In part 2 of this exclusive interview with Colorado Bitcoin Attorney Benjamin C. Yablon, we discuss the recent high profile news regarding Bitcoin arrests and strategies businesses would be wise to consider before accepting Bitcoins.
KP: Should businesses and consumers be concerned about the recent arrests of the CEO's of various Bitcoin exchanges? Will it have any effect on them? Do you feel it further legitimize or hurts the currency?
Benjamin Yablon: The recent arrests related to Silk Road are the best thing that could have happened to Bitcoin. While there are still illegal activities associated with crypto-currencies, the potential for legitimate business is astounding. There needs to be a framework for legal businesses to operate within. Shutting down Silk Road helped create the beginnings of certainty. Businesses thrive when there is certainty and founder when there is a perceived lack of oversight and accountability. We are on the cusp of something huge. The impact on the third world and on nations with unstable governments cannot be overstated. We’ll talk in more detail later about the esoteric macroeconomic impacts that crypt-currencies are likely to have.
KP: Could these arrests have any effect on those who use bitcoins, whether spending or accepting?
Benjamin Yablon: I think that the arrests will encourage more legitimate business owners and curious consumers to take the plunge. The economic realities of next to zero transaction fees are just too enticing to pass up. Your food co-op example is perfect. But think about a small business, like an auto repair shop, that processes one million dollars a year in credit cards and pays 3% for the privilege. That’s an operating cost of thirty thousand dollars. Using bitcoins would have left that money in the business.
KP: Should businesses worry about accepting Bitcoins?
Benjamin Yablon: Businesses should be as worried about bitcoins as they are about receiving counterfeit dollar bills. The possibility for fraud exists in both currencies, but it is very rare. Particularly as a business owner, you are protected. Once a transaction is processed in Bitcoin, meaning that a transfer has gone from the buyers wallet to the sellers wallet, there is no recourse for the buyer. This is both good and bad. With a credit card you can dispute a transaction if something goes wrong. With bitcoin no such protection exists. As with a cash transaction, you would need to file a law suit against the offending party. So from a legitimate business owner’s perspective, this is a good thing. It means that customers out to rip them off using their credit card companies fraud departments can’t do it. But consumers must be very careful. You should only use bitcoin to buy from businesses that you know and trust.
KP: How are taxes affected by accepting or using Bitcoins?
Benjamin Yablon: To some degree this is still an open question. They fit the definition of taxable income, and are likely to be treated just like any other currency. This means that if you are holding them as an investment the gain or loss in their value over time should be a taxable or deductible event. I also think that the mining of Bitcoins will be treated as a taxable gain as well.
KP: What do you see as the biggest benefit for businesses?
Benjamin Yablon: The biggest long term benefit is the lack of transaction fees. In the short term, it also shows that your business is on the cutting edge of the most significant changes in finance since online banking was introduced. If you sell anything online, or if you are in a tech savvy field like web design, you should be up to speed on Bitcoin. Crypto currencies are going to change finance the way online sharing changed the music and publishing industries. I’m predicting a meteoric rise in crypto currency interest akin to the rise of Facebook.
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