The Risks of Starting a Bitcoin-Based Business
Bitcoin entrepreneurs are predictably quick to puff up the virtual currency’s benefits – zero-to-low transaction costs, no chargebacks and the freedom to send and receive money anywhere in the world without a third party, to name a few. They typically aren’t as eager, however, to draw attention to the risks of doing business in Bitcoin, and, just like starting up around any other embryonic technology, there are many.
The first and worst of which is going belly-up. Three out of four startups launched today fail, according to a report by The Wall Street Journal. And, as evidenced by the unraveling of Mt. Gox, Aquifer, Cointerra, the World Bitcoin Association and a long and growing list of others, Bitcoin upstarts are no exception.
Another major risk is the continuing lack of a mass market. Even with the total amount of venture capital pouring into the fledgling industry on pace to crack the $1 billion mark, your average everyday consumer simply doesn’t give a rip about Bitcoin. Three out of four Americans haven’t heard of the six-year-old cryptocurrency, a study conducted by the research firm GfK and The Street recently revealed. Equally concerning, almost 80 percent of those polled aren’t interested in even attempting to use the world’s first digital money.
Another considerable gamble is price volatility. “The worry is ‘What if the value of Bitcoin drops to zero?’” says Jonathan Chester, founder and COO of Bitcoin payroll startup Bitwage. “If Bitcoin goes to zero, even the 2.0 applications don’t work any more.”
Connie Gallippi, founder and executive director of the BitGive Foundation, which claims to be the first-ever Bitcoin charity, doesn’t sweat the virtual currency’s day-to-day price fluctuations. She told Entrepreneur she’s more concerned about the nagging uncertainty surrounding what it will take to push the cryptocurrency into the mainstream. What's the "secret sauce," she wonders? So do a lot of other people.
For more on the risks Bitcoin entrepreneurs face, in their own words, check out the brief clip above.