“I’ll pay 10,000 bitcoins for a couple of pizzas.”
That was the request made by Laszlo Hanyecz on the Bitcointalk forum back in 2010. He wasn’t too particular about what kind of pizza he wanted. For those 10,000 bitcoins, he expected two large ones so that he would have leftovers and he didn’t want any “weird” toppings, like fish. But apart from those requests, anything would do.
The response on the forum wasn’t entirely positive. One member remarked that 10,000 seemed like a lot: “You could sell those … for $41USD right now … good luck on getting your free pizza.”
Hanyecz did get his meal, creating the first ever transaction conducted in bitcoin. In today’s money, he paid about $65 million for it. I hope he got extra toppings.
The story of bitcoin’s first transaction for pizza is now amusing (to everyone except Laszlo Hanyecz, perhaps), but it’s also a warning. Bitcoin wasn’t created to be an asset for investment. It was supposed to function as a currency: a cost-free way for people to pay businesses for goods and services online, around the world, without using a coin that could be influenced by governments and national banks.
It hasn’t worked out that way. In December 2017, Steam, the online game platform, announced that it would no longer accept bitcoin for its service. The company cited high fees and volatility for its move, and the details were damning. Transaction fees had risen from 20 cents when Steam started using bitcoin, to as much as $20, the company said. Bitcoin’s volatility meant that in the time it took to complete a transaction, the price of bitcoin could change so much that Steam would either have to make a refund or demand an additional payment from the customer. Either way, there would be another $20 transaction fee.
Faced with challenges that great, it’s no wonder that so few businesses, large or small, are now willing to accept bitcoin. When the value of the currency moves so quickly that you don’t know what you’re getting for your product, it makes sense to stick with something as reliable as the dollar.
But some companies are still willing to accept cryptocurrency. Overstock, a rival to Amazon, still accepts bitcoins, as does NewEgg, an online technology retailer. Each of those companies is looking for particular advantages from using a cryptocurrency. Overstock’s CEO Patrick Byrne has even been planning to become a blockchain firm. NewEgg’s customers are exactly the kind of people most likely to have wallets filled with digital cash.
If your small business caters to technology types, then accepting the currency they prefer could help to win their trust. If you sell internationally and want to offer customers a payment method that isn’t limited by borders, then bitcoin could well be a good option. If you’ve been hit by chargeback fraud or are fed up handing over 3% of your revenues to a credit card company, then bitcoin will let you keep more of your money. If you’re a strong believer in the blockchain and in the power of cryptocurrencies, then accepting payment in the largest digital coin in use would be a clear way of showing your support.
And if you want to increase your bitcoin holdings, then selling your products and services for bitcoin will do the trick.
But those benefits aren’t all going to apply to every business. They might not even apply to many businesses, which is why so few companies are willing to take on bitcoin’s high volatility and fees.
If they do apply to your small business, though, and you are prepared to accept bitcoins, then look for ways to cope with those big price changes. NewEgg gives users just fifteen minutes to complete their transactions, keeping the dollar price in a relatively narrow band. Other companies, such as Bitpay, provide a bitcoin payment platform but give sellers the option of converting the bitcoins into fiat immediately, protecting the seller against sudden price drops. That’s how one outlet in Newport Beach has been promoting the sale of Lamborghini cars. It’s a relatively risk-free way to relieve bitcoin millionaires of their sudden fortunes.
Until the price of bitcoin stabilizes, using it as a currency is always going to carry a certain amount of risk for small businesses. Prices could fall before the transaction is complete, wiping out the profit from a sale, or they could rise so high that customers demand their money back. The high fees that bitcoin transactions now demand also mean that they’re more likely to be used for large purchases than small ones.
But there are ways to reduce those risks and accept a digital currency from customers around the world — even if you’re selling pizza.