There is much hype around Bitcoin and how it will revolutionise money but what does the experience of businesses that accept bitcoin payments look like, how does it fit into existing operations and how is it converted into your local currency? This post will go into a bit more detail how a business can start to integrate bitcoin payments
Lets get the basics out of the way and get ourselves up to speed with some bitcoin terminology. A bitcoin is divisible into satoshis in the same way that a GBP is divisible into pence or a USD into cents… with the exception that you have 8 decimal places rather than 2!
It is common place now to refer to satoshis as the transactional value used on the bitcoin network and so as of the time of writing, the value of £1 GBP is around 3650 satoshis (or 0.00003650 BTC). As you can see, pricing in satoshis is much more palatable than fractional BTC.
Network fees are paid to make a transaction on the bitcoin network and have it confirmed. These are calculated on market demand and can be high during times of increased usage. Because of this, day to day transactions are made on a payments network called lightning which can be confirmed instantly for negligible fees.
It may be that your suppliers won’t accept bitcoin transactions (yet), so how do you convert it into your local currency? The answer is third party providers who will buy your bitcoin for your local currency (or vice versa). These come in various forms and choosing one will be a process similar to selecting your electricity provider. There are some large providers in the space already such as coinbase or smaller providers who can be found on exhanges such as localbitcoins, hodlhodl or bisq.
At the moment there are not any providers working with lightning payments and so your transactions will need to be processed on the bitcoin network, incurring network fees. This can be minimised by adjusting your conversion model so that payments are be collected over a duration of time (Monthly/Weekly/Daily/Ad Hoc) and then settled once as per your companies needs
The price volatility of bitcoin is notorious, over time there has been a downward trend in the range of volatility though and this is expected to stabilise as liquidity in the market increases. We are dealing with a conversion rate that is in flux though and so the value of your bitcoin assets will fluctuate with the market.
It should be possible to track the current exchange rate of bitcoin with your settlement provider and so you’ll always be charging your goods at the current exchange rate. This may mean that consecutive customers pay a different amount of Satoshi’s for the same goods as the exchange rate fluctuates.
When choosing a time based consolidation model, you can help plan for volatility by adjusting the time span accordingly. A business without the time to spend analysing the exchange rate, may opt for a weekly duration which offers a balance between risk management and the administrative overhead of converting the bitcoin to GBP.
With a bit more hands on management, it may be possible to take advantage of market knowledge to dynamically manage the duration. At times of high volatility, a longer duration would help to reduce the impact individual spikes in conversion by averaging out the peaks. During downtrends in price it may be better to chose a short duration with higher fee costs to maintain a positive GBP balance and uptrends a longer duration to minimise fees and take advantage of bitcoin value appreciation.
Disclaimer: Please be aware that we are not accountants and the following is our interpretation of the current guidance from the UK government, always seek professional advice from an accountant
Taxation differs across territories and is subject to change but as of the time of writing, the UK government have specified that bitcoin is subject to corporation / capital gains tax at the time of sale, any network fees are tax deductible. You should keep a record of your pooled lightning / bitcoin transactions and record their value in GBP and BTC:
|TransactionID||Value GBP||Value BTC|
When you come to sell, any increase to the pools value as a whole should be calculated and applied to the share of BTC that you are selling. For example, to sell the 2.12 BTC for £5826.21 you would calculate tax based on the difference ( £5826.21 – £3826.21 = £2000)
To comply with auditing requirements HMRC also suggests that you should keep the following which should be readily available from your wallet and transaction details :
- a record of the pooled costs before and after you disposed of them
- type of tokens
- date you disposed of them
- number of tokens you’ve disposed of
- number of tokens you have left
- value of the tokens in pound sterling
- bank statements and wallet addresses