A look at why merchants have been shying away from accepting the cryptocurrency
To bitcoin or not to bitcoin is the question many retailers have. Four years ago, more merchants embraced the controversial coin, while more recent retailers recant, fearing Bitcoin’s volatility.
When Satoshi Nakamoto invented the digital coin in 2008, he had no idea how far it would go. Satoshi wanted a coin that would evade government censorship and third party costs, like payment gateways. Nine years later – and largely due to Coinbase’s frenetic advertising – more than 500 businesses accept the coin, including 100,000 businesses in the U.S. and more than 260,000 enterprises in Japan. Famous names include Starbucks, Microsoft, Dish Network, Expedia and Dell. And more prospective adopters are in the loops.
Or so say websites like FinanceMagnates and the BigCoin.
A closer look over the last two decades shows the boom fading into bust.
Over in South Korea, the underground Goto Mall, which receives more than 50,000 visitors a day recently partnered with local exchange HTS Coin to receive Bitcoin. Also, some political campaigns and other services accept bitcoin as a legitimate source of payment. That’s the good news.
These retailers like Bitcoin for reasons that include the following.
Bitcoin is fast. The transaction processes and completes within 10 minutes to hours. Compare that to credit cards where funds can be locked up for a week or more, in case the customer requests a chargeback.
It’s cheap. Merchants earn about 1% per transaction, since they don’t need a bank to verify each transaction. For low margin industries, this adds up and can mean the difference between surviving or shutting their doors. CoinsForTech, a bitcoin-only electronics store in Australia, saved $17,000 in one year. “We processed over $500,000 in transactions and paid nothing in processing cost,” founder Lee Marburg told U.S. News & World Report.
There are no international fees and no exchange rates. Borders don’t exist, so shipping rates (and taxes) are void. Total savings? At least 8%, according to the New York Times.
It’s non-refundable. For some customers that’s awful news. For businesses it’s terrific. Since bitcoin is irreversible, you skim headaches like credit card fraud and bank chargebacks that cost anywhere from $5 to $15.
Bitcoin users are said to spend at least 35% more than “regular” shoppers, likely because they’re wealthy and/ or are limited in their bitcoin-tagged purchases. Expedia, for instance, noticed that bitcoin users tag on an average $18 per transaction. If you’re a business, this means you can tag a premium price on your products, since you battle little to no competition.
The bad news is that Bitcoin is taxable if you don’t immediately convert it to cash. In 2014, the Internal Revenue Service labelled virtual currency “property” rather than “currency”, carrying tax implications that CNN Money termed a “fiasco” for bitcoin users. The bitcoin community is loath to address tax and regulatory implications, so merchants are left to wrestle the subject on their own and have no idea how to legally handle Bitcoin payments.
Bitcoin is expensive. Not for the merchant but for the buyer. Earlier this year, an Australian e-commerce consultant, Alex Levashov, found that the sender has to pay seven times more than he would using standard payment gateways like PayPal or Skrill. PayPal costs about $2 per transaction. Bitcoin transactions average $14. Why should retailers invest in infrastructure that few of their buyers would use?
Bitcoin is at full capacity, which makes payments very, very slow to process. For merchants, it means handling increased support calls with customers who wonder why their Bitcoin payment is not going through. Wouldn’t you find such calls a waste of time and money?
It’s volatile. Bitcoin swung $7,900 per coin in early November. Six days later it dropped to almost $6,000. By late November, the coin eclipsed $9,600. It’s impossible to buy anything with such a volatile coin. How would you like to go to Starbucks one day order your Caramel Brulée Latte for $10, next day find it at $20, and a week later down to $4? To buy something, you need the price to remain constant.
Bitcoin is an asset more than a payment. Satoshi intended it as “electronic coin”, but most users trade or hoard their bitcoins, rather than use them for purchases, hoping to hit the jackpot when it soars. Until more consumers are willing to part with their bitcoins, few retailers would consider adopting bitcoin payment.
The Bitcoin community is riven with internal squabbles about the direction of its technology and future developments, which seems likely to affect its future. Merchants like to see a technology that is stable, healthy, reliable and low risk. What they’d find looking into Bitcoin would send them running for the hills.
In fact, crypto blogger Arcturnus found that some organizations that accept Bitcoin in the past either hid or removed their bitcoin donation option. These organizations include Ubuntu, Microsoft, WordPress, Mozilla and Wikipedia. He also found that of the 45,000 merchants that Coinbase says integrate bitcoin, many of these organizations never accepted the currency in the first place or stopped accepting it.
Could retailers use alt coins, instead?
Certain alternative coins like Dash and Litecoin improve on Bitcoin by being faster more scalable, cheaper, anonymous and simple to use .
Unfortunately, none of these altcoins eliminate Bitcoin’s core problems.
And so, while some entrepreneurs still accept bitcoins, the craze seems to be trickling to a close.
Earlier this year, Amélie Arras, director of marketing at the U.K. financial tech marketing firm Adastra, traveled from Toronto to Las Vegas existing only on Bitcoin. She won the “payments race” competition, where contenders were allocated one payment method to survive their trip, but reported that few brick-and-mortar stores accepted the digital coin. You can buy some services and items with it – fewer, it seems, per day. But live off it? – nah.
Bitcoin, it seems, is for investing, rather than for purchasing.
But the cryptocurrency has disproved naysayers in the past.
You never know.