses that have either agreed to accept it as payment or have changed their policies or systems to enable their customers to use it. For the latter group, such as online marketplace Etsy, which allows buyers and sellers to use Bitcoin if they wish, associating with Bitcoin is a way to appear hip and welcoming of change yet let others deal with any associated risk.

To be sure, the currency is volatile. Just a few years old, Bitcoin plummeted in value earlier this month, losing more than half its worth in a span of days. Just 11 million Bitcoins are in circulation as each are created by a computer algorithm and will max out when they reach 21 million. Individuals can purchase them through exchanges – the most prominent one is Mt. Gox – which has led to speculation and highly publicized highs and lows for the currency over its short lifetime.

However, fans of the currency believe it’s worthwhile for companies to pay attention to Bitcoin as they predict the currency will evolve from its starting days as a buzzed-about term by computer programmers and tech enthusiasts to a mainstream tool for making and accepting payments.

“As the Bitcoin market continues to gain mainstream adoption and acceptance, it will stop fluctuating so much and begin to make more sense for large companies,” says David Barrett, CEO of expense-management company Expensify.

Bitcoin’s Inner Circle
Merchants that have begun accepting or enabling the use of Bitcoin in some capacity include a local bakery, a winery, a bar, a car dealership as well as national brands such as Reddit, OK Cupid, and WordPress. This handful of businesses has given the currency some legitimacy by embracing its use. They see potential in Bitcoin and don’t want to be left out if the currency does one day take off.

Those that use the currency tout the fact it’s decentralized and can make money transfers between two parties less expensive. That’s why Expensify, starting in March, enabled its systems to take on Bitcoin reimbursements, to give its corporate clients an alternative way to reimburse contractors working overseas without having to pay hefty transaction fees, such as those imposed by PayPal. “Companies with international offices most likely already have systems set in place to reimburse the employees in that country’s native currency,” Barrett notes. “The benefit Bitcoin brings is that you can transfer funds from one entity to another almost instantly regardless of physical location with the added benefit of avoiding international money transfer fees.”

For CFOs contemplating whether their company should use Bitcoin in some way, Barrett cautions that the currency is “extremely volatile right now.” Still, it may be worth considering for firms that are paying a high number of transaction fees. “It is an extremely useful tool when used correctly, but they should take into consideration that Bitcoin has been fluctuating greatly day to day,” he says.

Bitcoin’s first movers find themselves having to do double duty as educators, as Barrett has done on various news shows. “The current media hype around Bitcoin is causing the public to treat Bitcoin like a commodity rather than a currency,” he says. Much of the attention has surrounded the movement on exchanges, which speculators have been using but that wouldn’t affect any one person’s ability to transfer Bitcoins between each other, Barrett explains. “The people who lose out are the ones buying Bitcoins and then selling them two hours later when the prices go up, which is not what a business would be doing with Bitcoin,” he says.

For companies that want to appear ahead of the curve, associating with Bitcoin can make sense, particularly from a marketing standpoint. Users of social media site Reddit, many of whom are Bitcoin devotees, can use the currency to pay for one of its services. And users of online dating site OkCupid, whose demographic skews toward the twentysomething crowd, can make Bitcoin payments, although few do at the moment.

However, Christian Rudder, co-founder of the site, who may have a higher comfort level with Bitcoin because of his friendship with Mt. Gox’s creator, believes it will become more popular over time. “It’s another way for people to pay for things. We’re in business to accept people’s payment, and if people want to pay in Bitcoins, of course we would take them,” Rudder says.

The upside of Bitcoin, he adds, is the lack of transaction fees. On the other hand, it’s a niche currency that requires companies to do some tinkering with their internal systems – however minor, to accept. “Bitcoins are not as universal [as the dollar],” he says “We’re trying to stay ahead.”

Sarah Johnson is a freelance business writer and editor.