Gary T. Kerr pens this guest post. He is the president of Fine Art Impressions. It is one of the leading digital fine art printing firms worldwide. Gary also contributed a hugely popular post here titled 12 Mistakes Every Artists Should Avoid.
(Editor note: I have been marginally aware of Bitcoin for some time, but without much notice until recently. That changed with Gary’s interest in contributing an article, and reading a recent “Why Bitcoin Matters” NYTimes.com article by venture capitalist, Marc Andreessen. He is also an Internet pioneer having developed the Mosaic browser, which helped pave the way for today’s Internet.)
Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can dispute the legitimacy of the transfer. The consequences of this innovation are hard to overstate. ~ Marc Andereessen
Bitcoin has now been evolving for 5 years, and yet, it is still widely misunderstood. Its unique qualities and relative newness are behind the confusion. Bitcoin essentially has four functions, which are:
It’s a virtual currency that has a predetermined number of coins being “mined” each day through mathematical problem solving, and has a total cap of 21 million total coins, currently there are about 12 million coins in use, and a Bitcoin is worth about $800 as of January 2014.
Government backed currencies by comparison, such as the dollar or yen have no such preset cap. As a result, Bitcoin is the only currency in existence that has a deflationary value since the current supply is insufficient to meet demand. This simply means Bitcoin in the future, has the potential to purchase more than it can today.
Despite the image above for illustration purposes, there are no coins to trade or to counterfeit. Please understand Bitcoin exists only in digital form. It is a mathematical crytpo-currency that is comprised of a public ledger called the blockchain and accounts for all coin transfers between two parties in what is a massive peer-to-peer network calculating complex math to provide integrity to the ledger. Because this network is not controlled or owned by any central entity, it is not subject to manipulation by corporations or governments.
In being independent of those traditional entities, it enables two parties to exchange payment almost instantly and for free or nearly free without a third-party such as a bank—which has been the traditional facilitator of payment systems. The value of such a system for anyone who has run a merchant services account like Paypal or Square will fully appreciate the value compared to the scrumptious fees associated with most payment networks.
To own or use Bitcoin, it only requires that you have a Bitcoin wallet and an understanding of how the system works, see blockchain.info for more on this topic. So can you trust it? Can you trust math? Since the blockchain is not subject to being tampered with, your Bitcoin transactions are secured by something called SHA-256, an encryption technology developed by the NSA back in 2001. This makes it virtually bulletproof. But, it is not without risk as you must manage your Bitcoin transactions and protect your private key which is well documented at this point.
For many who choose to learn about Bitcoin, the first issue brought up is volatility, meaning the value of Bitcoin changes throughout the day. Because of this, it immediately is seen as something negative. Nothing could be further from the truth. You have the option to accept Bitcoin for payment and instantly convert it to your local currency, likely US dollars and never feel the effects of Bitcoin volatility.
There are many money services businesses that can enable the transaction in that way such as coinbase.com. In doing so, you simply are accepting payment with Bitcoin but have dollars land in your bank account without any significant cost. Compare that with Amex, Mastercard, or Visa which will likely take days and cost 3% or more in fees. You could also opt to accept Bitcoin and store the value in the ledger (your wallet), only accessible via your private key to at a future point in time, make a purchase, or pay someone else in Bitcoin, again, almost instantly and practically for free.
Since buying and selling art and related services requires payments just like any business, Bitcoin brings highly desirable features for artists and art dealers to expand their reach globally without the associated transaction costs and potential risks.
For artists and other small businesses, the cost savings is an attractive feature of accepting Bitcoin. Bitcoin also has another unique feature that has the potential to protect artists and art dealers selling art. Mainly that a Bitcoin payment is one-way and irrevocable and not subject to third party mediation.
While this may sound crazy, in fact it favors the party with the asset at risk, the one who is selling art. There are many viable systems that can minimize counterparty risk such as escrow services to balance risk for buyers if necessary. However, reputable dealers and merchants can enjoy receiving payment without the dreaded and costly chargebacks or disputes common with international commerce and sometimes with domestic payments depending on your customer or transaction type.
There are many remarkable aspects to Bitcoin as a payment system, but there is a great deal more coming to the Bitcoin universe. In the short term, accepting Bitcoin will expand with whom you can do business globally while reducing risk and cost. Long term, Bitcoin will enable your business to do even more with your art.
So in the meantime, get educated, understand how your business could benefit but keep in mind that all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident. With that in mind, put Bitcoin at the top of your business strategies list for 2014.
(Editor’s note: I can foresee a huge worldwide impact from the Bitcoin revolution, and believe it can succeed. That said, there are legitimate concerns that need to be addressed before Bitcoin can meet its potential. This analysis from Karen Webster “What Andreessen Missed About Bitcoin” voices those concerns. It cannot succeed without being able to answer its critics, which I am hopeful it can do.)