Cost savings vs. risks were the discussion on the Hill today at the first hearing in the House of Representatives on Bitcoin and its role for small business owners, reported in The Hill news.
Here begins the debate. Committee Chairman Sam Graves (R-MO.) set the tone in his opening remarks:
‘We hope that by providing information about bitcoin, small businesses will be in a better position to know whether adopting bitcoin as a payment system might be a way for small businesses to gain more customers. This hearing will also inform [congress] Members as we consider implications of policies affecting the use of virtual currency.’
‘Why do we need an imaginary currency?’ asked Rep. Richard Hanna (R-N.Y.). That is an answer that small business owners know as it will reduce those heavy credit card processing costs. Fees can be high as each transaction has a fee for interchange (the Internet Highway for processing the transaction), transaction entry, statement, credit card type (cash back, mileage plus or other benefits is each a different fee) and other miscellaneous charges that will get you an invitation to Mensa if you can read a statement and understand the charges.
Now bitcoin payment has been made accessible to merchants through merchant service providers, such as, Stripe, Balance, Shopify, Square Market and Jeremy Allaire is setting up a payment process for merchants along with other serious entrepreneurs.
‘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.
Velázquez understands that each time a credit card is swiped the fee will be anywhere from 2-4% on small transactions. Large dollar processing merchants may get a break to below 2% and many small business owners who take American Express to meet client demand will pay 3-4% or higher. It adds up quickly.
‘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.
Sen. Dick Durbin (D-IL.) had achieved a cap on credit and debit card fees with the Durbin Amendment of 2011. However, other fees from MasterCard and Visa and problems with the debit card regulation has created expenses and more problems so the small business owner who received equal status as the large companies, the big-box, such as Target or Walmart are at risk again.
Another challenge for small business owners is the that, 'many products and services are not available for sale in foreign countries solely because the business cannot manage the payments systems needed to support overseas commerce,' said Adam White, director of business development and sales at Coinbase, a Bitcoin merchant processor. There are 28,000 businesses that service one million customers world-wide with Bitcoin.
Bitcoin with very low fees of 1% or less and no costly extra fees or monthly statements was attractive to small business owners. The Bitcoin has been highly volatile over the past several months. Mark Williams, a lecturer at Boston University testified today at the hearing and said that due to the drop of 60 percent in Bitcoin since December is, ‘clearly not a currency.’ He added that, ‘what this is is a speculative commodity.’
Jerry Brito, a senior research fellow at the Mercatus Center at George Mason University, suggested that it was new and that the volatility was a part of growing into more trading as it is thinly done so at this point in time.
Capital markets and risk management expert Mark T. Williams of Boston University’s Finance Department explained that Bitcoin as a payment system and its price is determined by its current users. Should these parties decide to abandon it use, ‘bitcoin [would] become worthless,’ Williams said.
Brito and Williams agreed with the IRS classification last week that it will be treated as property subject to capital tax gain rules and taxed by those regulations of a property asset and not as a currency.
The text of each speaker can be read online by access to the small business house calendar on the government website.
For more information about Bitcoin view the list below in the Author’s suggestions and the video atop this article on the IRS ruling on Bitcoin.
Twitter: Victoria Wagner@victoriaross888