Statement of Ranking Member Nydia Velázquez before Committee hearing on Bitcoin and Small Business

Statement

of the

Honorable Nydia Velazquez

Ranking Member

House Committee on Small Business

Bitcoin and Small Business

April 2, 2014

Thank you, Mr. Chairman.  American entrepreneurship is closely linked to technological innovation.  Whether it was the arrival of Google or Facebook, the widespread use of smart phone “apps” or cloud computing, our nation’s entrepreneurs drive many technological developments.  Not only do small firms help create new technologies that drive growth, but they often benefit from the advent of new systems and processes. 

The relatively recent arrival of digital currencies is one technology that presents significant opportunity.   Just as the Internet has empowered entrepreneurs to reach new, global markets and identify more efficient ways of doing business, digital currencies like Bitcoin can save small firms on transaction costs. 

For a small company accepting major credit cards, each card swipe can cost as much as one-quarter of a cent, in addition to having to return three to six percent of sales total to the credit card company.  Some credit card companies also charge businesses to join their network.  By contrast, when utilizing Bitcoin, there is no cost of joining the network.  Fees are less than one percent.  For large retailers and big box stores, these costs may sound minor, but among small companies operating on thin margins, those expenditures add up. Moreover, should currencies like Bitcoin become widely utilized, they could create competitive pressure for conventional financial institutions to lower transaction fees in an effort to retain small business customers.  

Beyond allowing small firms to save on transaction costs, Bitcoins offer consumers other advantages.  For customers seeking anonymity, Bitcoins provide more privacy than credit card transactions. Small firms are gradually recognizing the promise of accepting Bitcoins.   In 2012, about 1,000 businesses used BitPay, the largest processor of Bitcoin payments. Today, more than 13,000 small businesses in the U.S. employ this service.  While most are online sellers, one-in-five are traditional brick-and-mortar operations, suggesting the technology is gaining broader acceptance.    

Although this growth sounds promising, a number of unanswered questions may be impeding small businesses’ use of Bitcoin.  Price fluctuations for Bitcoins create complications.   Last spring, Bitcoin’s dollar exchange rate rose sharply from $50 to $350 – and then fell to $70.  With swings like this, one has to wonder whether small businesses would find it difficult to continually price and re-price their products in order to ensure they receive fair compensation from customers. 

There are also security questions.  Hacking incidents in 2012 and 2013 endangered many users’ Bitcoins.  More recently, the bankruptcy of Mt. Gox – one of the largest Bitcoin exchanges – was followed by news that the company had lost hundreds of millions of dollars in Bitcoins.  For small businesses to fully benefit from this currency, customers must be assured their money is safe and cannot be snatched out of cyberspace.  It also remains to be seen how the IRS’ recent ruling declaring Bitcoin a property -- as opposed to a currency -- will impact this technology’s growth. 

In all these areas, the Committee has an obligation to ensure small businesses’ interests are taken into account.  We want small firms to benefit from this technology, but we must see to it that there are safeguards protecting them and their customers.  Likewise, we must see that tax regulatory changes do not preclude the use of this currency.  I expect today’s hearing will help us learn about complex issues like these and assist the Committee as it addresses such matters going forward.

In that regard, I’d like to thank our witnesses for being here. Your insight is important to helping the Committee perform its important oversight work on this topic.  I yield back. 

 ###