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.
Despite its well-publicized troubles, including volatile and plunging currency values, 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 – the absence of transaction fees – 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 thrown a pall over Bitcoin in the minds of many.
In particular, new businesses whose profit margins are often razor-thin in their debut years are 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 riding the hottest new pop culture wave while they do it, so much the better.
“We are trying to be innovators,” 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.
“We want to be progressive and change the way people buy flowers, and using Bitcoin is part of that change,” he adds.
Tapping into the Bitcoin community has had some surprise benefits, Mr. Daneshgar says. “If you follow the discussion threads on the online Bitcoin forums, you see how supportive they are of businesses that accept Bitcoin,” 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 “come to the site already prepared to buy because they want to support us,” he says, in contrast with many who are just comparison shopping. “It’s a perfect fit for us,” he says, adding with a laugh, “Who knew Bitcoin users were such romantics?”
The commercial embrace of this new payment option is documented in a January report from PricewaterhouseCoopers entitled, “Digital Disruptor, How Bitcoin Is Driving Innovation in Entertainment, Media and Communications.”
The survey of 1,000 online shoppers found a 42 percent consumer awareness of the new method. Further, according to the report, consumers are “highly 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).”
It’s 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 – 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.
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.
Bitcoin is still a young technology, Professor Harvey says in an e-mail, adding that it has the potential “to be massively disruptive” to the world of payments. As with any young technology, he adds, “there will be some growing pains.”
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 Deep South, where the tea party has strong roots, there is a growing acceptance of Bitcoin “as a way to get the Federal Reserve out of banking,” 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’s not so much a desire to do anything that is a benefit to their own business, he says; rather, “it’s really about being supportive of what Bitcoin can do for their libertarian ideas.”
Of course, fundamental to 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. “We don’t store the Bitcoin,” 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.
“We accept bitcoins because it is on the cutting edge right now in technology,” says CEO Braydon Moreno. The fact that it is an intangible virtual currency being accepted by the public as a way to barter and trade goods “without sustaining hefty fees on either side is just very fresh and exciting to us,” he adds.
It is old school in its ideals and simplicity, Mr. Moreno says, “but new school in its sophistication,” using technology for trading.
For the time being, Moreno says, his firm does not convert Bitcoin immediately to dollars, preferring to store them in online wallets.
The recent failure of MtGox, the largest Bitcoin exchange, did worry him.
“If we moved into a much higher volume of sales, we’d probably be exchanging the Bitcoin every day just to make sure we don’t lose value,” he says.