By : James Delce
Bitcoin is never far away from the news at the moment. Whether it is a story related to someone who has made a fortune from Bitcoins they bought years ago or a national bank or government saying that Bitcoins will not ever be sustainable as a currency, not a day goes by without seeing a related story.
We will focus on the latter point. Not necessarily by looking at the economic ins and outs of whether Bitcoins are sustainable as a currency, or is likely to be in the future, but by looking at whether it is likely to become an acceptable method of payment for increasing numbers of ecommerce sites.
What is Bitcoin?
Bitcoin is a peer-to-peer virtual currency. It was developed and launched in 2009 as a means for people to pay each other for goods or services over the internet. Although it was designed to operate independently from banks, governments, and global economic and financial mechanisms, the cryptography involved in the creation of Bitcoin quickly saw it become a method of payment used widely in the purchase of illicit goods, including drugs and weapons. The Silk Road website, closed in 2013 following an FBI investigation, was one of the websites selling drugs paraphernalia and other illegally traded goods. The FBI also confiscated Bitcoins with a value exceeding $28.5million held by the website.
Let us examine what the origins and previous use of Bitcoin can do for its future prospects …
If more people own Bitcoins and are asking if they can pay for goods using this method, then there might be a reaction – supply and demand, and all – that sees ecommerce sites say yes, we’ll accept payment via Bitcoin. If there’s a market for it and people find it convenient, why wouldn’t a business accept Bitcoin? After all, there are enough stories about businesses that are criticized for not reacting to customer demand, so it is a perfectly natural step to take.
However, aside from the convenience of paying with Bitcoins, it is difficult to see how there would be any benefits to doing so. Indeed, it is difficult to understand, in some cases, why someone would want to use them anyway. These reasons inevitably start to look at the sustainability of Bitcoin as a currency in the real world.
Currency values fluctuate, which is why retailers that accept foreign currency, for example, do so at a vastly inflated exchange rate. It means they can profit from the exchange. However, the fluctuation in the value of Bitcoins, not being regulated, makes it virtually impossible to guarantee that you will make a profit on them if you are the retailer. What happens if you accept payment via Bitcoins for a high value item, and the next day the price of Bitcoins has plummeted? From the buyer perspective, if you buy something with Bitcoins and the value increases dramatically, surely the first thing you’d do is request a refund so you can get your Bitcoins back and buy something more expensive or cash them in?
The Way Forward
There are far too many ‘ifs’ and ‘buts’ when it comes to the use of Bitcoins. They probably could become a sensible payment option if the fluctuation in price could be controlled better. But Bitcoin and other digital currencies pride themselves on being independent from global currency markets. This means they would have to go against what they stand for (and what they were designed for in many cases) in order to become a real life option.
Ultimately, this is unlikely to happen in the near future, particularly as the market has recently become flooded with various digital currencies. If Bitcoin were to become an acceptable payment method, then what about the others? Although some ecommerce stores, and even bricks and mortar retailers are accepting Bitcoins as payment today, don’t expect it to become the norm.
This article was written by James Delce. James is interested in online financial services and initiatives. As well as looking at Bitcoin, James enjoys researching online service providers such as Friendly Accountant to discover what they can offer to clients.