Bitcoin’s Viability for Mainstream Businesses and E-Commerce

Bitcoin’s Viability for Mainstream Businesses and E-Commerce

Written by: Nemesh Bhatte

Although not widely accepted presently, Bitcoin may be on the path to revolutionizing the financial and e-commerce arena in the near future. The terms “Bitcoin” and “bitcoin” are used in two different ways.[1] Capitalized “Bitcoin” refers to “the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen.”[2] Lowercase “bitcoin” refers to the basic “digital currency” units used in transactions through the bitcoin system.”[3] Thus, Bitcoin is “unlimited by the constraints of countries, governments, or time. [B]itcoins, are essentially a digital currency or cash for the digital era.”[4] Nonetheless, Bitcoin is not very different from currently established fiat currencies.[5]

Bitcoin is growing in popularity around the world as mainstream businesses are beginning to adopt it into their daily transactions.[6] “Some common examples in Australia include using bitcoins to pay for food and drinks in a growing number of pubs, restaurants, patisseries and cafes.”[7] Some of the key benefits of bitcoins include convenience, reduced transaction costs, and marketing.[8] With the use of a “virtual wallet” stored on the web, personal computer, or mobile device, merchants and consumers can instantly transact with bitcoins from anywhere in the world.[9] Thus, the portability of bitcoins makes them an extremely convenient method of mobile payment. Secondly, “by removing the need for intermediaries, the Bitcoin system greatly reduces transactional costs that are otherwise present in conventional credit card transactions or electronic funds transfers.”[10] Third, “because Bitcoin allows users to make mobile payments, businesses are able to make use of QR codes to facilitate online payments. Given Bitcoin’s growing adoption rates, businesses that have started accepting bitcoins have also enjoyed increased media exposure.”[11]

However, Bitcoin also poses risks such as price volatility, irreversible transactions, limited accountability, and compliance/regulation issues.[12] For example, because bitcoins do not have a tangible or physical manifestation, an issue arises regarding its classification as property or currency.[13] “In a bankruptcy context, bitcoins held by a debtor upon filing, would likely qualify as property of a bankruptcy estate since the debtor would have a legal or equitable interest therein.”[14] In addition, “IRS Notice 2014-21 clarifies that existing general tax principles apply to transactions using convertible virtual currency and that such virtual currencies should be treated as ‘property’ rather than ‘currency’ for US federal income tax purposes.”[15] Accordingly, this classification has great implications on the “timing and character of income, gain, or loss.”[16] On the other hand, under Article 9 of the Uniform Commercial Code (“UCC”), “bitcoins are likely to be classified as a general intangible or payment intangible.”[17]

Furthermore, “Bitcoin has been affiliated with black market sales and illegal conduct.”[18] Though consumers and merchants transacting via Bitcoin expose themselves to “significant risk and uncertainty as to their rights, remedies, and obligations under current statutes, regulations, and commercial law,” confidence in its use should increase as regulation develops further.[19] It will be in the best interests of merchants and e-commerce businesses to stay abreast on Bitcoin’s future.[20]

[1] Robert N. Gilbert & Alexandra D. Blye, Bitcoin and Internet Payment Systems: Regulatory and Commercial Law Concerns (Mar. 17, 2014), http://www.cfjblaw.com/bitcoin-internet-payment-systems-regulatory-and-commercial-law-concerns/#_ednref30.

[2] Frequently Asked Questions, Bitcoin, https://bitcoin.org/en/faq#what-is-bitcoin.

[3] Onno Bakker, Et Al., Bitcoin: Bringing you up to Speed on a Digital Currency (Jul. 7, 2014),

http://www.dlapiper.com/en-us/australia/insights/publications/2014/07/bitcoin-bringing-you-up-to-speed/#0.

[4] Id.

[5] See Joshua J. Doguet, The Nature of the Form: Legal and Regulatory Issues Surrounding the Bitcoin Digital Currency System, 73 La. L. Rev. 1119, 1120-21 (2013).

[6] See Bakker, supra note 4.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Bakker, supra note 4.

[12] Id.

[13] See Robert N. Gilbert & Alexandra D. Blye, Bitcoin and Internet Payment Systems: Regulatory and Commercial Law Concerns, (Mar. 17, 2014), http://www.cfjblaw.com/bitcoin-internet-payment-systems-regulatory-and-commercial-law-concerns/#_ednref30.

[14] Id.

[15] Joseph H. Langhirt Et. Al., Bitcoin is Property, not Currency, IRS says – Notice Leaves Many Open Questions about Convertible Virtual Currencies, (Apr. 3, 2014), http://www.dlapiper.com/en-us/australia/insights/publications/2014/04/bitcoin-is-property-not-currency/.

[16] Id.

[17] Gilbert, supra note 13.

[18] Bakker, supra note 4.

[19] Robert N. Gilbert & Alexandra D. Blye, Bitcoin and Internet Payment Systems: Regulatory and Commercial Law Concerns (Mar. 17, 2014), http://www.cfjblaw.com/bitcoin-internet-payment-systems-regulatory-and-commercial-law-concerns/#_ednref30.

[20] Id.

Author: Nemesh Bhatte

Nemesh Bhatte is a second year law student and an Associate Editor for the Rutgers Computer and Technology Law Journal. He graduated cum laude from Ramapo College with a B.S. in Business Administration and a concentration in Finance. During the summer of 2014, Nemesh served as a judicial intern for the Honorable Nancy Sivilli, Chancery Division, Family Part, in Essex County. Prior to law school, Nemesh interned for an attorney practicing entertainment law and has led numerous businesses to success. From 2005-2010, Nemesh managed a prominent event planning company and has produced events for Billboard Top 40 artists. In addition, Nemesh has worked with clients such as Fuji Film and Samsung to increase and aid product sales, market penetration, and product development. Nemesh is currently Vice President of the Asian Pacific American Law Students Association. In his spare time, Nemesh enjoys fitness and exercise.