Chances are, by now you’ve heard of something called Bitcoin. You’ve heard that people trade it on the internet, its value changes all the time, and Elon Musk really likes it. Most people of my generation (Baby Boomer/GenX) have the same basic questions: What is it? Is it a scam? Should I invest in this? Should my business accept it? To unpack the mystery of Bitcoin a bit, I’m going to try to answer these questions.
What Bitcoin actually is, from a technical standpoint, is very difficult to explain. I could go into great detail about “blockchain,” which is the technology that makes cryptocurrencies possible. However, this information is widely available on the internet if you’re inclined to do the research.
From a practical standpoint, Bitcoin, or other cryptocurrencies, acts like a foreign currency. You exchange dollars for Bitcoin and Bitcoin for dollars at whatever the current market rate is. Bitcoin is stored in a “digital wallet” on your computer or phone with a highly encrypted password. There are several other internet cryptocurrencies like “dogecoin” that operate similarly to bitcoin but have different market rates.
Like the actual U.S. dollar, the value of Bitcoin is backed up by people’s faith and confidence in the currency. The U.S. dollar used to be backed up by gold but hasn’t been since the mid 20th century. Despite this, people accept that the dollar has value. The fact that Bitcoin isn’t backed up by anything “tangible” doesn’t make it a scam. However, unlike the U.S. dollar, there’s much greater risk that Bitcoin will become a less viable way to pay for goods and services. This lack of certainty causes the price of Bitcoin to change rapidly. Any news that relates to the legitimacy of Bitcoin might cause it to rise or fall. For example, if the U.S. government makes an announcement related to increased Bitcoin regulations, the price of Bitcoin will fall significantly. If you plan to invest in Bitcoin make sure you’re aware of the potential risks.
In the U.S., at the present time, most small and medium sized businesses don’t need to accept Bitcoin. The U.S. dollar is essentially the only game in town when it comes to currency. For legitimate transactions, few, if any, people will only be willing to pay in Bitcoin.
There may be some instances, however, where accepting bitcoins is advantageous. If your organization is involved in technology, accepting Bitcoin may signal that you’re on top of the new trends. The novelty of accepting Bitcoin could attract you a few customers that you may not have gotten otherwise. If you are with a nonprofit, it may also be possible to accept charitable donations in cryptocurrencies. With a little research and some technical work, this could provide a way to expand fundraising that would appeal to a different demographic.
But, in general, unless your organization is feeling adventurous, there’s no need to rush into the wild world of Bitcoin now as part of your normal course of doing business. It could be part of your personal long term investment strategy, but be prepared for a wild ride. And keep an eye on the latest financial trends. You never know what might happen with cryptocurrencies.