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Bitcoin is gaining popularity very quickly in the online world. A number of large businesses have begun accepting it for online transactions, including Virgin Galactic, Lord & Taylor, Overstock, Newegg and Tiger Direct. Now Dish Network is getting into the Bitcoin game. Even companies like Amazon, PayPal, Ebay, and Apple are making moves that lead those in the know to think they are leaning towards adoption of the currency as well.

With all this positive publicity, Bitcoin proponents seem to be beating back the waves of negative press from early this year, including the collapse of Bitcoin giant Mt. Gox and the arrest of pioneer Charlie Shrem for money laundering. Issues remain, however, and it seems clear that many cheerleaders of Bitcoin, along with businesses considering early adoption, do not often truly understand what Bitcoin is and how it works, leaving the chance for users to be badly burned.

In this blog, we are going to explain in simple terms what Bitcoin is (and what it isn’t), how it works, cover a few of the issues inherent to the system, and hopefully leave you, the e-commerce business operator, with enough information to make an informed choice regarding accepting Bitcoin as part of your business strategy.

What Is Bitcoin and What Are Its Issues?

Bitcoin, simply put, is a “cryptocurrency.” While there are others (such as Dogecoin, Litecoin, and Peercoin), Bitcoin seems to have become the most common of these seemingly innumerable digital currencies on offer. Bitcoin is “mined” by computers. In simple terms, this means that users task their computers (at this point, usually specially-made, extremely powerful devices) to solving increasingly complex math problems, and are rewarded for doing so with currency.

Purchased or mined Bitcoin is stored in online “wallets”, encrypted accounts that record transactions in much the same way as a bank account. Coins are traded through public sites like Coinbase and Bitpay. Proponents of the technology claim that these encrypted wallets are anonymous, and hence so are transactions, making Bitcoin a favorite for shady deals around the worldwide. Unfortunately for those wishing anonymity, a growing amount of evidence is surfacing indicating Bitcoin is not quite as anonymous as many users think. For instance, if a wallet can be linked to a person, every transaction that person makes through the wallet can be tracked, since transactions are public.

It is also important to note that Bitcoin is basically unregulated, meaning that users have essentially no recourse if their wallets are hacked and the money stolen, transactions go badly, or computer crashes cause the loss of money (a very real possibility.) This also means your Bitcoin wallet cannot be insured in any way. In a very real way, it is the digital equivalent of having gold bars hidden in a hole in your backyard.

Bitcoin is also not a “real” currency. This means it is not backed by any bank or country,and hence, its price is subject to constant swings in value of extreme volatility. While some view this volatility as an opportunity for arbitrage in much the same way as day trading, price volatility makes pricing difficult for ecommerce businesses, and storing Bitcoin collected through sales can subject businesses to wild swings in the value of their Bitcoin portfolio. The nature of Bitcoin also makes it susceptible to price manipulation by individuals or cartels that control large amounts of it, and should any group control 51 percent of it (an event that is coming alarming close to reality), they gain almost unlimited power over price, as well as strange repercussions like the ability to spend the same coins over and over. Additionally, despite the fact that Bitcoin is not an official currency of the United States or any other country, the IRS has ruled that Bitcoin earnings are taxable and must be declared on tax forms, so if you’re looking to hide or shield your earnings from the government, you are doing so at considerable risk. We suggest consulting a tax professional in this regard.

Should All This Scare Me Off Bitcoin?

Maybe, maybe not. Bitcoin does have some powerful advantages, or else it wouldn’t be so popular. For one thing, it is almost an instant transaction (at most, within 10 minutes.) When a user hits “buy”, the money is moved almost instantly. Online payments such as e-checks can take days to go through, and even sites like Paypal often charge fairly steep fees for their use. Almost all businesses also know the drain that is merchant fees, and the haunting nightmare of chargebacks. Bitcoin, in addition to being instant, is free to use. This could save your business thousands of dollars.

Bitcoin also helps avoid the hassle of doing business overseas, dealing with foreign exchange and the reticence of sites like Paypal to allow users in many countries to use their services. These people also often have trouble with using banks or other financial institutions for online business. Bitcoin is a potential way around these issues. Another advantage of being an early adopter of Bitcoin is how popular it is: many users are using it as their primary way to pay for online transactions. In the world of e-commerce, the physical location of your business is nearly irrelevant, so being the first or one of the first in your particular niche to accept Bitcoin can set your business apart from others, attracting customers that may simply refuse to do business any other way and thus direct all their business to those companies that accommodate them. (It’s like taking Discover Card, if Discover Card was actually popular.)

While there will always be some risk, many of the issues around Bitcoin can be dealt with appropriately. For instance, while volatility cannot be controlled, regularly converting Bitcoins back to dollars or another currency of your choice can sidestep some of the risk. Additionally, Bitcoin earnings can be reported to the government in a legitimate way, avoiding tax issues. Again, consult a professional. Good online security can help prevent hacks and thefts of Bitcoins, in much the same way good physical security thwarts robberies of brick-and-mortar stores.

I’m Sold! How Do I Start Accepting Bitcoin?

If accepting Bitcoin seems to be right for your business and you need help integrating it into your e-commerce site, or if you would like a custom e-commerce site built for your business and taking Bitcoin is a requirement, here at The Click Experts we can help. We have the skills and knowledge it takes to integrate Bitcoin (and other online payment methods such as PayPal and Amazon Payments) into your site, increasing the payment options available to potential customers and attracting more business. What’s more, we do these things the right way, not the easy way, minimizing risk to your business and your finances. We offer free quotes, so contact us today to see what we can do for your business.