Chances are that the "Crypto-currency" Bitcoin is more than a geeky fad.  It seems likely that it will have a longer term impact on the F&B sector.

When the Mill Cafe in Stratford and a number of pubs, such as The Pembury Tavern in Hackney and The Haymakers in Cambridge, started to accept payment in Bitcoin late last year, they received country wide publicity.  It was something of a novelty.  A "Geek-centric" PR gimmick perhaps.  Several months later, despite the high profile failure of MtGox exchange in Japan in March, the increase in the use of Bitcoin in the F&B sector has continued unabated.  Over 7,500 UK restaurants accept payments in Bitcoin through the online takeaway service  In the US through Menufy, over 400 restaurants in 28 states likewise accept payments in Bitcoin.  In California it is shortly to be recognized as a lawful currency.  A Bitcoin EPOS system is currently being developed.  ATM machines, which allow for the purchase of Bitcoins with cash are being installed in some coffee bars.  Likewise in the retail sector.  A large number of online merchants now accept Bitcoins (such as online casinos, auction sites, technology consulting firms, online adult media websites).  From pizza takeaways to taxi drivers, there are an increasing number companies accepting Bitcoin as a mode of payment.  And this phenomenon is not just the private sector.  The University of Cumbria has started accepting Bitcoin as payment for tuition fees.

Nor is it a particularly UK phenomenon.  In the US, Burger King has started accepting payment in Bitcoin.  US online restaurant service Menufy that Bitcoin can be used to order from over 400 restaurants across 28 states, as have a number of well-known retailers, such as GAP, Amazon, Victoria's Secret, CVS pharmacies etc., through gift cards bought from companies like Gyft, eGifter, iTradeBTC and GiftCardZen.  These gift card companies allow a purchaser to top-up their card with Bitcoins and then those gift cards can be used at physical stores or on websites.  These companies do not offer services in the UK yet, but may in the future.  eBay is also considering accepting payment in Bitcoin.  As early as April 2013, there were several businesses accepting Bitcoin within close proximity in Berlin, including restaurants.  Whilst in Dubai, a pizza restaurant claimed to be the first in the UAE to accept Bitcoin

This article considers how this new “crypto-currency” may impact F&B businesses and suggests some of the steps that operators can take to mitigate the resulting risks.

What is Bitcoin?

Bitcoin is a virtual currency and its value is determined on a daily basis by a fluctuating exchange rate.  In reality, a Bitcoin is identified by a computer generated long string of cryptic numbers and letters (referred to as the public and private key) giving each Bitcoin a specific identity.  Just like a £20 pound note, a Bitcoin can be saved in an e-wallet, which essentially means storing the public and private key.  These e-wallets can exist on a PC, cloud server, online website or they can take even take physical form by way of an app icon on a smart phone.

There has been significant volatility in price of Bitcoin, in January 2013 they traded at £12 and in November 2013 peaked at a value of £613 per Bitcoin.  At the time of writing a Bitcoin is worth about £350 (although this fluctuates on a daily basis, like all foreign exchange rates) and there are currently around £4.5 billion worth of Bitcoins in existence.

Since it is not pegged to any country's currency it can seamlessly move across borders and integrate with real money whilst simply being saved on a user's computer hard drive.  Bitcoin fans firmly support this independence, cash convertibility and convenience.  Bitcoin proponents also emphasise that its value does not suffer because of inflation, oil costs or gold values, whilst all those factors significantly de-value fiat money.

Where does Bitcoin come from?

Bitcoins are generated through a process referred to as "mining".  An individual can become a Bitcoin miner by simply downloading and running the free Bitcoin open-source software on specialized hardware.  The mining aspect is finding solutions to certain mathematical problems.  While the actual problem solving is handled by the specialized hardware, the software connects the miners on the Bitcoin network.  Once a solution is reached Bitcoins are generated.  These solutions are difficult to obtain as each aspect of the process requires unique multi-billion calculations per second.  Over time the number of miners engaged in mining Bitcoin can change, however the Bitcoin program automatically adjusts the mathematical problem difficulty to ensure that the supply of Bitcoin does not become faster or slower.

50 Bitcoins are generated per block every ten minutes, every four years thereafter this amount halves so on and so forth.  The total number of Bitcoins in existence are programmed to never exceed 21 million.  Although this is not a limitation as each Bitcoin can be divided down to 8 decimal places.  It has been estimated that the last .00000001 of a Bitcoin will be "mined" in 2140.

How can Bitcoin be used by F&B businesses?

Like cash, gift cards or credit cards, Bitcoin can also be accepted by restaurants, cafes, pubs and so on as a form of payment.  The starting point for any Bitcoin transaction is setting up a Bitcoin wallet in order to convert and save real money as Bitcoin.  A Bitcoin wallet can be a website or a downloadable program that runs on a personal computer.  F&B businesses  (and indeed individuals) can obtain Bitcoins by paying real money in any currency via their bank accounts to Bitcoin exchange houses (a well-known exchange house in the UK is Bitstamp), and then transferring that Bitcoin to their personal or corporate wallet.  Certain websites also allow keeping and sending Bitcoins without the need for running the Bitcoin program on a personal computer.

Bitcoin internet payment systems (BIPS), Coinbase, Bitpay etc., offer free services which allow corporates to create an online account (e-wallet) for accepting Bitcoin payments, which are transferred as real money to the merchant's physical bank account by these service providers.  These services are accessible by simply installing a plug-in on the merchant's website which when used transfers the funds.  Certain websites also allow sending Bitcoins through email, like Bitcoin.

No special or expensive Point of Sale, chip and pin terminals are needed.  Any PC tablet or smart phone device can read the QR codes and transfer the funds in and out of the relevant account.  (QR code stands for quick response code, which are two dimensional black dots against a white background matrix unique to each user.) These QR codes are linked to identify a Bitcoin wallet and could be displayed on a smart phone screen or printed and pasted at the cash till.  Bitcoins received in payment can be converted instantly into real money and bank wired to any currency in any part of the world using free services offered by companies like BIPS.

Should F&B businesses consider using Bitcoin?

Bitcoin is a secure and inexpensive way to handle payments.  With a few exceptions, businesses can make and receive payments using the Bitcoin network with almost no fees.  Its sophisticated cryptographic security allows it to process transactions in a secure manner.

As an irreversible and secure means of payment, Bitcoin has the potential to combat cyber-crime and fraud.  Thus for delivery businesses like Domino’s, which offer payments via online credit card transactions, the need for  expensive software, security checks and PCI Data Security Standard compliance and onerous legal responsibilities for sensitive data protection (such as credit card numbers) can be overcome.  As the initial set up for these traditional security processes are expensive the potential savings offered by Bitcoins are attractive.  As Bitcoin payments are inherently cryptic they are inherently secure.  However, as shown by the MtGox fraud, businesses will have to ensure they have strong and secure internet access for a Bitcoin wallet to avoid the risk of theft of Bitcoins by computer hackers.

Use of Bitcoin can therefore lower the cost of transactions and thereby either increase margins or decrease the cost to the consumer.  Either way it can deliver real benefits to F&B businesses.  For F&B businesses which are growing internationally through a franchise network, Bitcoins offers the further advantage of being easily transferable across the globe with no delays, excessive bank charges or other currency conversion costs.  This could reduce the cost incurred by franchisees when paying franchise fees to the franchisor.

Risk Profile

There have of course been well published risks and volatility in the Bitcoin prices.  MtGox (one of the largest online exchange houses) suffered a massive security breach from a hack of 744,000 Bitcoins (approximately 6% of all the 12.4 million Bitcoins in existence).  Computer security is therefore of prime importance for those who use Bitcoins and is probably the greatest risk element in respect of their use in commerce.  There is also the risk that Bitcoins can be used to launder money.


Real money is asset backed by its issuing government and therefore a reliable form of tradable debt.  The government is able to get that acceptance and reliability on the basis of its asset reserves (in oil, gold, etc.).
Bitcoin is not asset backed; its value is established by the number of Bitcoins in existence and its acceptability as a tradable IOU on that given day.  There are obvious risks to not being asset backed however that is also its key advantage.  That makes Bitcoin the only currency in the world whose value is free from government intervention, its exchange rate does not depend on price setting monopolies and no institutional authority controls its supply and demand.  All of these restrictions apply to normal currencies which are asset backed by governments.

Once you buy a Bitcoin for a certain number of pounds, the value of that Bitcoin goes up or down according to its peer-to-peer demand.  This is the main reason why proponents behind Bitcoin promote its non-jurisdictional and non-asset backed status.  Jon Matonis, Executive Director on the board of Bitcoin Foundation describes Bitcoin in three words as "Money Without Government'.

Naturally, as soon as something emerges that can be widely used in business the regulators become involved.  A bill on alternative currency (AB 129) is currently under consideration at the California State Senate, if passed it would make Bitcoin a lawful currency in California.  The state of New York is preparing to regulate Bitcoins by issuing "BitLicenses" for businesses that use Bitcoins.  Perhaps this licensing criterion would be met by those who have adequate capital on their balance sheet to absorb unexpected losses and take the appropriate level of investment risk using consumer money.

The United States' Treasury Department's Financial Crimes Enforcement Network (FinCEN) has declared Bitcoin exchanges to be money transmitters, requiring them to register, enact formal anti-money laundering programs, and report suspicious activity.

In the UK, neither the Financial Conduct Authority (FCA) nor the European Banking Authority (EBA) currently regulate Bitcoin.  In the east, the Monetary Authority of Singapore does not regulate Bitcoin yet.  The Japanese Financial Services Agency and Finance Ministry are considering regulating Bitcoins after the recent MtGox crash.

In certain countries like Russia and Iceland Bitcoins are illegal.  In China financial institutions are banned from doing business in Bitcoins.  The Reserve Bank of India has issued a warning to domestic Bitcoin operators against dealing in Bitcoin due to various risks, including those related to money-laundering and cyber security.  These are very real risks and operators must have in mind that all their know your client and other obligations as regards anti money laundering will also apply to payments made to them in Britain.

Are Bitcoins taxable?

Any enterprise that sells goods or services in exchange for their national currency must accept that the Bitcoin receipts will be subject to income tax on their Bitcoin income.

In the UK, HM Revenue & Customs (HMRC) has scrapped VAT on Bitcoin 'mining' and trading.  Although for businesses accepting Bitcoin as payment of goods or services, VAT will be due in the normal way.  The value of the supply of goods or services on which VAT is due will be the sterling value of Bitcoin at the point the transaction takes place.  There will be no VAT due on the value of Bitcoins themselves when it is exchanged for sterling or any other foreign currency, like euros or dollars.  HMRC's guidance stated that corporation tax, income tax and capital gains tax would continue to apply to businesses depending on the nature of activities involved.

The Inland Revenue Authority of Singapore has clarified that a goods and services tax (GST) registered business has to charge GST to a customer if payment is made in Bitcoins.  Germany and Norway are levying capital gains tax on profit from Bitcoins.

Bitcoins bought for the purposes of appreciation and subsequently sold as an asset will incur a capital gains tax for individuals or corporation tax if it accrues to a company.  The profits and losses of a non-incorporated business on Bitcoin transactions must be reflected in their accounts and will be taxable on normal income tax rules.  HMRC pointed out that any profit or gain chargeable or any allowed loss will be looked at on a case-by-case basis taking into account the specific facts.

In pure accounting terms Bitcoin transactions are similar to cash transactions.  There may be commercial considerations in deciding how to account for the difference between the Bitcoin value when received or paid as it changes every day.  Generally in accounting terms an average of the difference incurred (when it is exchanged for more traditional currency) is applicable, although for larger transactions a professional accountant's advice should be taken

The Commercial Challenges Presented by Bitcoin

F&B businesses accepting Bitcoins, will need to set an acceptable conversion rate that can sustainably be relied on every day.  Hedging can help reduce this exchange rate risk.  There are also a growing number of so-called "digital wallets", like Coinbase which allow businesses to securely buy, use and accept Bitcoin.  They profess to offer "bank level security" through high level encryption with off-line back up in bank vaults.

Businesses wanting to have a more long term and self-reliant arrangement can enter into customised purchase agreements with individual miners or Bitcoin exchange houses, incorporating provisions to mitigate the currency conversion effect.  This can be achieved by relying on prices based on the current market rate or on a weighted average basis.

Funds transfer confirmation, timings for completion and obligations for payment of any transaction fees levied by exchange houses could also be an issue, if Bitcoins are used to transfer substantial payments, such as franchise fees.  However, for high priority transactions or a quick confirmation on the transfer of funds, transaction fees may be levied by these online exchange houses.

Money laundering remains a real risk with Bitcoin payments and so operators must be vigilant and comply with their anti-money laundering obligations.  Before using a Bitcoin exchange due diligence is essential.  Operators must also ensure that they maintain secure systems to protect against theft from hacking.  For larger transactions, such as the transfer of franchise fees, a KYC exercise can help in identifying the real world identity of the persons involved.

The use of an escrow service to eliminate the risk of non-payment, dispute resolution and jurisdiction clauses will need to be included in the Operator's Bitcoin agreements.


A currency loses value if its issuing government loses the ability to guarantee its value.  In contrast Bitcoin is not backed by any treasury or central bank and therefore remains unaffected by government policies and politics.  Unless declared illegal in a jurisdiction, Bitcoin can be used and exchanged for goods or service.  It is likely that the use of Bitcoin will become more heavily regulated over time and operators must remember to exercise their usual caution in terms of their anti-money laundering obligations.

For Bitcoin to achieve its full potential the technology needs to evolve more.  At the moment many F&B businesses may find it hard to overcome the technology gap and may not want to spend the time understanding or money in setting up cumbersome processes.  To place Bitcoin in perspective it can be compared to the internet in the early 1990s.  The internet then was expensive, slow, unreliable and inaccessible to non-technology savvy people but has today become indispensable to one and all.  Proponents of Bitcoin believe that Bitcoin will turn out the same way.

F&B businesses accepting Bitcoin are in part using it as a PR gimmick to attract media coverage and inject some novelty into the customer experience.  This will inevitably be short lived and longer term, more substantial criteria will determine its long term success.  Even though there has been much drama and speculation around Bitcoin there is no denying that crypto-currencies are the future.  Volatile exchange rates and risks are issues but businesses (UK and worldwide) are beginning to shed inhibitions about Bitcoin in recognition of its advantages surpassing the risks.  As technology improves so Bitcoin may well become a part of everyday life in the F&B sector.  The question for operators today is when they decide to climb on the Bitcoin train.