Accepting and Using Bitcoin as Part of a

Viable Business Model

ACM Investments
Amanda Neasbitt, Marisol Miramontes, Chas Herrera
November 18, 2014

TITLE PAGE
LIST OF ILLUSTRATIONS

ABSTRACT

ii

INTRODUCTION

SECTION 1.1 PURPOSE

SECTION 1.2 PROBLEM

REPORT

SECTION 2.1 HI STORY AND DESCRI PTI ON OF BI TCOI N

SECTION 2.2 FALL OF THE U.S. DOLLAR

SECTION 2.3 R I SE OF BI TCOIN

SECTION 2.4 POSI TI VES OF BI TCOIN

SECTION 2.5 N EGATI VES OF BI TCOIN

SECTION 2.6 FUTURE O UTLOOK

CONCLUSION/RECOMMENDATION

11

GLOSSARY

12

WORKS CITED PAGE

13

List of Illustrations
Figure

Page

1. Bitcoin Symbol/Title Page.i.

2. Purchasing Power Graph4
3. Business Cycle Graph.4
4. Bitcoin Value Chart5

Abstract
The fluctuating value of the U.S. dollar continues to be a major obstacle in promoting a
healthy and thriving business. The rise and fall of purchasing power needs to be supplemented by
another source of currency; a problem we believe to have the answer to. We propose integrating
Bitcoin into our accepted forms of currency. This will lead to security from the volatile behavior
of U.S. currency and will allow more universal transactions if any existing or potential business
goes multi-national.

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Introduction
Purpose
The purpose of this research report is to convince our upper level executives about the
integration of Bitcoin into our business model. We will do this by explaining what factors led to
our decision. These factors include the decline in purchasing power of the U.S. dollar, the rise of
Bitcoin across the world, the security in using Bitcoin as part of a viable business model, the
innovative functionality of Bitcoin that allows future transactions to be universal and not barred
by typical ethnic barriers.

Problem
The problem every business encounters in todays economy is the dollars volatility.
Since 1933 the purchasing power of the dollar has decreased by 92% (Batemarco). We feel this
company cannot afford to wait until the dollar potentially collapses, at least not without a viable
contingency plan. Amongst the problems the dollar faces is the struggle with exchange rates
across various nations which has repeatedly been a speed bump in the past. Our proposition
addresses these concerns as Bitcoin is a universal currency. As more companies begin to trade
with this crypto-currency, we will see a proportionate increase in business. Keep in mind, the
dollar isnt expected to fallout entirely, so this company will still be trading with the traditional
currency. The risk is minimized with the introduction of Bitcoin to this business.

Report
History & Functionality of Bitcoin
Bitcoin, we have repeatedly used this term throughout our introduction and will be
continuously using the term throughout the report. So, what is Bitcoin? There is an actual
difference between the words Bitcoin and bitcoin. When you see the word bitcoin without
capitalization it is referring to the actual currency itself. When you see the word Bitcoin with the
b capitalized it is referring to the entire system. Bitcoin is also abbreviated as BTC or XBT. In
this report we will be using both terms. This information comes straight from Bitcoins website
as does a significant amount of our research. Simply put, bitcoin is a unit of crypto-currency that
can be exchanged universally without a central regulating agency. This is laissez-faire in its
purest form. So how does Bitcoin work? There are 4 major characteristics to Bitcoin that need to
be understood. Firstly, an individual must establish a Bitcoin wallet. This, in turn, creates an
address which is specific to your account and is the means of making transactions. Secondly,
any recorded transaction is added to the block chain, which is the shared public ledger on
which the entire Bitcoin network relies (Bitcoin Foundation). Thirdly, all Bitcoin wallets keep a
private key, which is used to sign transactions and provides proof that the bitcoins made it to
their correct destination (Bitcoin Foundation). Finally, mining provides the finality of all
transactions where users confirm waiting transactions and include them in the block chain. As
you can see, Bitcoin has a simple yet intelligently complex functionality that protects users
across the board. This security gives all users the necessary reassurance that their transactions
are protected. The idea of Bitcoin was first introduced by Wei Dai in 1988. Wei suggested the
idea of a new form of currency that uses cryptography to control its creation and
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transactions, rather than a central authority, like central banks (Bitcoin Foundation). The
conception of Bitcoin was published in 2009 by an anonymous user by the name of Satoshi
Nakamoto. Satoshi left the project in late 2010 and has since been left in the hands of Wladimir
J. van der Laan, Gavin Andresen, Jeff Garzik, Gregory Maxwell, and Pieter Wuille. An
interesting point to make is that Bitcoin protocol and software are published openly allowing any
developer around the world can review and make their own modified version of the Bitcoin
Software (Bitcoin Foundation). As opposed to the dollar, bitcoins are created at a fixed rate,
another key aspect of our argument to use Bitcoin. Their creation is automatical ly halved over
time until bitcoin issuance halts with a total of 21 million bitcoins in existence (Bitcoin
Foundation).

Fall of the U.S. Dollar

In order to examine and
condemn the U.S. dollar, we must look
back to 1913 with the establishment of
the Federal Reserve

System. This systems purpose was to

regulate the currency to prevent it from
one day collapsing. The issue is that
the monetary policy developed by the
Fi gure (A)

Federal Reserve has stretched its value paper thin, no

pun intended. 1 dollar today could purchase 20 dollars worth of goods in 1913 (Bureau of Labor

Statistics). If you refer to Figure (A), you will see just how drastic the decline of our currency
has been. With the development of a paper currency comes costly business cycles which are
guaranteed in any free enterprise economy. These business cycles greatly hinder the earnings of
this company during its recession
periods. Looking at Figure (B) we can
get a sense of what a typical business
cycle looks like. Although this may be
a generic representation of the business
cycle, we can clearly see that most of
the time we are underneath the growth trend. All of
these facts add to the viability of adding a
supplemental currency to our business model.

Fi gure (B)

Rise of Bitcoin
Since its establishment in 2009, Bitcoin has proven to be an effective new fiat currency
against the U.S. dollar. Today, 1 bitcoin = $405.50. This number speaks to both values of bitcoin
and the dollar. As you can see, the value of the dollar has become increasingly deflated while
Bitcoin remains a versatile currency. Much of this
versatility comes from Bitcoins fractional exchange
methods. Simply put, fractional exchange

methods refer to the fact that Bitcoin can be

traded by whatever amount the users choose. It
can be exchanged by as little as .01 bitcoins; the
dollar cannot be manipulated in such a manner.
This flexibility gives Bitcoin a substantial edge
Fi gure (C)

on the dollar in any exchange situation. If you refer to Figure (C), you will
see exactly how Bitcoin is holding up against the dollar. It is evident that Bitcoin has become
increasingly valuable to a standard business model. Trading with dual currency only adds to
the flexibility of a company and will continue to promote growth on a global scale. These
Bitcoin exchanges can cross continents universally, something the dollar cannot do without
exchange rate penalties.

Positives of Bitcoin
The following areas highlight the major advantages of using and accepting Bitcoins for consumers
and business.

Consumers Pros
Protection of Identity and Money
Bitcoins are just as anonymous as using cash. Consumers can create their own wallet without having to give
any personal information. Unlike credit cards numbers, when completing a transaction using bitcoin,
consumers do not have to disclose their personal information and bitcoins cannot be stolen. (Adamowsky)

No Taxes
Third parties cannot intercept transactions of bitcoins. Therefore there is no possible way to implement
a Bitcoin taxation system. The only way you can pay a tax is if someone does it voluntarily. (Azmaan
Onies)
Bitcoins Cannot be Stolen
The only way bitcoins can be stolen is if someone has physical access to a user computer and they
send bitcoins to their account. (Azmaan Onies)
Its Cheap
In most cases businesses charge a fee for using a debit card. Bitcoin transaction fees are minimal, or
in some cases free. (Coates)
Central Government Cant Take it Away
Bitcoins currency is decentralized. According to Coin desk, no central authority has control, and so
a bank cant take it away from you. (Coates)
It Isnt Inflationary
According to coin desk bitcoin was designed to have a maximum number of coins. Only 21 million will
ever be created. This means that the number of bitcoins wont increase, so inflation will not be problem.

(Coates)
You Can Create Your Own Money
You can surely buy bitcoins from many different websites, but you can also mine your own if you have
sufficient computer power. Mining bitcoins is done by simply leaving the machine switched on, and
the software running. (Coates)

Business Pros
Saves Money
There are many different providers that process transactions. If you use a provider like Coinbase, the
first $1 million will be free and then you will have to pay 1% on all transactions. This is a substantial
saving

compared to the 3%-4% transaction fee for credit cards. Since most transactions are done through
tablets and smart phones, there is no need for a pricey POS system and hardware. (Adamowsky)
Consumers information is secure
When using bitcoins, the consumers identity is protected or even anonymous, therefore, you wont
have to worry about hackers going after credit cards. (Adamowsky)
Zero fraud
When accepting payments online, chargebacks are inevitable and a massive draw back to any business.
When using bitcoin, fraud is nearly impossible, due to the bitcoin protocol, all transaction are
irreversible. (Coates)
Easy setup
It is easy for a business to sign up to accept Bitcoin. Many payment processors like Blockchain,
Bitpay, and Shopify are fairly easy to use and some just require you to sign up for the service.
(Coates)

Negatives of Bitcoin
The following areas highlight the major disadvantages of using and accepting Bitcoins for consumers and
business.

Consumers Cons
Wallets can be lost
In order for consumers to lose their wallets the hard drive must crash, or if a virus corrupts data, and the
wallet file is corrupted. After a wallet has been lost, there is nothing you can do about it. This can
quickly bankrupt a wealthy investor. (Azmaan Onies)
Valuation Fluctuates
The value of bitcoin is constantly fluctuating. This fluctuation can cause businesses to constantly
change their prices. (Azmaan Onies)
No buyer protection
You cannot reverse the transaction in anyway. (Azmaan Onies)
Not widely accepted
Bitcoins are only accepted by a very small group of merchants.

Business Cons
Charge for Conversion
According Crypto coins news, if you accept bitcoin payments but want the value as a fiat currency, you
will have to convert after the transaction is made. Most conversion markets will charge you for the
service on a monthly basis.
Valuation Fluctuates
The value of bitcoin is constantly fluctuating. This fluctuation can cause businesses to constantly
change their prices. (Azmaan Onies)

Future Outlook
Opinions seem to vary when considering the future outlook of the U.S. dollar. The
consensus however, is that the outlook of the U.S. dollar as well as the U.S. economy looks
rather bleak. According to U.S. economy expert, Kimberly Amadeo, several conditions must be
in place before the dollar could collapse. First, there must be an underlying weakness. Second,
there must be a viable currency alternative for everyone to turn to. Third, a triggering event
would need to occur. (Amadeo) We see that the first condition exists, between 2002 and 2012 the
U.S. dollar declined 54.7% compared to the euro. This is due to the U.S. debt nearly tripling.
(Amadeo) This trend of national spending, will only help to weaken the U.S. dollar. Recently the
Federal Reserve has expressed concerned that if the dollar were to increase in value, weak
overseas growth would in turn hurt the economy even further, keeping interest rates low.
(Hilsenrath) Many things contribute to the rise or fall of the dollar. Interest rates, foreign
markets, the unemployment rate, and so on. One would be hard pressed to definitively declare
the outlook of the U.S. dollar either positive or negative. In recent months the dollar seemed to
be gaining rapidly in value, then came to a sudden unexpected halt. (Buckland) According to
CNN Money, the U.S. dollar is making a comeback and is at the highest its been in four years.
While certain economists believe that the U.S. dollar will continue to appreciate and improve, the
Federal Reserve has announce fears. (Solomon) During a recent economic summit, Federal Reserve
Chairman Ben Bernanke weighed in, writing in a letter to a Senate committee that bitcoin and other
virtual currencies "may hold long-term promise, particularly if the innovations promote a faster,
more secure and more efficient payment system." (Light) This brings us to the future of Bitcoin.
Could Bitcoin be the second viable currency option previously mentioned? Investors are becoming
increasingly concerned over government regulation and what this might mean for traditional
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currencies. Financial advisors such as Ian Bremmer, believe that in the future, virtual currencies
will be the safer bet over traditional currency. (Maureen Farrell) Thousands of merchants
currently accept Bitcoin as payment for goods and services. The number of merchants
accepting Bitcoin as payment is estimated to continue to grow. With big name merchants such
as Overstock, DISH, and Expedia accepting Bitcoin, more are sure to follow. As merchants
accept Bitcoin, their customer base expands internationally and allows for easy, smooth, and
secure transactions. (Coin Desk)

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Conclusion/Recommendation:
In an unsteady economy, with so many factors contributing to the outcome and value of
the U.S. dollar, many economists and investors alike are recommending buying into Bitcoin.
Many see Bitcoin as a lottery of sorts, a slightly risky investment with a potentially huge payoff.
As the value and stability of Bitcoin grows, so does the list of merchants accepting them.
Through our research and findings, we have come to the conclusion that people want stability,
they want change, and that Bitcoin is here to stay. We highly recommend adopting Bitcoin as an
optional method of payment. Not only will this provide peace of mind to your customers, due to
its security, it would also give your customer and client base a chance to grow exponentially.
Given the fact that Bitcoin is a virtual currency, there would be no need for conversion, and
there would be minimal government interference. Adopting Bitcoin will also allow your
company a chance to stay on the cutting edge of technology and potentially be a leader globally
in your industry.

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Glossary
Bitcoin
A digital currency that uses state-of-the-art cryptography, can be issued in any fractional
denomination, and has decentralized distribution system.
Coin desk
Is the world leader in news, prices and information on bitcoin and other digital currencies.
Crypto-currency
A medium of exchange using cryptography to secure the transactions and to control the
creation of new units.
Currency
Something that is used as a medium of exchange; money.
Deficit
The amount by which a sum of money falls short of the required amount.
Deflation
Economics. A fall in the general price level or a contraction of credit and available money.
Export
To ship (commodities) to other countries or places for sale, exchange, etc.
Import
Something that is imported from abroad; an imported commodity or article.
Inflation
Economics persistent, substantial rise in the general level of process related to an increase in
the volume of money and resulting in the loss of value of currency.
Litecoin
Is a peer-to-peer internet currency

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Works Cited
Adamowsky, Eric. Bitcoin: The Pros and Cons for Consumers and Merchants. 2 March 2014.
13 November 2014.
Amadeo, Kimberly. About News. 2014. Internet. 11 November 2014.
Azmaan Onies, Giancarlo Daniele, Tunmise Olayinka. Disavantages . n.d. 13 November 2013.
Buckland, Kevin. Bloomberg. 10 November 2014. Internet. 10 November 2014.
Coates, William. The Pros and Cons of Bitcoin: A Merchant's View. 2014 Feb 2014. 2014. 13
November 2014.
Coin Desk. 2014. Internet. 12 November 2014.
Hilsenrath, Jon. Wall Street Journal. 8 October 2014. Internet. 11 November 2014.
Light, Joe. Should You Invest in Bitcoin. 23 November 2013. Wall Street Journal. 10 November
2014.
Maureen Farrell. Money.CNN.Com. May 2013. Internet. 12 November 2014.
Solomon, Jesse. CNN Money. 29 September 2014. Internet. 10 November 2014.
dictionary.com 2014 http://www.dictionary.com November 2014

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