Even buskers take bitcoin now, but should you? A note of warning

© Elnur

Even the street entertainers in London are now accepting bitcoin – but cryptocurrency, like blockchain, can be a frightening concept.

At yesterday’s Blockchain in Transport Alliance (BiTA) meeting in Atlanta, an accountant from Acuity brought things back to basics, asking: should your company be using cryptocurrencies for payment?

Cryptocurrency exchanges are able to replace SWIFT payment transfer in the banking system, and there are already several accounting tools companies can usefor this.

But Matthew May, founder and COO of Acuity, a financial services and book-keeping company, said there were other factors to look out for when considering offering or receiving payments in cryptocurrency.

The first is perhaps the most obvious: volatility. In a four-month period, bitcoin values have ranged between $20,000 and $6,500. How can accounts departments manage a large range in value, and one which can change so rapidly?

Mr May said: “Our company accepts cryptocurrencies as payment, but we add a premium; and I think that’s how companies will deal with it in the short term. We are accountants, not speculators.”

Another factor: “skyrocketing fees”. Bitcoin now charges $28 per transaction, significantly reducing its attractiveness for small payments. (So before you consider throwing the bitcoin equivalent of a pocketful of change at a street musician, consider transaction fees.)

Other companies, such as Dash, an open source peer-to-peer cryptocurrency, and Ripple, a cryptocurrency limited to crypto-to-crypto exchanges, are trying to build better platforms for transaction fees. But Mr May warned that companies must constantly check the transaction fee environment in cryptocurrencies.

And among the more frightening of the challenges of using cryptocurrency is the counterparty risk.

“There is no recourse, no regulation, no rules,” he said. “If they are not your keys, they are not your coins.”

Essentially, when cryptocurrencies are in the hands of exchanges such as Bittrex, Binance or Shapeshift for transactions or currency exchange, they hold the “keys” to your money. If they go bankrupt, or choose not to uphold their end of the bargain, there is no recourse to get the money back – no insurance, no ‘bank’ guarantees.

Mr May warned: “If you are holding cryptocurrencies, you should do so on a private network. You only use exchanges for their express purpose, and then put the money back in your company’s treasury.”

This lack of recourse extends to regulation in general, which Mr May said was also something of a minefield.

The US regulatory environment has four relevant authorities – all of which treat cryptocurrencies in different ways. The SEC counts it as a security; the IRS says you should account for it as you would property; the Commodities Futures Trading Commission rules it a commodity; the US Treasury’s  Financial Crimes Enforcement Network (FinCen) says it is a currency. And that is just the US – authorities involved in cross-border transactions could be even more complex.

“With four different authorities calling it four different things, the letter of the law is absent. You have to abide by the spirit of the law – and just try to do the right thing,” said Mr May.

But there could be advantages in cross-border use.

“If your currency is hyper-inflationary or deflationary, cryptocurrencies could give you a common currency with other companies,” added Mr May.

“But right now, everything is really immature.”