When the term financial disruption is thrown around, most people immediately think of blockchains and cryptocurrencies. $290 million in VC investment went into blockchain technology companies in the first half of 2016, with enthusiasts predicting the end of bank transfers, fiat currencies, and accountants.
But VC investment is usually a bet on the future, and even the most bullish of blockchain promoters will tell you we’re still five to ten years away from blockchain's broad acceptance. However, there are early adopters who are utilizing bitcoin for both payments and investments.
Coleman Watson opened up his own law practice three and a half years ago, focusing on intellectual property and privacy. A few clients asked him if they could pay with bitcoin, and Watson decided to look into the payment option. He found that bitcoin payments are both faster and cheaper than the alternatives. ACH and paper checks take a few days to process, and credit card payments come with fees ranging from two and half to five and a half percent.
“It made a lot of sense for me to accept bitcoin because of my work with tech-savvy clients,” said Watson. “And once I saw the lower fees, I started encouraging my clients to pay via bitcoin.”
Bitcoin has become one of Watson’s favorite payment methods and something he now encourages. Between 15-18 percent of his gross billings come from bitcoin payments, a nice start.
Watson also likes the ability to speculate when receiving funds via bitcoin. Some people are bullish on bitcoin futures, and accepting payments in bitcoin allows individuals to seamlessly enter into the cryptocurrency trading world.
“Since I’m pretty interested in bitcoin, I keep around 60% of my payments in bitcoin and convert the rest to USD. It’s a great way for me to speculate on an asset I believe in,” he said.
It’s not just SMB owners who are using bitcoin to help them save money with more convenience in payments. Startups have been created that utilize bitcoin to facilitate investments.
One such company is Bitbond, a German based online marketplace that facilitates p2p loans to SMBs.
The platform allows SMBs, like eBay stores that can’t get loans from traditional banks, to borrow up to $10,000. Bitbond gets access to a SMB’s financial records when it applies for a loan on the platform to evaluate the credit risk. Interest rates range from eight to 35 percent, depending on the riskiness of the loan.
“Online sellers, especially eBay sellers, can have a hard time proving their credit worthiness to a bank,” said Radoslav Albrecht, founder and CEO of Bitbond. “Banks don’t look at these companies as good borrowers because they don’t assess the data that we use. In many instances, borrowers that have a healthy business get rejected because banks aren’t set up to evaluate this type of company.”
Just under $1 million has been invested through the platform since its founding in 2013. Bitbond uses bitcoin as its currency option in order to open up investment to the global marketplace. Bitcoin travels faster and is less of a headache than international bank transfers, essential factors when an SMB wants to turn on a dime for inventory purchases.
Lenders need to use bitcoin to fund their Bitbond accounts, but Albrecht sees the possibility that bitcoin becomes an “invisible” facilitator in the future. As technology evolves, there is a possibility that both borrowers and lenders will use their local currencies and not bitcoin.
“We’re a cross border lending business, and bitcoin is what makes that happen for us," he said. "We’re not sure if bitcoin will end up being visible in the future, but that depends on technology and market changes,” he said.
While some have enjoyed using bitcoin for investments and payments, cryptocurrencies are still not a perfect science, especially for the average Joe.
Day trader RogomonZ recounts his odyssey of trying to fund a TradeZero account using bitcoin. Expecting a seamless and fast experience, he details delays in transfers that led to high fees, shady third party support, and the inability to transfer all his bitcoin. He eventually paid $236 in fees on a $5800 dollar investment, which isn’t the perfect blockchain-seamless-low fee-transparent-dream.
“It’s the whole ecosystem that is fucked. All these fees, complicated steps — it just doesn’t work for the normal Joe,” said RogomonZ.
Bitcoin markets and usage are still in a state of flux. Disregarding the security, accounting and legal ramifications (I still dream bitcoin will be governed by maritime/pirate law), bitcoin is still far from perfect. There are companies like Bitbond and individuals like Coleman Watson who are utilizing bitcoin to its current potential, but many people feel that the norm is RogomonZ's experience.
This may be the main reason why conventional financial players are still skeptical on cryptocurrencies. They see the potential, but remain unconvinced until funding via bitcoin becomes as easy as credit cards and banking transfers. Early adopters like Bitbond present opportunites, and speculators like Watson may be seen to be geniuses by their peers in a few years, but mainstream adoption won’t happen until cryptocurrencies can get their act together.