Betting on Bitcoins: A New Way To Pay, or Just Here Today?

bitcoin anchorman

If you don't have one eye on bitcoins already, you will soon. For weeks, the digital currency has been skyrocketing in dollar value and in cultural cache. Owners are watching the trendlines, wondering whether to buy or sell. Economists, tech nerds and opinionated citizens are debating whether the bubble will burst. Some people are still wondering what the heck they are (if you're one of those, never fear — an intro is below!). For companies, though, the conversation isn't speculative — figuring out whether or not to accept bitcoins as payment is an important business decision. Our office is currently embroiled in a debate over this very issue, and we decided to lay out the arguments for and against.

Bitcoin Basics

Bitcoins are the world's most widely used experimental digital currency — currently, there are about 11 million in circulation, with a combined U.S. dollar value of over a billion dollars (though this changes often — the bitcoin value trend lines look like the EKG of someone watching the bitcoin value trend lines). They've been around since January 2009, when developer Satoshi Nakamoto became frustrated with the need for "trusted third parties" to get involved every time people want to buy or sell anything online, and published a paper explaining his idea for a better system.

The bitcoin economy is unique in that it's completely decentralized — it's not controlled by the government or any other entity, and it isn't processed through banks or clearing houses. Instead, computer networks "mine" bitcoins like gold, using a software model that anyone can download. The model is designed to keep the creation of bitcoins at a steady rate — right now, a new "block" of 25 is found every 10 minutes or so, and creation is set to peter out in 2140. The computer networks also collectively keep track of all transactions, which keeps the system honest. It's a new idea — a real-world economic experiment — and bitcoin popularity has spiked along with its value.

bitcoin google trends

Bitcoin Business

As people all over the world fill up their pockets with digital gold, more and more businesses are providing places to spend it. Large online service providers have jumped on the bitcoin bandwagon, including Wordpress (a blogging platform), Reddit (a social news and entertainment site), and Expensify (which does expense reporting for small businesses). Now, some smaller businesses that provide offline goods and services are hitching a ride as well — you can use bitcoins to buy anything from sports equipment to specialty incense to Swiss watches, or you can donate them to a Catholic church in California. It's enough to make us ask — what's on that wagon? Should we hop on too? Over the course of several days and many discussions, we've laid out the aspects of bitcoins that could tempt us into that decision — and what's still a little scary.

The Pros

Consumers Cutting Out Middlemen

Bitcoin is an entirely digital currency. For this reason, tech sites like GigaOm, Tech Crunch and others seem fairly excited about this new form of exchange. We’re an online company, and we designed our security systems from scratch, so the digital and technical aspects of bitcoin appeal to us, too. We’re big fans of anything that helps consumers find more flexibility, especially when the solution involves the internet: those are two keys to our success. Bitcoin was also designed to cut out middlemen: banks and the governments that control them. Instead, it’s a distributed network, and the transactions are verified by a dispersed group of “miners.” We too sell online, cutting out middlemen like salesmen and alarm installers. Our customers love having freedom from annual contracts and feeling like they have the flexibility to leave us whenever they want. They also love the transparency afforded by a no annual contract system that does exactly what it says on the tin, without messy fine print. Bitcoin aims for transparency, too — its software is open-source, which means anyone can see how it works at any time. On a more practical level, bitcoin transaction fees are very low — BitPay, the most popular payment processor, takes less of a cut than credit cards or Paypal — which means it actually costs less for us to accept them.

Anonymity

Since bitcoins are sent between unique, secure websites, there's no need for people to exchange private information in order to swap money — you can even make a separate bitcoin wallet for every transaction. As security experts, we understand the value of this kind of privacy. The Bitcoin website explains that, since no one is watching your wallet but you, it's important to take precautions to secure it, just as you would with your physical wallet. They recommend encryption, backup, and redundancy — the same steps anyone should take to protect their physical belongings.

bitcoin spock

Opportunity to gain new customers

As a business, we obviously are interested in how accepting bitcoins could enable us to reach new customers. We are a home security company, but we’re also the designers of our wireless security systems. Tech lovers have been a huge part of our customer base, and perhaps bitcoins at checkout would encourage more of those visitors to try us out. The question we ask ourselves is “Will the TechCrunch reader be more likely to buy when they see the bitcoin option at checkout?” We wonder if accepting bitcoins is a way to send out a beacon to a particular segment and say to them “Your Business is Valued Here!!”



Early Adoption

If Bitcoins or something like it represent the wave of the future — as the fine folks here, here and here think — then getting comfortable with accepting this currency sooner rather than later has it’s advantages. We’d likely be the first home security company to do it (and we like the idea of that!), but also we’d be able to work out the kinks of accepting this type of payment earlier and not find ourselves behind the curve. (Although if we did wait, we could see how others like Wordpress work out the kinks and then follow their lead.)

The Cons

Novelty

Since bitcoins are a young exchange, it's hard to predict their ultimate fate. Although the US Government's Financial Crimes Enforcement Network, FinCEN, recently released a report confirming that bitcoins are currently legal, it's possible they (or other major world governments) could have a change of heart. It's also possible that another digital currency could rise up and overtake bitcoin. The work required to make our purchasing system bitcoin-friendly might not be worth it if the bitcoin is obsolete or illegal in a few years. Also, since it's not only a new currency but also a new technology, there could be bugs or problems that haven't even cropped up yet. One that some experts fear could be looming on the horizon is the possibility that hackers or monopolizers could acquire more than 50% of the computing power of the bitcoin network, and without the checks and balances that the diverse network now offers, they could use that power for evil. Others fear simpler hacks based on information falling into the wrong hands, which could empty wallets, as happened recently with Instawallet.

Unpredictability

Bitcoin's youth also makes its value incredibly volatile — you can watch the exchange rates spike and dive all day, like a dolphin show. As a merchant, we would need to convert all bitcoins we received as payment into a more stable currency immediately. Luckily, this is possible with many service providers — although they do charge a fee (BitPay, the most popular, currently charges 0.99 percent, which is less than Paypal and most credit cards). But it takes 10 minutes to verify a transaction in bitcoin, and even in that small amount of time the value of the currency can swing like crazy. Plus, most of these providers pay out at the end of the day, so there's waiting time involved. If something were to happen to our provider, we could lose a whole day's worth of bitcoin transactions. That's a big risk!

bitcoin hindenburg

Returns

The very irreversibility and anonymity that draws some people to bitcoins makes it impossible to refund them. Because of this, and to insulate ourselves from currency risk, we’d only accept bitcoins using a service like BitPay or Coinbase, meaning our customers would pay bitcoins, but we’d only ever see USD. (Technically, we could keep a bitcoin reserve to pay customers back with, but that would mean some of our assets would take the hit if the value of bitcoins crashed — a risk we're not willing to take). So what happens when a customer wants to return? We could only pay them back the USD value of their product — which means that if the value of the bitcoins they used to pay was worth more by the time they wanted to return, they'd lose money on the transaction. Our bitcoin customers would be like second-class citizens, which is a pretty crappy thing to have to explain to an angry customer who feels he should get back exactly as many bitcoins as he paid, not the dollar amount he traded them for.

Developing a coherent return policy that was fair to everyone would be impossible. And that really gives us pause about hopping on the Bitcoin Express. One of the things we care about deeply is making sure that anyone who tries SimpliSafe and isn’t happy with it gets a full refund. We offer the industry’s ONLY 60-day Money-back Guarantee, and we even pay for return shipping. So this is where stuff gets tricky— the words "money-back” mean something different when you're juggling bitcoins and USD.

The bummer about that is that we don’t want anyone to feel bad after trying SimpliSafe. We have that return policy specifically so that our customers can feel comfortable giving us a try, without losing a penny if they don't end up happy with our product. The exchange involved with using bitcoins would prevent us from providing bitcoin-paying customers with that same comfort.

Reputation

Although bitcoins have been getting a lot of press lately, and are accepted in more and more locations, they're still a fringe currency with a bit of of a fringe reputation. Some people think they're the way of the future, and some people think they're only for kooks and speculators (and criminals). Aligning ourselves with them might appeal to some customers and alienate others, even though we would still keep all of our existing payment options. As much as we want to attract forward-thinking, tech-savvy people, we don't want to freak out others in our customer base.

The Decision

Accepting bitcoins is a risk, but there is potential for reward. We went through this pro/con exercise in order to see if it was worth a shot. At the end of it, we're leaning towards developing the ability to accept bitcoins and testing it out for a month. Then, depending on what happens, we'd either keep it as a payment option or kick it to the curb.

What do you think? Merchants accepting bitcoins a plus in your book or a big no-no? Tell us in the comments!

NOTE: This article was edited on 4/10/13 to reflect recent changes to the BitPay model. Thanks to Vitalik Buterin at Bitcoin Magazine for the updated information!

SimpliSafe blogger extrodaniare Cara Giaimo

Cara Giaimo

A man's home is his castle, as they say, and no matter what kind of castle you have, I'm here to help you fortify it. When I'm not blogging, you can usually find me running, jamming with friends, or making strange types of ice cream.

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