Bitcoin: why businesses are buying in, despite critics and start-up woes
Businesses are finding a Bitcoin 'community' that values the trendy new form of payment, while avoiding the risks of an unregulated currency by converting bitcoins, sometimes quickly, to cash.
Liberty Teller Bitcoin company co-founder Chris Yim (C) talks with a traveller near his kiosk at South Station in Boston, Mass., February 25, 2014.
Dominick Reuter/Reuters
Los Angeles
Despite its well-publicized troubles, including volatile and plunging currency values,聽the trendy new form of payment known as Bitcoin has a growing allure for many businesses, both online and in the real world.
The cool factor as well as the cash factor 鈥� the absence of transaction fees 鈥� are the main reasons for a move into what the casual observer might consider a risky form of money. Two recent Bitcoin exchange failures and the death of a Bitcoin CEO have聽thrown a pall over聽Bitcoin in the聽minds of many.
In particular, new聽businesses whose profit margins are often razor-thin in their聽debut years are聽thrilled at having an option to avoid the 3 percent fees they must pay to credit card companies, on average. And if they can be seen聽riding the hottest new pop culture wave while they do it,聽so much the better.
鈥淲e are trying to be innovators,鈥� says David Daneshgar, co-founder of the Los Angeles-based BloomNation, a new online floral business that connects buyers directly with the local florists who will deliver the arrangements.
鈥淲e want to be progressive聽and change the way people buy flowers, and using Bitcoin is part of that change,鈥� he adds.
Tapping into the Bitcoin community has had some surprise benefits, Mr. Daneshgar says. 鈥淚f you follow the discussion threads on the online Bitcoin forums, you see how supportive they are of businesses that accept Bitcoin,鈥� he says.
He and his partner saw that almost immediately after adopting Bitcoin into their payment options, visitors to their website who actually bought flowers nearly doubled. Bitcoin shoppers 鈥渃ome to the site already prepared to buy because they want to support us,鈥� he says, in contrast with many who are聽just comparison shopping. 鈥淚t鈥檚 a perfect fit for us,鈥� he says, adding with a laugh, 鈥淲ho knew Bitcoin users were such romantics?鈥�
The commercial聽embrace of this new聽payment option is documented in 聽from PricewaterhouseCoopers entitled, 鈥淒igital Disruptor, How Bitcoin Is Driving Innovation in Entertainment, Media and Communications.鈥�
The survey of 1,000聽online shoppers found a 42 percent consumer awareness of the new method. Further, according to the report, consumers are 鈥渉ighly interested in using Bitcoins to download/stream TV shows, movies or music (38 percent) and purchase TV shows, movies or sporting event tickets (39 percent), as well as Internet services (39 percent).鈥�
It鈥檚 not just small businesses entering the fray. The retail website Overstock.com recently began accepting the digital currency and is currently taking in about $30,000 per day using Bitcoin 鈥� about 1 percent of its roughly $3.6 million daily sales, according to TechCrunch. TechCrunch, which is devoted to analyzing start-up technology, estimates that Overstock will push that number to six figures by the 2014 holidays.聽
In addition, some A-level venture capitalists are funding a number of companies that will raise the level of the game, says Campbell Harvey, a professor of international finance at Duke University in Durham, N.C., who teaches a course in cryptocurrency. Netscape founder and now tech venture capitalist Marc Andreessen, for instance, helped launch Coinbase this past year, with a $25 million round of funding from his VC firm, Andreessen Horowitz, infusing the Bitcoin marketplace with larger resources for developing security protocols, among other goals.聽 聽
Bitcoin is still a young technology, Professor Harvey says in an e-mail,聽adding that it has the potential 鈥渢o be massively disruptive鈥� to the world of payments. As with any young technology, he adds, 鈥渢here will be some growing pains.鈥�
An unregulated currency also appeals to those who say there is too much government involvement in private business, says New Orleans entrepreneur David Crais, co-founder of the New Orleans chapter of Health 2.0, a consortium that helps medical professionals run their businesses.
Across the聽Deep South, where the tea party has strong roots, there is a growing acceptance of Bitcoin 鈥渁s a way to get the Federal Reserve out of banking,鈥� he says.
Many of the doctors he advises across the region who have had a growing number of uninsured cash patients are turning to Bitcoin. It鈥檚 not so much a desire to do anything that is a benefit to their own business, he says; rather, 鈥渋t鈥檚 really about being supportive of what Bitcoin can do for their libertarian ideas.鈥�
Of course, fundamental to聽any enthusiasm from businesses is their ability to convert the highly volatile Bitcoin almost immediately into traditional cash. In the case of BloomNation, that would mean dollars. 鈥淲e don鈥檛 store the聽Bitcoin,鈥� Daneshgar says. BloomNation uses the exchange company BitPay to make the currency conversion, virtually instantaneously.
San Diego firm Robo3DPrinter has been accepting Bitcoin for some three months, though so far has made very few sales with the currency.
鈥淲e accept bitcoins because it is on the cutting edge right now in technology,鈥� says CEO Braydon Moreno.聽The fact that it is an intangible virtual currency being accepted by the public as a way to barter and trade goods 鈥渨ithout sustaining hefty fees on either side is just very fresh and exciting to us,鈥� he adds.
It is old school in its ideals and simplicity, Mr. Moreno says, 鈥渂ut new school in its sophistication,鈥� using technology for trading.
For the time being, Moreno says, his firm does not convert Bitcoin immediately to dollars,聽preferring to store them in online wallets.聽
The recent failure of MtGox, the largest Bitcoin exchange, did worry him.
鈥淚f we moved into a much higher volume of sales, we鈥檇聽probably be exchanging the Bitcoin every day just to make sure we don鈥檛聽lose value,鈥� he says.