Pros and Cons For Digital Retailers
As digital retailers, we are by nature early adopters. To succeed, we must be progressive and in sync with our customers – who are even more cutting edge than we are. It is an endless, quick-moving cycle of learning and adapting.
The latest frenzy in the ecommerce world is the adoption of Bitcoin. Bitcoin is an extremely volatile, decentralized digital currency that uses cryptography to control the creation and transfer of money.
Bitcoin allows people to make one-to-one transactions, buy goods and services and exchange money across borders without banks, credit card issuers or other third parties – and their fees. It’s a high-tech currency with a mysterious origin that has everyone from world leaders to investors intrigued.
Bitcoin Pros:
- Lower transaction fees
- Instant payment processing
- Hassle-free international exchange
- No chargebacks
Bitcoin Cons:
- Extremely volatile exchange value
- Lack of global acceptance
- Unstable banking environment
- Lack of consumer protection
- Uncertain future
- Captures less information about customers
Thinking about jumping on the Bitcoin bandwagon? Take a look at the currency’s pros and cons before making a decision for your online store.
Bitcoin Has Its Issues
Bitcoin exchange rates are extremely unstable. Countries want to ban the currency. Some say it promotes the sale of drugs and other illegal goods because buyers and sellers do not have to share any personal information. Bitcoin banks have been closing after attacks by hackers. The world’s largest bitcoin exchange, Mt. Gox, filed for bankruptcy after hundreds of millions of dollars worth of bitcoins went missing after an alleged attack. With all these downfalls, does Bitcoin have a future?
Former Chairman of the Council of Economic Advisers and Robert P. Gwinn Professor of Economics at the University of Chicago’s Booth School of Business Austan Goolsbee thinks it’s unlikely that Bitcoin will mature into an established global payment system.
“Bitcoin would need to establish that the technology works and then establish full trust by users and merchants,” Goolsbee said. “Without public trust, you do not have a currency. People have to accept it, and people have to trust that it works and there isn’t a risk of having your savings in it.”
While Bitcoin’s recent media coverage has rocketed the currency into mainstream media, it still has a long way to go to gain widespread acceptance. “Most brick-and-mortar merchants either are not familiar with it or have not learned to use it,” said David Currie, professor of finance and economics at Rollins College Crummer Graduate School of Business. “Because virtual transactions are increasing, Bitcoin will gain traction in the future.”
However, Currie believes an anonymous monetary system operating outside the purview of regulators is fraught with danger. “It can be used for illegal transactions,” he adds. “The supply can increase or decrease without constraint, which could lead to inflation, deflation or monetary panics. The typical policy tools – interest rates and money creation – may be difficult to apply.”
Bitcoin Has Its Advantages
Nonetheless, an increasing number of large and small businesses around the globe are starting to accept bitcoin. Overstock.com surpassed $1 million in sales generated from bitcoin transactions since the company introduced the payment option in January.
With low transaction fees, instant payment processing, hassle-free international exchange and no chargebacks, Bitcoin sounds like a digital retailer’s dream. Every day more merchants (especially those in the high-tech industry) add Bitcoin to their payment options.
Anti-malware provider Malwarebytes started accepting payments in bitcoin in February. “It shows our customers that we are progressive and in touch with what the online community wants and needs,” said Malwarebytes Malware Intelligence Manager Adam Kujawa. “We go through a third-party exchange, Coinbase, that accepts bitcoins from our customers and transfers them into U.S. dollars, just as a company would do with any foreign currency. It’s really no more a detrimental choice than choosing cash or credit card when paying at the store.”
Does Bitcoin Have a Future?
Right now, people are making real money with bitcoins. But how long can this last? Will banks and securities integrate bitcoin as part of their main business or will the virtual currency be treated more as an investment or commodity?
“Bitcoin can’t decide whether it is trying to be a stable currency for payments or a speculative investment for accumulation,” Goolsbee said. “They really need to sort that out before their most productive institutional form can be worked out.”
With a system controlled by cryptography and limited to a fixed quantity, the bitcoin supply may not be sufficiently elastic. “Money supplies need to grow as the volume of transactions grows in an economy,” Currie said. “Bitcoin may become just another commodity like gold.”
The future of Bitcoin, like any new technology, is uncertain, however, there is no doubt that the effects Bitcoin is having on today’s marketplace will have an influence.
Bitcoin has shown consumers and businesses a faster, cheaper way to send money over the Internet. “Bitcoin is another step in what has been happening for decades, creating an international thriving community,” says Kujawa. “We have the ability to speak to anyone anywhere in the world with just a click; we teach students online; we play games; do business and live our lives through this amazing global network. It’s only natural to see a currency arise that would take individual countries, governments and policies out of the equation and allow people to trade goods and services for a secure and trustworthy payment, accepted worldwide. Maybe in 10 years we won’t hear about Bitcoin anymore, but some new and slightly different cryptocurrency that is rooted in what Bitcoin is doing right now.”
Next Steps For Digital Retailers
- Find out if your customer base would use bitcoin. Are your customers tech-savvy trend setters or more traditional online shoppers? Make sure your customers would actually use bitcoin as payment before you expend the money and effort to implement.
- Learn all you can about Bitcoin. Read the news (every day), talk to people in your network. Ask questions. Bitcoin news changes by the second, so stay informed.
- Find a trustworthy partner. Do you want to exchange your bitcoins daily or take a risk in the market? There are a variety of bitcoin exchanges, Coinbase, Bitpay, and more. Find a partner that will help you achieve your goals.
- Promote. Let everyone know you accept bitcoin. You’ll position yourself as a leader and may get some press for being ahead of the curve. You’ll definitely get new customers trying your product just because they can pay for it with bitcoin.
- Stay on top of it. Keep an eye on your revenue stream to make sure bitcoin transactions are having a positive impact.
Keystone
If you know your customers want to use bitcoins to buy your product (hint: ask them), make it available if it’s easy and affordable for you. Do your research. Make sure bitcoin transactions are having a positive effect on your revenue stream. Time will tell whether or not bitcoin will turn into a mainstream currency. But for now, if you are safeguarding your returns, why not experiment?
