David Prosser: Britain's SMEs should weigh up the pros and cons of Bitcoins before trading in the virtual currency

Small Talk

Is Bitcoin safe? Fans of the virtual currency praise its convenience, transparency and democracy; its detractors point to its volatility and popularity with the internet's shadier inhabitants.

Global regulators straddle the two camps. In China, for example, the online retail giant Alibaba this week said it would prohibit the use of Bitcoin on its websites, in line with new rules from the country's central bank. Meanwhile, in the US, watchdogs are more relaxed: the games company Zynga has just announced it will trial Bitcoin payment, while eBay has promised to consider doing so.

The debate matters to Britain's small businesses because Bitcoin's advocates hope they will become early adopters of the virtual currency – particularly those trading internationally. A lack of regulation means lower costs: processing fees on Bitcoin exchanges, which allow people to turn traditional currency into virtual tender, are typically below 1 per cent. Nor do small businesses dealing in Bitcoins have to pay the commission charges levied on most other types of international money transfer, which can be so high they undermine the viability of exporting.

In addition, the increasing number of smartphone apps that make it easier for people to buy and spend Bitcoins is likely to boost the currency's take-up among small businesses' customers. Offering your customers the opportunity to pay in the way they want to makes good business sense.

The launch of UK-based Bitcoin exchanges will also help the credibility of the virtual currency with small businesses based in this country. The first such exchange, Coinfloor, opened its doors in November, and is already targeting small-business customers.

Next week will see the launch of Netagio, marketing itself as Europe's first cold-storage vault for Bitcoin holders – such facilities allow people with Bitcoins to keep them in secure, offline accounts, out of the reach of cyber-thieves.

Against the arguments for embracing Bitcoin are the risks. There is no getting away from the currency's volatility: the value of a single Bitcoin hit $1,000 (£607) in November, before almost halving in December. Now it's back up to November's levels once more. This volatility may ease over time, but for now small businesses trading using Bitcoins risk the possibility of big losses if and when they convert the virtual currency back into traditional money.

Then there's the issue of security. Online Bitcoin wallets are vulnerable to thieves, hackers and propagators of malware. The lack of regulation leaves users with no recourse to protection or compensation if something does go wrong.

Still, there are traditional financial services professionals who think Bitcoin has a big future. A report from Bank of America analysts last month established the virtual currency as a credible concept for Wall Street. The bank's currency strategist David Woo concluded: "We believe Bitcoin can become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money transfer providers."

If Mr Woo is right, Bitcoin is something many small businesses should start to think about.

For now, the virtual currency is more popular with speculators than people who want to use it for payments. But that may change – Bitcoin has the potential, at least, to be one of those disruptive technologies that people come to wonder how they ever lived without.

Helping hand for web traders

Online giants such as Amazon and eBay may be mega corporations, but many of the companies selling products through these sites are anything but.

Small, independent traders did more than £10bn worth of business online in the UK last year, and their numbers are growing all the time.

But how do you get started as an eBay or Amazon trader?

You'll need money for stock, and other costs, but these are not ventures likely to attract support from the banks. Enter Iwoca, a small British business launched in 2012 to make short-term loans of £500-£50,000 to precisely this constituency (the name is a contraction of instant working capital).

Iwoca has raised £5m from the venture-capital investors Global Founders and Redline Capita to fund a major expansion of the business and a move into international markets.

Iwoca's chief executive, Christoph Rieche, a former Goldman Sachs investment banker, says the target market in the UK alone is 4.6 million small traders.

Call to assess cost of red tape

Small businesses support the Government's crackdown on red tape but regulation from Westminster is only part of the burden.

Research suggests that businesses want to see watchdogs such as the Financial Conduct Authority also forced to conduct cost-impact assessments before issuing new rules. Legislation already requires government departments to make such assessments, but other regulators are exempt.

More than four in five businesses think that's wrong, according to a survey by law firm Pinsent Masons. It said 82 per cent of businesses believe that cost assessments are vital because this has not been properly quantified.

"We are heaping new regulations on areas such as financial services without really considering the long-term impact of that regulation or the practical benefit," says Barry Vitou, corporate crime partner at Pinsent Masons.

"By introducing an obligatory cost assessment for all new regulation, public bodies will see clearly the cost-to-regulation ratio and may pause before introducing new rules."

Small business person of the week

Nick Grey, Founder, Gtech

"I didn't do particularly well at school and drifted from job to job when I left, but I ended up taking a job at the vacuum cleaner business Vax in Worcester, down the road from where I lived, and found my niche – I started out as the most junior laboratory assistant and six years later I was running the design department.

"After 12 happy years with Vax, I left to start Gtech in 2001. I had £20,000 of savings plus two properties that I rented out in order to cover my mortgage payments – I figured that if I lived frugally, I'd have enough to cover my living expenses for 18 months and to pay for the development of a prototype cordless vacuum cleaner.

"I knew the technology I was developing would be successful and I was fortunate to get support from distribution partners almost from the start.

"The difficult time was actually the middle few years, when the economic environment got tougher. That persuaded me that it was time to move away from just bringing out new versions of the same products to developing really new technologies. It wasn't easy to make that shift – some of the team, struggled to make the adjustment to this long-term approach – but it was liberating.

"We launched AirRam in 2012, a new type of cordless vacuum, and it's proved hugely successful."

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?