Bitcoin has been front-page news over the last few weeks because its value has skyrocketed. On Jan. 1, 2017, a single bitcoin was worth just under $1000, an all-time high. As I write, a bitcoin is worth $17,872.
For those of you who aren’t aware, bitcoin is a digital currency, also known as a cryptocurrency — it’s completely electronic, distributed, and no one has control over it. Bitcoin can be used to make purchases and other transactions, and can be converted into more traditional currencies, such as dollars or euros, via bitcoin exchanges.
Since its introduction in 2009, bitcoin has earned a place in the public consciousness, particularly among more technical users. A number of large e-commerce and online service providers adopted bitcoin as a payment method, including companies like Newegg, eGifter, Overstock.com, and Steam.
Bitcoin offers significant advantages compared to credit card payments, some of which I’ll discuss below. In principle, bitcoin should be a no-brainer for e-commerce merchants, but in practice I’d advise retailers to be careful about adopting bitcoin in the short term.
The Benefits Of Bitcoin For E-Commerce
Bitcoin is fast
Bitcoin transactions typically take just a few minutes to complete. Retailers get the money immediately, without the wait associated with credit card payments. E-commerce merchants benefit from immediate access to the payment.
There are no chargebacks
Credit card and payment processor chargebacks are a huge headache for retailers. Once a bitcoin transaction is completed, it cannot be reversed. Not only does the business get the money quickly, they get to keep it unless they decide to make a refund.
Easy international payments
Bitcoin is a cross-border currency. It doesn’t matter whether the shopper is in the US, the UK, or China, a bitcoin is worth the same and transactions happen in exactly the same way.
It’s easy to see why e-commerce merchants are enthusiastic about bitcoin, but the news isn’t all good.
The Risks Of Accepting Bitcoin
Steam, the game distribution platform from Valve, recently stopped accepting bitcoin payments. Steam was enthusiastic about bitcoin, but the current state of the currency makes it risky for eCommerce merchants and online service providers.
Transaction fees have skyrocked
Once upon a time, transaction fees would have been in the “Benefits” section: they were often lower than credit card transaction fees; but recent changes to how bitcoin works has caused transaction fees to rise to levels that are impractical for anything but large transactions.
On Nov. 18, average bitcoin transaction fees were around $11 and they have risen significantly since then. It’s not reasonable to ask shoppers to pay such a large fee for the privilege of using bitcoin, especially for small purchases.
Bitcoin’s value is too volatile
As I said at the top of this article, the value of bitcoin has increased rapidly in recent weeks. That sounds like a good thing if you’re selling items in exchange for bitcoins, but there are potential problems. The first is that although bitcoin value is trending up over time, it can also drop rapidly, which makes accurate pricing and planning a challenge.
But the elephant in the room is the possibility of bitcoin value coming to a plateau and declining rapidly and permanently. Although there is not unanimous agreement on this, most economists believe we’re experiencing an irrational increase in the value of bitcoin, a bubble which might burst at any time. Holding a significant amount of bitcoins even over the short term is unwise until the market settles down.
Although bitcoin is a compelling proposition for e-commerce merchants, some of the companies who have been most enthusiastic about bitcoin payments are pulling out — a situation that should give retailers pause for thought.