Should Philadelphia Brewing Company really accept Bitcoins as payment?
Philadelphia Brewing Company announced earlier this week that they’d begin accepting Bitcoins, an online payment network and currency, as payment for their delicious, delicious beer.
“Philadelphia Brewing Company will be the first brewery in the United States to accept the crypto-currency Bitcoin as payment for both retail and wholesale purchases effective immediately,” they wrote in a press release. “[Bitcoin] is a simple, efficient way to accept electronic payment. With Bitcoin, there are virtually no barriers to entry besides ones willingness to accept it. They will be using the Bitcoin payment processor, Bitpay, which offers tools that allow merchants to accept Bitcoin and have U.S. dollars deposited into their bank accounts the next day for a 1 percent fee.”
I’d love to take this time to tell you what a great idea PBC has here, because Bitcoin is the wave of the future. But the truth is, I have no idea! So, I contacted Philly-based Bitcoin researcher and writer Kristov Atlas, a member of the Philadelpha Bitcoin Meet-up group to tell me all about it.
PW: You’re an expert, so before we begin, can you explain Bitcoin for our readers—what it is, how it works?
KRISTOV ATLAS: Bitcoin is both a payment network — like the credit card system — and a currency — like the dollar or euro. It’s very different from the technologies that have come before it, though. The credit card system is operated by a few corporations like Visa and MasterCard, but Bitcoin is a peer-to-peer system that anyone can participate in.
You can download the Bitcoin software and, within a few clicks, become a part of the Bitcoin network. Also, Bitcoin is different from most currencies because of its peer-to-peer nature; instead of a central bank run by technocrats who manipulate the money supply and fix interest rates, Bitcoin is an open-market currency with a fixed supply and rules that participants agree on democratically.
Obtaining Bitcoin has been not been as easy as it could be because of the chilling effect that regulatory uncertainty creates in the banking system. But companies like Coinbase make it pretty easy to purchase online, and the spread of Bitcoin ATMs is making it increasingly easy to purchase when you’re traveling around town. In fact, a couple entrepreneurs who frequent our local Bitcoin meetup (bitcoinphl.com) are working on deploying Bitcoin ATM machines in Philly in the near future.
Once you have bitcoins, they’re extremely easy to spend. Bitcoin is like cash that you keep on your phone instead of in your wallet. You can send bitcoins using an app on your mobile device, or even via text messages through services like Coinapult if you have an older phone.
Philadelphia Brewing Company recently announced they’d become the first brewery in the U.S. to accept Bitcoin. Is this a good idea?
The entrepreneurs that I’ve been in contact with and following have had wild success from being early merchant adopters of Bitcoin. Being one of the first businesses to accept Bitcoin among your competitors puts you on the map as a hip business on the cutting edge in serving customers’ needs. There are also loads of people who own bitcoins who are eager to spend them and grow the payment network, so accepting Bitcoin is like turning on the Bat-signal for these folks, and a great way of bringing in new customers.
What advantages would a small brewer like PBC have for accepting online currency?
Small companies have a difficult time achieving the scaling effects of mass production that larger companies can achieve, but their small size also makes them more agile in adopting new business strategies. Accepting a brand-new currency is one of those tactics that can slingshot a business forward in success. Large businesses might have to modify legal contracts with payment providers, develop employee training, adopt new accounting systems, and so on, but a small business can open a Bitcoin wallet or start a Bitcoin merchant account today and immediately start accepting bitcoins.
They can also start paying employees partially in bitcoins if they wish, which can make them more competitive in the hiring market as well; there are a lot of intelligent and business-savvy people looking to grow their bitcoin wealth and tap into the 6000 percent increase in value that occurred during 2013.
Possibly the most valuable advantage that PBC will gain is being able to accept something other than cash from customers, and for very low fees; this has been difficult for many businesses in the past who couldn’t afford to pay the minimum transaction fees on credit cards. Lastly, I think PBC will be glad to accept Bitcoin from wholesale distribution customers. That’s money that can be deposited into their accounts the same day, rather than delivery truck drivers picking up checks from other businesses that will take several banking days to clear.
I heard Overstock.com is now accepting Bitcoin, too. Do you think this is the beginning of a trend?
There’s no doubt that Overstock’s acceptance of Bitcoin will be replicated. When the CEO announced their plans to accept Bitcoin in December, he started out with the conservative prediction that it would take place in the next six months. Six months became less than three weeks, because the amount of attention that this announcement received tipped Overstock off on the enormity of the opportunity, and they didn’t want to get beat to the punch by a competitor.
With a profit margin of around 2 percent, Overstock stands to significantly improve their bottom line by switching from credit card payments with 2 or 3 percent fees and a myriad of charge-back problems to Bitcoin-based payments with 0 to 1 percent fees and no charge-backs. Some might point out that there is substantial price volatility in Bitcoin right now, but Overstock will be working with a payment processor called Bitpay that allows merchants to convert their bitcoins to dollars immediately if they wish, and avoid the exchange risk.
Hypothetically, what could go wrong for a company’s venture into Bitcoin?
Right now, the two biggest challenges for businesses accepting Bitcoin are price volatility and security. If you’re a business operating on a tight margin and you accept Bitcoin and ignore the volatility, you might not be able to make payroll or pay your bills the next week in the event of a price dip. Outside of the U.S., lots of businesses are already comfortable with this phenomenon because they need to transact in multiple foreign currencies with customers.
In the U.S., a lot of businesses just accept payment denominated in U.S. dollars, so they’ll have to take the appropriate measures with Bitcoin that businesses are already taking in other parts of the world. PBC announced in their press release that they will be using Bitpay to immediately convert to dollars, and so they’ll have this risk covered unless they decide to deviate from the plan and hold onto bitcoins for longer.
The other issue is security. You need to take care about how you store bitcoins, and there are secure ways of doing so and insecure ways. It’s money stored on a computer, so it’s obviously an attractive target for hackers and malware. Since the transactions are irreversible, it’s difficult if not impossible to get back stolen bitcoins. As Bitcoin grows and newcomers enter the market, some people will inevitably get burned, but over time we’ll see fewer and fewer thefts as software security improves and users become more educated, just as we saw with the development of the Internet’s security ecosystem.
I think comparing Bitcoin to the Internet is an apt comparison, because it’s really that radical of a change from the legacy financial systems that are slow, unfair, and heavily centralized. It’s also an apt comparison because Bitcoin stands to have the kind of effect on money that the Internet has had on the flow of information.
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