Square Bitcoin Brings Bitcoin Closer to Becoming Money
On October 8, it was announced that the new product features Bitcoin Payments and Bitcoin Conversions, enabling merchants to accept bitcoin with no processing fees until 2027. Dorsey stated that since November 10, merchants have the option to accept bitcoin and retain it, convert it to fiat, accept payments in fiat, or convert fiat back to bitcoin. Square Bitcoin is accessible to all Square businesses located in the U.S., with the exception of those operating in New York. The program welcomes all types of businesses; however, they must undergo Square’s Know Your Business verification process. “We’re doing this because bitcoin gives entrepreneurs a new lever: a way to spend and invest outside of traditional rails – with faster settlement, lower fees, and long-term potential.” Up until this point, these tools have remained inaccessible for the majority of small businesses. “Square is changing that,” said Miles Suter, Bitcoin Product Lead at Block, Inc., the parent company of Square, in a blog post when the product was announced.
What makes this launch noteworthy? For instance, El Salvador designated bitcoin as legal tender in 2021 and introduced a government-backed bitcoin wallet, yet merchant adoption failed to gain momentum. Prior to this, numerous payment processors had already facilitated bitcoin transactions. Well, this time is different, primarily due to the significance of Square’s merchants, the development of the network and the asset, and the opportunity to utilize bitcoin as a form of currency. From the merchant’s perspective, it’s noteworthy that they can accept BTC and avoid the typical 3% credit card fee that usually needs to be covered. “There are real and immediate benefits for merchants like faster settlement times, lower transaction fees, and no chargebacks compared to traditional payment methods. We initially piloted this feature with 1,500 businesses who were all in – it was clear that business owners want full autonomy and flexibility around what they can do with their funds after they accept them,” Suter explained. Parker Lewis. “If it were not technically possible or practically achievable to purchase real goods and services directly with bitcoin and instead, if you always needed to convert bitcoin to fiat to then buy your goods and services, bitcoin would almost definitionally be too centralized as a system to credibly remain censorship resistant or to credibly enforce the rules of the system that make it viable as a currency system (notably its fixed supply),” Lewis said.
With this announcement, Square has three key elements to make bitcoin a practical currency: a large number of merchants, a robust infrastructure for exchanging bitcoin via the Lightning Network, and the backing of a highly engaged and advocacy-driven community of users eager to demonstrate bitcoin’s potential as money. Just hours post-activation, a surge of videos and photos showcasing users engaging with the new feature began to emerge. I inquired with Suter regarding the demand for bitcoin payments and the current status of merchant adoption. “We want our sellers to be able to accept any form of payment a customer wants to use, and we’ve made accepting bitcoin as easy as scanning a QR code at checkout.” Lastly, he described that merchants who prefer not to hold bitcoin can still benefit from the network’s lower fees while receiving dollars, which they are already accustomed to. According to him, BTC requires transaction velocity to “fulfill its destiny as the internet’s native currency” and should not merely act as a store of value. “We want to help make bitcoin everyday money, and while there’s a lot more work to do, this launch marks a major milestone toward that goal,” Suter emphasized. A clear path to broader adoption is evident, and it aligns with Block’s strategy. CashApp is facilitating access to bitcoin, empowering users to secure their BTC with the cold wallet Bitkey, and ultimately enabling merchants to accept BTC payments via Square Bitcoin. “As more merchants accept bitcoin and customers pay with it on Square, we believe it will be considered interchangeable with credit cards or dollars in the future. And eventually merchants will not only prefer, but demand, to be paid in bitcoin,” Suter concluded.
Following Square’s involvement with Bitcoin, what lies ahead for Bitcoin in its role as a currency? Square Bitcoin plays a crucial role in the broader narrative of bitcoin adoption; however, it still requires some legal clarity. In the U.S., this type of transaction will necessitate the establishment of certain tax exemptions that are yet to be developed. “It appears that the moment has arrived for a sensible ‘de minimus’ exemption… As a fellow coffee drinker, this only makes sense,” Senator Cynthia Lummis. In the U.S., virtual currency is classified as property rather than currency, which means that for federal tax purposes, everyday spending results in capital gains or losses. The IRS Notice 2014-21 and the following guidance confirm this point. Purchasing a coffee with bitcoin constitutes a taxable disposal of property. Consequently, the consumer is required to calculate and report any capital gain or loss associated with the bitcoin used, complicating the landscape of bitcoin commerce. With the latest merchant adoption initiative driven by Square Bitcoin, the potential for an exemption on a specific amount of USD paid in bitcoin is now being considered. This development has the potential to spark a fresh surge in the utilization of BTC as a currency, and it might even impact the current classification of bitcoin as property. This marks a significant initial move in that direction.
