As we’ve shared often, the cryptocurrency Bitcoin, with backers ranging from venture capitalists to drug traffickers, continues its misfortune of being regularly associated with events that aren’t reassuring to a group important to Bitcoin’s longterm success: small businesses.*

A week of not so good ‘good sounding’ news for Bitcoin

Sort of good-sounding news for Bitcoin: The Commodity Futures Trading Commission (CFTC) announced on Thursday (9.17.2015) that Bitcoin is officially a commodity, just like crude, oil and wheat.

The bad news for Bitcoin: By this action, the CFTC asserts its authority to provide oversight of the trading of cryptocurrency futures and options, which will now be subject to the agency’s regulations. The CFTC is bringing dealings in Bitcoin, long prized for its anonymity, into the light. Of course, this will add to the cost of Bitcoin transactions and likely lead to further regulations from a wide variety of fronts.

Sort of good-sounding news for Bitcoin: Along with VCs doubling down on their earlier investments in Bitcoin, big brand banks and global corporations are kicking the tires of block chain, the distributed database cryptography that provides bitcoin transactions a high level of security.

The bad news for Bitcoin: Documents filed September 15 in federal court in Atlanta revealed that Atlanta’s Bitpay Inc. got hacked for more than $1.8 million in bitcoins. All it took was a little social engineering to keep the transaction from being subject to anything related to block chain.

Bottom line: A virtual currency is likely in our future but will it be branded Bitcoin? If the CFO and CEO of a major Bitcoin company can’t keep $1.8 million from being stolen (and the company’s insurance company has turned downed its claim), will regular small business owners be convinced their Bitcoins are secure?

The answer is obvious. Small businesses that are transaction-oriented (retailers, especially those with online e-commerce channels) are the types of businesses that would be the early adopters of legitimate Bitcoin usage. While lowering transaction fees is the leading reason Bitcoin backers typically give for merchant adoption, the hidden costs of valuation swings and the handling of charge-backs, can quickly offset any transaction costs lowered. Add to that the fear of hacking and the challenge facing Bitcoin is staggering. Most likely scenario: A more regulated (translation: less risky) form of digital currency evolves that provides the security legitimate business owner seek.

*This paper (PDF) issued by the Federal Reserve Bank of Boston outlines many of the hurdles Bitcoin faces in its efforts to gain main stream adoption.

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