Should Singaporean SMEs be getting on the Bitcoin Bandwagon?

Singapore is more than ready for a future with bitcoin. Singaporeans are picking up cryptocurrency faster than anywhere else in the world. But is the rise of cryptocurrencies something that Singaporean SMEs should be getting involved with?

The combination of swift uptake, a balanced regulatory stance by the Inland Revenue Authority of Singapore (IRAS), and entrepreneurial innovation has put Singapore in the vanguard of countries using cryptocurrencies.

Regulating digital currencies gives these new payment systems a legitimacy and transparency that has been sorely lacking in their infancy. From their acceptance so far, there is a mainstream role for bitcoin and other cryptocurrencies in the financial systems of the future.

Local businesses like Tembusu Systems have been the notable first adopters of bitcoin with their introduction of an early bitcoin automatic teller machine in 2013. Today Singapore has at least 8 operational bitcoin machines. Coin Republic recently launched Singapore's first bitcoin kiosk capable of disbursing bank notes in exchange for bitcoins.

So why should Singaporean SMEs choose bitcoin as a payment system? What are the advantages and disadvantages and how can bitcoin make a difference to small business?

Advantages of bitcoin
- It's very similar to a cash transaction. Bitcoin transactions are managed in much the same way as cash transactions and depending on where and when you exchange them can have minimum paper trail. This holds a raft of implications, positive and negative, for small business depending on tax circumstances. Likewise, small businesses will be subject to exchange rate fluctuations and have to decide on where and when to convert into local currency.

- Bitcoin costs less than Paypal, is much cheaper than credit cards and so much more profitable than traditional forms of non-cash payment. There are no permissions or application fees. You download the software; register and you are ready to trade. The fees are usually less than 1% and only apply if you choose priority payment or direct transaction into hard currency. Bitcoin allows the merchant to sell internationally at a lower cost because you only have to be concerned with a single international exchange rate, i.e. from bitcoin to your currency of origin.

- Bitcoin is fast. Small businesses like the capacity for speed and bitcoin has it. A standard transaction will be in the merchant's account within 10 minutes no matter the distance between merchant and customer. Bitcoin removes the middleman and bank fees and provides electronic liquidity. Another aspect of this speed is that the transaction is final. Unlike credit card payments, which can be disputed and drawn out over months, a bitcoin transaction is final. Any dispute is left to the merchant to refund. Likewise, when a merchant signs up for bitcoin they are registered on the bitcoin virtual map and customers are free to leave reviews. Peer ratings ensure transparency and legitimacy.

- Bitcoin is a peer-to-peer currency and wholly technology-based. From SE Asian point of view, new tech and its utility is an attractant for small businesses and their customers who want to stand out amongst competition. Government regulation give it legitimacy.

- For virtual world transactions and money made on bitcoin investments, there is a zero percent capital gains tax thanks to recent IRAS ruling. Real world goods and services involving digital currencies qualify for GST.

Disadvantages of bitcoin
- Bitcoin exchange rates fluctuate. In 2009 they were giving them away and at the beginning of 2014 one bitcoin was going for US$800. Today it's at around US$230. Deciding when to hold onto and when to exchange into hard currency represents a risk associated with all currency transactions. SME requirements vary hugely and this exchange risk is something that must be assessed with your business' operating requirements in mind.

- Bitcoin and cryptocurrencies are new and volatile. Whilst the uptake is fast in developing countries due to its utility, it is slow to get going in developed countries where traditional payment systems are entrenched. When and if these developed countries recognise and regulate cryptocurrencies will decide if they take off or not.

- Bitcoin has a stigma relating to its involvement in Silk Road and other illicit Internet sites. Cases of bitcoin fraud have been reported but are few and falling.

Every small business has its own requirements. Deciding if the strengths outweigh the weakness for your product and assessing how your business manages the volatility risk are decisions all good managers will make. Bitcoin and its ilk are new and whilst uptake of bitcoin is fast relative to other cryptocurrencies, it is still a very small (but growing) player in the payment world.

From a Singaporean point of view, with its staunch and informed financial regulation, its enthusiastic uptake of digital currency, and its ready access to world markets, bitcoin is increasingly attractive as a method of payment for the next generation. As time passes and uptake increases, exchange volatility will wane. So the question is, are you getting on the bitcoin bandwagon now, or are you waiting?