The US House of Representatives committee on small business held a hearing on 2nd April to discuss the growing use of bitcoin by the country’s small business owners (SMBs), and the pros and cons that using this technology as a payment option offers the demographic.
Entitled ‘Bitcoin: Examining the Benefits and Risks for Small Business’, a panel of experts spoke about the benefits and costs of the use of bitcoin by SMBs, while also touching on hot topics like Silk Road and the recent IRS decision on the tax treatment of digital currencies.
Committee Chairman Sam Graves noted in his opening remarks that a great deal of uncertainty remains for small businesses thinking about accepting bitcoin as a form of payment, but that the hearing was meant to increase information about the topic.
“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.”
In addition, he cited the collapse of Japan-based bitcoin exchange Mt. Gox and the prevalence of digital black markets which accept bitcoin as barriers for widespread adoption.
Overall, Graves struck a cautious tone for the hearing that was echoed by its panel of experts.
Jerry Brito, a senior research fellow at the Mercatus Center at George Mason University, suggested that the use of bitcoins can help SMBs avoid certain types of payment fraud that can result in significant repercussions, including the loss of access to card networks.
Further, he said that businesses can tap into potential new markets simply because they can accept transactions from regions that are not included in current global payment networks.
Still, Brito noted that volatility remains a key barrier to adoption, but that he believes the technical aspects of bitcoin do not lend themselves to the currency’s now-infamous price swings.
“There is nothing inherent in bitcoin’s design that makes it naturally volatile. Its volatility is likely attributable to the fact that it is a new currency, still in the process of discovering its stable price. Additionally, as a nascent currency, it is very thinly traded and as a result a single large-enough trade can affect the exchange price substantially.”
Capital markets and risk management expert Mark T. Williams of Boston University’s Finance Department pointed out that bitcoin’s position as a payment system – as well as its price – is determined largely by current users.
Should these parties decide to move away from accepting virtual currency, “bitcoin [would] become worthless,” Williams said.
He also said that, compared to other risky investments worldwide, bitcoin poses a much bigger threat to SMBs who lack the capital or infrastructure to withstand potential losses. Williams said:
“It could be argued that small businesses that blindly accept bitcoin are not actually in commerce but are in the high-risk speculative trading business.”
Williams, known for his often inflammatory critiques of bitcoin, went on to say that bitcoin is perhaps better used by Wall Street trading firms that have experienced staffs that can handle the associated risk.
Later in the hearing, both Williams and Brito voiced support for the IRS decision to designate virtual currencies as a type of property for tax treatment.
Brito noted that the IRS looked at the characteristics of bitcoin and judged it as more of a commodity compared to a currency. Looking ahead, he suggested that Congress and federal regulators could create a special tax category for virtual currencies that takes into consideration the extraordinary aspects of bitcoin.
Adam White, Director of Business Development and sales at Coinbase, and L. Michael Couvillion, Associate Professor of Economics at Plymouth State University’s College of Business Administration, also addressed the committee.
For more information, watch the full hearings below.