Procurement and Payments: Why Getting Smart on Bitcoin Matters More Than You Think

My colleague David Gustin recently posting a fascinating column on Trade Financing Matters titled Comparing SWIFT, Paypal and Bitcoin – and why this matters! that should be required reading for all procurement, accounts payable or treasury executives considering the impact of new financing and payment mechanisms within the supply chain. David suggests we should be paying closer attention to new forms of money and currency like Bitcoin, not just based on their share of B2B activity today but rather what their underlying models and infrastructure could signal about the future.

One angle that David observes is that Bitcoin “takes the payment infrastructure of banks and turns it on its head. Why? Because the cost of sending money is almost zero (there is cost of mining, and that gets increasingly expensive, but is still very, very small relative to the cost of sending money).” Today, the cost of sending money through banks, especially in a cross-border situation, can be expensive – especially when multiple currencies come into play. We can thank the current correspondent bank infrastructure and SWIFT monopoly for this (which the banks all support because they pass along costs to customers).

Further, David observes that “Bitcoin effectively lowers the cost of money transfer to zero plus it does so without having to go through bank infrastructure – what it lacks though is remittance information – it’s just anonymous bits and bytes saying move money from this computer to that computer. The ultimate owner of any single unit of Bitcoin can be tracked through a central system, and any transaction is automatically recorded.”

Ultimately, David asks the question: “Will Bitcoin work?” That’s a big if. On this topic, my colleague notes that, “Right now Informilo estimates 63,000 businesses take Bitcoin. [But] the problem merchants have that take Bitcoins is they usually liquidate … for cash, creating downward pressure. Last week Bitcoin’s price fell almost 20% in one day, not good for something that is trying to be an established currency for merchants.”

For Bitcoin and Bitcoin plumbing to work in the supply chain, it will have to be a store of value that can sit on a balance sheet – unless its value or the value of a derivative store of value is pegged to a stable, established currency in B2B trade.

Yet don’t count out Bitcoin from B2B payments just yet. As David observed, while “there is still much to understand … knowing Bitcoin made the main stage at Sibos,” a conference for traditional banks, it is clear that “bankers are starting to come to the party.”  And corporate procurement, A/P and treasury groups should be crashing the festivities as well, at the very least to understand Bitcoin and its potential.

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Voices (3)

  1. Johncoleman:

    As a Bitcoin miner and early adopter, I just want to kindly warn anyone new to mining to be careful when selecting a provider. The industry is full of fraud as we’ve seen many times in recent months.

    Please carefully review each provider BEFORE sending them money.

    Be smart, be careful and happy mining : )

  2. Jason Busch:

    Thanks. Fixed. This is what happens when you write 15 posts on an 4 hour flight … 🙂

  3. Check Your Facts:


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