The price of Bitcoin continues to rise. But wild speculation behind the coin’s persistent volatility and Bitcoin enthusiasts’ behavior seemingly belie Bitcoin’s stated goal. As a cryptocurrency, Bitcoin was designed to facilitate peer-to-peer online transactions, not stoke the chaotic surges and crashes in value that have become all but synonymous with buying Bitcoin.
Despite a burgeoning crypto finance sector running currency exchanges and exchange-traded funds that track Bitcoin and other cryptocurrencies’ rise and fall, several businesses treat Bitcoin as a means of payment instead of an investment vehicle. Last month, Carolina Panthers offensive tackle Russell Okung negotiated half of his $13 million contract to be paid to him in Bitcoin.
Bitcoin was created with a stated goal of eliminating the need for third-party financial transactions, an “alternative financial system,” according to Satoshi Nakamoto, a pseudonym for the person or group of people widely credited with creating Bitcoin.
“Commerce on the internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments,” Nakamoto wrote in his 2008 Bitcoin white paper, in which he outlined how such an anonymized currency system could be structured. “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
But the rollout of Bitcoin payment systems has been slow, and many companies listed on websites as “accepting” Bitcoin don’t handle Bitcoin at all. Instead, they rely on third-party payment systems such as Flexa.
For example, Home Depot is listed as a company that accepts Bitcoin transactions through Flexa, but a spokesperson rejected that the company has ever accepted Bitcoin directly. “We’ve never accepted this,” a spokesperson told the Washington Examiner.
Despite videos and a CNBC interview with one Subway franchisee suggesting otherwise, a Subway spokesperson said that the sandwich chain “does not accept Bitcoin.”
Overstock, an internet retailer that primarily sells furniture, does facilitate Bitcoin transactions directly.
CEO Jonathan Johnson told the Washington Examiner that Overstock had accepted Bitcoin as a currency since 2014. (Back then, a Bitcoin was never worth more than $1,000.)
“It is a valid and legitimate form of payment and is a good store of long-term value,” Johnson said. “Once widespread adoption increases, such as when more merchants accept Bitcoin or when more individuals are paid in Bitcoin, it will become a common form of payment.”
But despite Overstock’s early adoption of the cryptocurrency, Johnson said that very few transactions get completed with Bitcoin. He said that the company receives Bitcoin transactions “every week” but added that “less than one-quarter of 1% of our sales are paid in Bitcoin.”
Dish Network also told the Washington Examiner that it accepted Bitcoin as payment since 2014 but declined to say how frequently customers use Bitcoin to make payments or how much Bitcoin Dish Network currently possesses.
It isn’t only businesses grappling with adopting digital currencies. A study conducted by Zogby Analytics found 36% of small- and mid-sized companies accepted cryptocurrencies, especially new businesses. Roughly 47% of companies that accepted cryptocurrencies were established within the last five years. Firms operating for more than 20 years comprised just more than one-fifth of the share of pro-Bitcoin businesses.
An additional problem facing widespread Bitcoin adoption is the current regulatory environment — the Internal Revenue Service decided that Bitcoin and other “convertible virtual currencies” should be taxed as property, not currency, according to the Balance.
In other words, paying for a futon with Bitcoin isn’t a sales transaction in the eyes of the IRS. It’s a capital gain or loss.
“Any gains realized by a person buying something with a cryptocurrency are taxable and must be reported to the IRS,” Kostelanetz & Fink’s Bryan Skarlatos wrote in 2017. “And, under the logic of the Internal Revenue Code, any losses may not be deductible if the transaction was personal in nature. Only losses on transactions entered into for profit or in the course of a trade or business are deductible.”
Even companies that use Bitcoin as currency recognize the investment aspect of the cryptocurrency. Johnson said that the company holds “up to 50% of the Bitcoin it receives from customer purchases and converts the rest to U.S. dollars immediately.” The company uses Bitcoin “to pay for certain services and memberships. And we sometimes sell the Bitcoin we hold,” Johnson added.
Bank of America CEO Cathy Bessant told CNBC in 2019 that cryptocurrencies were “troubling” given their lack of transparency.
“As a payment mechanism, I think it’s troubling because the foundation of the banking system is on the transparency between the sender and the receiver, and cryptocurrency is designed to be nothing of the sort. In fact, [it’s] designed to be not transparent,” Bessant said. “The way we sort of quote-unquote catch bad guys is by being transparent in the financial movement of money. Crypto’s the antithesis of that.”
