The last few years have seen a range of so-called ‘cryptocurrencies’ emerge to try and offer an alternative means of payment that gives users more freedom and convenience than traditional solutions.
None, however, have had the impact of the first decentralised digital currency, Bitcoin. Founded in 2009, the currency is estimated to be used for over $100 million worth of transactions every day.
But while it has mainly been viewed as a consumer-focused solution for peer-to-peer or merchant payments, it is increasingly attracting the attention of business users.
A growing trend
A recent report from Bitcoin payment service provider BitPay claimed than in 2015, business-to-business (B2B) payments made up more than ten per cent of all transactions it handled.
These transactions are also generally much larger than consumer payments. The firm noted that while the typical consumer payment is around $100, the average B2B transaction is worth around $2,500.
But what is the attraction of services such as Bitcoin to these users? There are a range of risks involved with using Bitcoin, such as the lack of regulatory oversight and the volatility in the value of the currency. However, it’s clear that for some users, the positives outweigh the drawbacks.
A convenient solution
One issue that makes Bitcoin attractive to business users is that it is a faster, more efficient solution than many alternatives. It was noted by Cointelegraph that business transactions carried out by bank transfer or platforms such as Paypal can lead to delays in receiving funds due to long processing times – sometimes as much as 14 business days.
Bitcoin is seen as a much more efficient tool for processing large payments, as transactions settled on the Bitcoin network are instantaneous, while in theory, transaction fees are the same regardless of the size of the payment.
Another factor in Bitcoin’s favor is its suitability for cross-border payments. Co-founder and executive chairman of Bitpay Tony Gallippi said that with traditional payment methods, this can be a major headache for businesses.
“Cross-border B2B payments are typically handled by bank wires, which (in the age of the internet) are very slow, costly, and unnecessarily complicated,” he stated, adding: “Because Bitcoin payments can be sent directly via the internet in transactions that take minutes to confirm, they are ideally suited for sending money across long distances faster and more affordably than traditional methods.”
Do the benefits outweigh the risks?
This level of convenience could prove to be highly valuable to many businesses that need payments processed quickly. However, they must ensure they understand the potential downsides of using any virtual currency.
For instance, it’s vital to be aware that decentralised, unregulated currencies like Bitcoin are far more volatile than traditional currencies, with the value of Bitcoin fluctuating by hundreds of dollars in recent years. If businesses intend on keeping a stockpile of Bitcoins for payments rather than buying and selling them frequently, this must be a factor in their decision-making.
What’s more, while regulators around the world are paying closer attention to virtual currencies, there are still a patchwork of laws surrounding their use in different jurisdictions, with some giving users complete freedom and others banning the use of the currency outright.