Business Is Eager to Embrace Bitcoin But Regulators Are Not
Within the last year, thousands of businesses across the globe have started accepting Bitcoin. It is apparent that companies, large and small, recognize Bitcoin’s added value, however, the threat of unforeseen regulations looms over those who both accept it as a form of payment as well as those who provide Bitcoin-specific services.
This threat was realized most recently with Ecuador banning all Bitcoin use last month. Most governments are unlikely to introduce similarly strict regulations, but uncertainty from a lack of legal guidance discourages Bitcoin innovation and adoption.
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In Cleveland, the organization CoinNEO, founded by Nikhil Chand, initiated the Bitcoin Boulevard project. The goal is creation of a district in the heart of Cleveland Heights, Ohio, comprised of small businesses accepting Bitcoin. “Several other retailers involved with the Bitcoin Boulevard project have also started accepting Bitcoin and they have all seen additional revenue and added visibility within the region,” says Chand.
The Wine Spot is the flagship location of the Bitcoin Boulevard project, which officially launched this past February. Owner Adam Fleischer jumped at the opportunity to participate, “We saw Bitcoin as a possible way of differentiating ourselves as entrepreneurs in a highly competitive market with a highly innovative approach. After doing the research, we felt that as long as the laws and regulations that drive our business are followed, accepting Bitcoin not only made sense, but was a sound business decision.”
Fleischer’s experience as a small business owner, accepting Bitcoin has not come without challenges. Setting up Bitcoin adoption was easy and provided increased visibility for The Wine Spot, but he’s facing uncertainty due to government regulation. In April, the state of Ohio ruled that their liquor licenses only allow the use of “money” to buy alcohol. Since Bitcoin is not legally defined as “money,” it cannot be used to purchase alcoholic beverages. Fleischer and the CoinNEO team are working hard to reverse the ruling.
The biggest roadblock for Bitcoin adoption by more businesses is the legal ambiguity surrounding it. Existing small businesses and new startups are hesitant to enter the Bitcoin space due to the unpredictable regulatory future of the currency. The most high-profile example is in New York, where the state Department of Financial Services is attempting to pass Bitcoin specific regulation called the Bitlicense. If the regulations are too strict, they will stifle Bitcoin innovation in New York, forcing companies to move to friendlier locales.
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In a press release announcing the proposed guidelines, the state Superintendent Financial Services Benjamin Lawsky said: “We have sought to strike an appropriate balance that helps protect consumers and root out illegal activity – without stifling beneficial innovation. Setting up common sense rules of the road is vital to the long-term future of the virtual currency industry, as well as the safety and soundness of customer assets.”
According to attorney Reuben Grinberg of Davis Polk, who is an expert on digital currencies and author of the first widely read and cited academic paper on Bitcoin, “If the rules are finalized as they are proposed, it would certainly have a dampening effect on innovation by startups in New York. The process to apply to get a license will likely be expensive, and the ongoing compliance costs will be expensive as well.”
From Grinberg’s interpretation, the Bitlicense would hinder innovation by startups and small businesses, but could help larger businesses, such as banks, because they can afford the compliance costs. Banks would benefit from the reduced regulatory uncertainty. They are well positioned to maintain regulatory compliance. Grinberg continues, “The Bitlicense regime could help lift a regulatory cloud from Bitcoin and virtual currencies, make it easier for Bitcoin and virtual currency businesses to get banking relationships, and thereby spur more investment in new and established companies.”
One undeniable bright spot with the Bitlicense is that it doesn’t force any requirements on businesses that merely accept Bitcoin as an added form of payment, only companies providing Bitcoin services.
Every business worldwide should consider accepting Bitcoin. Implementation is easy and there is virtually no risk. Even in New York with relatively strict Bitcoin regulation, merchants accepting Bitcoin as payment remain completely unaffected. Alternatively, the Isle of Man, a self-governing British Crown dependency, has shown a very friendly stance towards Bitcoin. Depending on future government regulation, businesses in some locales will benefit more than others, but downsides are limited regardless.