My first print magazine assignment at Internet Retailer was about Bitcoin, the alternative digital currency, and how it might affect the e-retail industry.
Farbod Shoraka, the CEO of online floral marketplace BloomNation, first learned in January about Bitcoin, a digital currency that can be used to pay for products and services on the Internet. Shoraka says he was intrigued by the digital currency because he felt Bitcoin is doing for currency what BloomNation hopes to do for the online floral industry. In a word, disruption.
“Bitcoin is so innovative and disruptive to the credit card industry and the currency industry in general,” Shoraka says. “We saw an immediate attraction to it.”
Bitcoin is the name of the currency system; a bitcoin is the monetary unit of the system. Bitcoin is a decentralized—meaning no one organization regulates it—digital currency that buyers and sellers exchange over the Internet, with no bank involvement. The value of all the bitcoins on the market at the end of the first quarter of 2014 was estimated at $6.45 billion, according to CoinMarketCap.com, which tracks the valuations of virtual currencies across major exchanges. That value changes as new bitcoins enter into circulation and as the currency’s value itself fluctuates.
BloomNation began using Coinbase Inc., a 2-year-old company that provides payment gateway services to merchants, just before Valentine’s Day to take and process Bitcoin payments. (E-retailers can accept bitcoins without using vendor services, but to turn them into U.S. dollars, as many e-retailers do, would require them to develop an in-house payment processing program.) That timing was no coincidence, Shoraka says. “Men purchase during Valentine’s Day,” he says, “and Bitcoin is heavily used by men.” A 2013 survey of Bitcoin users by University College London found that more than 95% of Bitcoin users are male.
For BloomNation, Bitcoin is paying off, although Shoraka admits that the number of customers paying with bitcoins is small, and the Valentine’s Day transactions amounted to only several thousand dollars. But he says Bitcoin customers during the Valentine’s Day shopping season spent an average of $150 while customers using more traditional payment methods spent $100—a 50% difference. “We’ve seen that trend continue,” Shoraka says.
Several other e-retailers have started accepting bitcoins and note the low payment processing fees offered by bitcoin payment vendors, Bitcoin’s early-adopter community and irreversible transactions. But Bitcoin’s small user base means the benefits at this time are negligible, and some experts say that—combined with its volatility—means mainstream adoption of bitcoins by e-retailers is far off, if it happens at all. However, others say Bitcoin and other virtual currencies may be e-retailers’ first real opportunity to reduce their reliance on, and fees paid to, banks and traditional payment processors.