Bitcoin, the nearly anonymous, peer-to-peer online currency, has been getting attention lately. The attention has not been necessarily positive, as bitcoin was the preferred currency of the recently closed down Silk Road “darknet” site that served as a virtual global marketplace for narcotics and other illegal goods.
Nevertheless, speculation is growing as to whether bitcoin will ever become a mainstream means of paying for legitimate retail transactions. Currently, bitcoin is mostly accepted by independent retailers and pure-play e-commerce sites, but it holds potential for more widespread use. Whether bitcoin ever evolves into a mainstream tool regularly employed by larger retailers will ultimately depend on whether a specific need manifests itself.
The jury is still out if that need is, or will be, there. However, bitcoin holds enough potential to make a brief review of the arguments for and against a real need for the electronic currency in the wider retail industry worthwhile.
Reasons Retail Needs Bitcoin
Bitcoin is virtually anonymous (but not totally, as proprietors and customers of Silk Road are finding out). Unless a law enforcement agency is searching for customer identities with a warrant, it is virtually impossible to trace a bitcoin transaction to the user. Even for legitimate purchases, in this age of continual online privacy invasion an anonymous form of digital currency holds appeal.
In addition, bitcoin can be stolen but cannot be counterfeited (it essentially consists of a series of complex math problems). For retailers, the third-party bitcoin transaction providers necessary to complete most bitcoin purchases charge as little as 1% of the total transaction cost, half or one-third of the margin many credit card companies charge.
Reasons Retail Does Not Need Bitcoin
Most POS systems do not process bitcoin transactions, limiting its effectiveness in the increasingly important omni-channel space. Bitcoin value fluctuates far more severely than any major global currency, although some transaction providers are attempting to create stabilized exchange rates. Bitcoins cannot be spent anywhere nearly as freely as normal currency, lowering their value for both consumers and retailers. Digital wallets make electronic transactions with regular currency easier than ever. The Silk Road debacle has given bitcoin a bit of a shady image, fairly or not. And what happens if one or more of the major technology companies making bitcoin transactions possible goes bankrupt?
The Future’s Uncertain
Jim Morrison once sang “the future’s uncertain and the end is always near.” While nobody thinks the end of bitcoin is imminent, its future remains highly uncertain. Currently, it exists as a cool way to pay the bill at independent establishments, sort of a virtualized version of the “Burlington Bread” currency accepted by local businesses in hipster hotbed Burlington, Vermont in the late 1990s and early 2000s. Burlington Bread ultimately failed because it just made more sense to do business in U.S. dollars.
Currently, it also makes more sense for the vast majority of retailers to do business in U.S. dollars, regardless of whether they are online or how big (or small) they are. But observers have pooh-poohed the “need” for new technology since experts in the 1940s said the average American family would have no time to watch TV. As daily life becomes increasingly digitized and publicized, an easy-to-use, hard-to-trace virtual currency with low processing costs may become far more appealing. For now there is the known and the unknown, and bitcoin straddles the line somewhere in between.