At Bloomberg Business Week, Joshua Brustein discusses Overstock.com's recent decision to begin accepting Bitcoin as a payment medium.
Brustein identifies one of the key issues facing merchants accepting Bitcoin payments, namely, the electronic currency's fluctuations in value:
Currently 12.1 million Bitcoin are in circulation, with a total value of about $8.8 billion. At this size, the value of Bitcoin can fluctuate violently based on actions by a few big investors or the Chinese government. This is a problem: If a retailer saves 3 percent on credit card transactions, but the value of Bitcoin loses 5 percent before the retailer can convert it back into dollars, the concept will quickly lose its luster.
Bitcoin-processing companies such as Bitpay and Coinbase take on this risk for merchants, offering to convert Bitcoin into U.S. dollars immediately. But they might not be able to handle that risk if any serious slice of Overstock’s transactions comes in Bitcoin, says Barry Silbert, the founder and chief executive of SecondMarket and an investor in both companies. “When you start talking to companies like Overstock or Amazon (AMZN), they’d only be able to guarantee those rates to a certain transaction amount,” he says.
Other Bitcoin-related analysis:
- Congressional hearings were held on November 18 regarding Bitcoin. The testimony can be viewed here.
- Izea founder & CEO Ted Murphy predicts that New York City will receive its first Bitcoin ATM in 2014.
- Matt Miller of Bloomberg News discusses alternative electronic currencies emerging as rivals to Bitcoin.
- Carter Dougherty discusses Bitcoin's relationship with the banking industry.
- Brendan Greeley expresses skepticism about Bitcoin's ability to compete with the dollar or other "real" currencies.
- Ashlee Vance discusses potential pitfalls awaiting Bitcoin miners and investors.
We have discussed the legal and economic implications of Bitcoin and other e-currencies previously.
[NOTE: NEITHER BUSINESSLAWBASICS.COM OR ITS BLOGGERS, OR BERGER HARRIS OR ANY OF ITS ATTORNEYS, ADVOCATES, RECOMMENDS, OR OTHERWISE ENDORSES THE USE OF BITCOINS].