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Guest blog: Why my business accepts bitcoin and why yours should too

Guest blog by Ryan Lazanis, CPA, CA of Xen Accounting, Montreal

bitcoin accepted here

Bitcoin is a pretty hot topic right now, and for some, it’s a bit mysterious and controversial. How can we have a global virtual currency that’s completely decentralized and completely unregulated? A type of money that isn’t controlled or regulated by any bank or government is enough to make some people uneasy, that is until you learn more about what bitcoin is and how it works. It’s one of the smartest, most forward-thinking innovations of our generation, and it might just reshape the way we do business.

What is bitcoin?

Bitcoin is a virtual currency that can be used to buy and sell and is exchanged over a peer-to-peer network. With the development attributed to an internet pseudonym by the name of Satoshi Nakamoto, the strength of bitcoin is derived from the coding of the network behind it. It’s completely open-sourced, meaning it’s there for the world and any naysayers to see. While it’s been heavily scrutinized time and time again, the consensus is that the coding is not only brilliant, but secure.

The coding and its network not only allows it to be exchanged, it also allows for the creation of bitcoins through a process called mining. Similar to how one mines gold to extract it from the earth, bitcoin miners have sophisticated computer setups that run continuously to extract it from the coding architecture. Miners must solve complex mathematical equations before they are rewarded with a certain amount of bitcoin and this is how bitcoins are brought into circulation. There is a hard cap on the amount of bitcoin that can be brought into circulation which is set at 21 million coins. Yes, I admit it is a strange concept, and it seems like something out of a sci fi movie, but they are gaining in popularity and fast.

In the past year, bitcoin have seen themselves increase in value from only a few dollars to over $1000 USD per coin. A n explosion in value. Currently at the time of writing, one bitcoin equals about $450 USD.

Why my business started accepting bitcoin

My virtual accounting firm in Canada, Xen Accounting, places a heavy emphasis on technology and the cloud to make accounting more convenient and less time consuming for small businesses. Naturally, many of my firm’s clients are in the tech space and those in the tech space tend to gravitate towards bitcoins.

After attending various meet-ups, I started to hear more and more about bitcoin and my curiosity peaked. I wrote several articles on the accounting and taxation implications of bitcoin in Canada and one day received a call from the Canadian Virtual Exchange, a bitcoin exchange – wanting to know if my firm wanted to start accepting bitcoin as payment. The lightbulb flicked and I immediately said yes.

From there, Xen Accounting became the first professional accounting firm in Canada to accept bitcoin as payment. Not only did it open up to a whole new market, but it also better accommodated existing clients wanting to pay by bitcoins.It was a win-win.

Why your business should accept bitcoin

Accepting bitcoin can help satisfy two critical goals for most businesses: increase sales and service your customer base.

  • When you accept bitcoin, you open yourself up to a whole new market. Some people prefer to pay by cash, some prefer credit card, and today, some prefer to pay by bitcoin. The boom has created overnight millionaires and these people are looking for something to do with this money. The daily volume for bitcoin transactions can go as high as US$100 million – that’s nothing to sneeze at. People are trading bitcoin around the globe – it’s time to get in on it.

  • As bitcoin becomes more mainstream, a good chunk of your current customer base will likely be dabbling in it as well. Offering another way to pay for your product or service is just another way to accommodate your clients and give them a choice.

  • Your business could get media attention. Xen Accounting for instance, was featured in several articles, interviewed on the radio and featured in our local newspaper. The media is infatuated with bitcoin – It’s a great story. When a local business starts accepting this exciting new form of currency, the media wants to tell that story.

How to begin accepting bitcoin as payment

Accepting bitcoin can differ depending on where you are located in the world. In Canada, we had to register for a merchant account with our local bitcoin exchange and from there we could issue invoices, as well as receive payments in bitcoin, convert them to Canadian currency, then transfer to our business bank account. If you want to transfer your bitcoin to a bank account, you’re going to find an exchange in your country that is legally authorized to do so.

If you don’t care about having your bitcoin converted to your local currency and just want to trade them elsewhere, you can register for a free online wallet at Blockchain.info. From there, you can give anyone your bitcoin wallet address and they can send you bitcoin. You can then send your bitcoin to any other wallet in the world.

The risks

If your bitcoin is stolen, there’s no getting them back as there’s no central authority. There are many security precautions you can take, just Google it.

The price of bitcoin is volatile, which is a risk if you are accepting bitcoin. If you hold on to them, you could gain or you could lose from the fluctuations in price, but there are steps you can take to mitigate this risk.

For instance, to avoid price fluctuations, some of the exchanges allow you to translate your bitcoin to local currency immediately upon receiving them.

There are also services that act as an intermediary for bitcoin transactions, such as Bitcredits.io in Canada which has developed a widget for your e-commerce site that allows you to accept bitcoin without your business having to touch it. Customers scan the barcode widget with their phone and bitcoin is sent through the widget as payment. Bitcredits will then process the bitcoin and send you Canadian dollars in turn.

Accounting implications

Accounting for bitcoin is a mess, largely because most governments haven’t given any tax guidance for how it should be treated. Furthermore, my advice is specific to Canada, or to the U.S. to a certain extent.

Bitcoin is entirely new, so to find an accountant that understands how it works is not going to be easy. Dig around and find one that understands the basic concepts of bitcoin before moving forward with them. They may not have all the answers, but they should at least be able to apply their knowledge of bitcoin to the accounting standards in the country that best applies. That is about all we can do right now.

The future is bitcoin

We’re now seeing what is likely the greatest disruption of our generation since the internet. Our monetary system was designed decades ago and currently sits on an old, slow, regionalized foundation; it was not designed for the internet and globalized trading. This is where bitcoin comes into play – to create a truly globalized currency.

Will bitcoin be the MySpace or the Facebook of virtual currency? No one knows. But what I do know is that bitcoin, or a variant of it, is here to stay. I would bet my bottom dollar (or bitcoin!) on it.

 

 

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12 comments

Kristof
15 April 2014 #

Would love to see a follow-up post on how you actually account for bitcoins in Xero.

Would also be great if Xero allowed bitcoin as a currency – xe.com supports it.

Paul Salisbury
15 April 2014 #

@Kristof – xe.com has separate data feeds for currencies and commodities, at the moment Bitcoin (XBT) isn’t on the currency feed, so doesn’t appear in Xero. I know there are Xeros who would like to see Bitcoin accounted natively in Xero, but it’s really down to XE making the change. A workaround we have developed for our customers is to have a local currency denominated account and automatically post daily adjustments to this account in Xero based on the average Bitcoin exchange rate.

Ryan mentions bitcredits.io as a Canadian payment processor, an AU/NZ equivalent is CoinJar, US is BitPay, and EU is BIPS.

These are certainly exciting times for financial innovation on a global scale, and there are only two things holding it back 1) understanding of Bitcoin/Cryptocurrency’s underlying technology and utility & 2) sophistication of services and a growing ecosystem to put the innovation into the hands of businesses/customers around the world.

If you’ve heard Rod Drury present about Virtual Accountancy and exporting your services globally, then you’ll understand why companies like Xen are excited about Bitcoin as a means for frictionless payments.

Ryan Lazanis
16 April 2014 #

@Kristof – Well this is the tricky part actually. It really depends on what you’re doing with bitcoins and it’s a case by case situation. I’d really love to see more bitcoin integration into Xero eventually. At the moment, some of it needs to be tracked outside of Xero, converted and then manually entered. If you’re from the US, there is a Coinbase integration through use of a Zapier plugin which could be quite useful.

@Paul – I also understand that Xero only allows for 2 to 3 decimal places, whereas with BTC, we would need at least 5 or 6, but to be fully accurate, probably even more!

Fully agree that it’s exciting times… uncharted territories, but exciting times nonetheless!

_________

Let’s keep the discussion going:

What does everyone think about having an automatic feed in Xero that is direct to the Blockchain?

Mike Block CPA
16 April 2014 #

This article convinced me NOT to use bitcoin. “There is a hard cap on the amount of bitcoin that can be brought into circulation which is set at 21 million coins… In the past year, bitcoin have seen themselves increase in value from only a few dollars to over $1000 USD per coin. An explosion in value. Currently at the time of writing, one bitcoin equals about $450 USD… The daily volume for bitcoin transactions can go as high as US$100 million …”
The bitcoin price variations mean it is one of the most volatile currencies, when stability is essential for trade (as opposed to outright speculation). We also saw, “MtGox ran away with $500m+ in Bitcoins and is bankrupt.” That means that one of many UNREGULATED bitcoin exchange losses was 5 days of of total volume. IRS also declared that bitcoin was an asset, not a currency, so U.S. deductible losses may be limited to $3,000 a YEAR. For better sources, see Google and Wikipedia.

Ryan Lazanis
16 April 2014 #

@Mike – Thanks for chiming in. It is certainly a polarizing subject, so I’m sure you’re not the only one with this view. Yes, the price is quite volatile at the moment (although it has settled down a bit recently). In terms of how this volatility would affect your business if you accept bitcoins, if really only affects you if you’re holding on to your bitcoins versus translating them into your native currency immediately, which many exchanges allow for.

Yes, there has also been theft or loss of coins in certain exchanges and MtGox is certainly the name that comes to mind here. But I think that even in regulated industries you see the same thing, look at Wall Street just a few years back with many of those investment firms. You can never really escape fraud or theft in any industry, regulated or unregulated, it’s going to happen, whether we like it or not. There are advantages of being unregulated, but there are also disadvantages. Some people prefer it, some people don’t. It all comes down to personal choice.

Regarding tax issues in the US, I read about the IRS ruling a few weeks back, which took a bit hit on the price of bitcoins, but I cannot comment on US tax as this is outside of my expertise. All I can say is that this was not a shocker for many in the industry as accounting and tax professionals were mostly treating bitcoins in a similar manner to how the IRS had ruled it.

Ryan Lazanis, CPA, CA
Xen Master at Xen Accounting
http://www.xenaccounting.com

John
16 April 2014 #

In a widely read NZ news source the bitcoin thing is covered under the technology news section, and not the financial section. Where it belongs.
Dear Xen Master …, what is with that title ?!

Ryan Lazanis
18 April 2014 #

Hi John. You’re right. Bitcoins could be covered under the technology section. But it also could be covered under the financial section as well. Depends who you ask.

john
23 April 2014 #

G’day Ryan
It probably depends what happens after Bitcoins Is finished asking the Judge for leniency during their fraud case.
I am sure the lawyers will make some proper ” coin” over this little computer game.

Purchase Order System
15 May 2014 #

Bitcoin will be easy to make a payment but how the rate differs? also bitcon has separate payment gateway?

Ryan Lazanis
17 May 2014 #

Hi there,

The rate of bitcoins differ depending on the exchange you are going through. There is no standard price for a bitcoin at the moment.

Bitcoin does not have a separate payment gateway but instead uses it’s own network to process transactions, which is called the blockchain. You can go to Blockchain.info to register for a free bitcoin wallet. As soon as you have this, you can accept payments in bitcoins.

Hope that help.

Ryan
http://www.xenaccounting.com

Marcus Lowdrey
15 June 2014 #

It would make sense to accept bitcoin, as it’s good marketing and usually you can use intermediaries like bitpay or coinbase to give you cash. And plus, the list of businesses that take bitcoin every day are growing. Here’s a regularly updated list that includes credible businesses that accept bitcoin: http://www.panture.com/businesses-currently-accept-bitcoin/

Johann Gevers
2 August 2014 #

The first accounting software company that offers alternative currency functionality will make a killing. There are already tens of thousands of businesses working with Bitcoin, plus tens of millions of users—all desperate for an accounting software that caters to this market. The first one to offer this, will attract these users and businesses, and once they have them, they’re unlikely to switch. So as Bitcoin and alternative currencies grow in market share, this accounting software provider will capitalize on their first-to-market status. It’s a fantastic opportunity, and I’m absolutely amazed that Xero and others don’t realize it. I’ve personally written to Xero about this, and their response was “this is a small market—there’s not enough interest in this feature”. Kind of like the bookstores that dismissed the internet, only to be killed by Amazon, among many examples. I subsequently approached Abacus.ch, the leading Swiss accounting software developer, and they are open to integrating this functionality into their solution.

A good implementation requires:

1. The ability for users to define their own “X” currencies (non-national currencies and currency equivalents all have three-letter ISO codes that start with “X”. For example, Bitcoin is XBT, gold is XAU, etc.).
Why is this necessary? Because we’re living in an age of currency innovation and private currency creation. There are already over 200 alternative currencies, and there’ll be many more. No accounting software provider can possibly keep up with this. The solution is to enable users to define their own custom currencies inside the software, and import forex rates into the software from their own data sources.
This way, the accounting software provider only needs to program this functionality once, then it works for all future currencies that enter the market, with no further programming changes required.

2. The ability to set decimal points other than just the standard 2 that are used for traditional nation-state currencies. Bitcoin requires 8 decimal points, and other alternative currencies may require more.
The second reason for custom decimal points is that we are now entering the age of microtransactions—transactions of tiny fractions of a cent (as small as 1 millionth of one cent)—for trading digital goods and services, and for resource allocation.
So users should be able to define how many decimal points to use for each custom currency.
To be safe, the software should allow at least 9 decimal points.

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