Is bitcoin the future?

NATIONAL REPORT—With bitcoin in the news, hoteliers have been eager to learn more about the payment platform and how it can benefit them. While there are some bitcoin benefits, there are also some challenges ahead, especially with how the hospitality industry has been accepting payments for decades. Disrupting the system in place isn’t going to be easy and resistance will ensue, but only time will tell if it will all be worth it.

“Bitcoin and other cryptocurrencies simply are another form of payment in its simplest terms,” said Samantha Ahuja, partner at Morris, Manning & Martin LLP’s Washington, DC office. “A hotel can differentiate itself now by accepting alternative forms of payment as may be desirable by certain customers.”

There’s the technological aspect to bitcoin, too. “Bitcoin is a digital cryptocurrency that is not backed or endorsed by any world power or government,” said Theresa Payton, CEO of Fortalice Solutions, a computer and network security business. “It exists entirely online, but you can buy into it via bitcoin ‘exchanges’ where you can trade real currency (dollars, euros, yen, etc.) for bitcoin.” There’s no central bank or authority operating it.

It’s also worth noting bitcoin’s value—it fluctuates constantly. “When bitcoin started several years ago, one ‘coin’ was worth 39 cents, but in 2017, one bitcoin was worth more than $19,000,” she said. “One bitcoin is now worth about $8,000.” As bitcoin usage increases, so do bitcoin ATMs, where individuals can exchange bitcoins and cash.

“The hospitality industry could accept bitcoin as a form of payment as they would credit or debit cards,” she said.

But, why aren’t more hotels accepting bitcoin for payment? Accepting more payment types would potentially disrupt the status quo in the hospitality industry. “The challenge with accepting all alternative payment types is that, unlike accepting credit cards whose details can be stored for charging later, they precipitate an immediate payment,” said Johnny Wyld, director of business consultancy at EPAM. “This is especially challenging when taking a booking, as often the hotel chain (which runs the booking website) is not the merchant of record, so they cannot take a payment immediately.” Even though hoteliers should be open to accepting alternative payment types, they also need to be aware of potential operational and legal obstacles.

“Bitcoin has gathered a lot of publicity, but still only accounts for a tiny number of transactions,” he said. “Although it has proven resilient and popular with investors, there is not a consensus on whether it will be a viable long-term currency. Having said that, it is high profile and popular with a vocal community of tech enthusiasts, so should be considered seriously as an effective marketing device. Accepting bitcoin may be attractive to some guests, and will certainly show that hospitality businesses are keen to explore innovative technologies and ways of satisfying their customers.”

Security challenges

While many believe bitcoin and cryptocurrencies are more secure than other payment forms, it’s important to note there are faults. “Nothing is absolute; however, the way in which bitcoin is transacted makes it more difficult to be susceptible to fraud,” Ahuja said.

Security challenges with accepting bitcoin are also real, and properties aren’t immune to them. “Like  anything that generates a lot of money, criminals are drawn to exploiting it,” Payton said. “Some cyber criminals like to be paid in bitcoin since it’s harder to trace than regular cash.” For instance, back in March 2018, a group of criminals held the City of Atlanta’s computer systems for ransom and demanded to be paid in digital currency.

“I tell executives from all industries, hoteliers included, that they must take cybersecurity seriously and examine where they are vulnerable in order to build a safe environment,” Payton said. “Once you know where you are most vulnerable, it’s much easier to put processes and systems in place to prevent attack.”

These security challenges for hoteliers can be categorized into three broad categories: regulatory challenges, credit risk and money-laundering controls. First, bitcoin isn’t legal in all countries, “so beware of falling foul of local regulators by accepting bitcoin payments,” Payton said. Second, with regard to potential credit risk, “Bitcoin is a very volatile currency, so do not hold on to it for any longer than is absolutely necessary,” she said. Lastly, some banks and regulators are wary of accepting regular streams of transactions from cryptocurrency (as this can be a flag for money-laundering activities).

“Storage of bitcoin tends to be the outlying security concern; myriad options from holding in exchanges, to wallets and hard wallets only lends to the issue,” said Patrick Ahler, partner and VP of marketing at Lights On Digital, a San Marcos, CA-based hotel services company. “Using services like BitPay to immediately convert the Bitcoin Core (BTC) payment into fiat currency eliminates much of the security concern.”

OTAs are welcoming bitcoin with open arms—well, sort of. Some OTAs have been embracing bitcoin; however, one of the major players recently pulled out. Expedia in June 2014 began accepting bitcoin as a form of payment for hotel purchases. Nearly four years later, the OTA no longer accepts bitcoin as a payment method option.

“Currently, we do not feel that we are able to offer the best experience for those using bitcoin, but will continue to evaluate various options in order to offer travelers flexible payment solutions,” said Victoria Cagliero, a spokesperson at Expedia.

TripWitz started accepting bitcoins as a form of payment for airline tickets, hotels, rental cars, tours and activities in January 2018. Derrick McWilliams, CEO of Cache Elite, owner of TripWitz, said the following at the time: “Now that we have solidified our bitcoin acceptance we are in the development stage for blockchain-powered travel tokens that would work on the website of TripWitz and our planned connection sites in the future.”

Bitcoin’s future

Ahler doesn’t believe bitcoin will be a payment option for hotel guests in the immediate future. The executive believes bitcoin instead will be used as a way for properties to earn visibility and brand affinity amongst a growing group of travelers.

“Bitcoin and, more broadly, cryptocurrency faces an uphill battle with regard to government regulation, and the volatility of the coins makes it a less-than-ideal option for storing funds at this point,” he said.

Even though much of the focus is currently on bitcoin, there are additional opportunities coming down the pike for hoteliers. “The future is in data decentralization and blockchain technology,” Ahler said. (Editor’s note: For more on blockchain technology, see cover story on page 36.)

“I imagine that the future of bitcoin for hospitality will mirror that of other service industries—as it becomes more mainstream, we will see it more widely used as an option for payment,” Ahuja said. HB