Is bitcoin good for business?

Bitcoin could help small businesses cut costs and lower their prices, but it also presents a number of risks, lawmakers said Wednesday.

During the first hearing in the House to examine bitcoin, lawmakers acknowledged that the digital currency can lower costs for small businesses, because the fees they are charged are not as high as for credit card payments.

{mosads}These savings can then be passed onto consumers as small businesses lower their prices, they said.

“It’s a bit seductive to a small-business person,” said Michael Couvillion, an economics professor at Plymouth State University, who testified at the House Small Business Committee hearing.

But bitcoin also presents a number of risks for small businesses. The lawmakers homed in on concerns surrounding the price volatility, safety and security of bitcoin, related to questions on how to regulate the emerging digital currency.

Some lawmakers believe that having a central bank or single financial institution that regulates all bitcoin transactions would bring more stability to the market.

“Why do we need an imaginary currency?” asked Rep. Richard Hanna (R-N.Y.)

But other lawmakers point to the benefits bitcoin has to offer.

One of the biggest challenges for small businesses is accepting credit card payments, because they are charged high fees to process each transaction. Oftentimes, they will give discounts to customers who pay with cash — and some are now giving discounts to customers who pay with bitcoins.

“Just as the Internet has empowered entrepreneurs to reach new, global markets and identify more efficient ways of doing business, digital currencies like bitcoin can save small firms on transaction costs,” said Rep. Nydia Velázquez (D-N.Y.), the ranking Democrat on the committee.

Velazquez noted that small businesses are charged a quarter of a penny for each card swipe, in addition to paying 3 percent to 6 percent of the total sale. Some are also charged to join the credit card network. These costs add up, she said.

“For large retailers and big box stores, these costs may sound minor, but among small companies operating on thin margins, those expenditures add up,” Velázquez said.

However, the price volatility of bitcoin worries lawmakers and has driven many small businesses away.

Mark Williams, a lecturer at Boston University who testified at the hearing, said the price of bitcoin has dropped 60 percent since December. “Clearly, this is not a currency,” he said. “What this is is a speculative commodity.”

Couvillion explained that the value of a single bitcoin could spike to $1,000 or fall to $0 within a matter of months.

“We can’t with any degree of accuracy project the price of bitcoin more than a few days ahead,” Couvillion said.

“With swings like this,” Velázquez added, “one has to wonder whether small businesses would find it difficult to continually price and reprice their products, in order to ensure they receive fair compensation from customers.” 

But lawmakers also raised concerns about the security of bitcoin in light of recent high-profile thefts.

“For small businesses to fully benefit from this currency, customers must be assured their money is safe and cannot be snatched out of cyberspace,” Velazquez said.

Chairman Sam Graves (R-Mo.) said these incidents have “cast a shadow” on the digital currency.

“Hacking attacks have led to the downfall of a leading bitcoin exchange company, while its use for criminal activity has led to greater scrutiny by law enforcement and other federal and state banking regulators,” Graves said.