Bitcoin and other cryptocurrencies cost nothing to process, are almost immune to fraud, and keep customers’ financial information safe. So why aren’t more online shoppers using them? And why aren’t more merchants accepting them?
The answer is volatility. Currencies like the U.S. dollar, the British pound, and the European Union’s euro depend on stability. People understand them and trust these currencies to hold their value.
A shopper with $2,000 in her bank account expects that $2,000 to have the same buying power tomorrow that it does today. If it costs $79.99 for a pair of jeans today, she expects to be able to purchase the same pants tomorrow with just about the same amount of currency. Similarly, it should cost about the same percentage of a bitcoin to buy something today as it will tomorrow.
Rapid and radical changes in value make it relatively difficult for both buyers and sellers. People like stability.
Speculation Makes Bitcoin Unstable
On August 24, 2017, the value of a single bitcoin was hovering around $4,200 U.S., but a little over a month earlier, on July 16, 2017, the same bitcoin would have been worth $1,938.94. Bitcoin more than doubled its value in a matter of weeks.
If you had a bitcoin on July 16 and used it to purchase a diamond ring from Overstock.com, you’d be feeling pretty sick in August, when you could have bought two rings for just about the same amount of currency.
Significant price changes like these make bitcoin and other cryptocurrencies more of an asset than a real currency, according to Jeffrey Dorfman, a professor of economics at University of Georgia.
Dorfman, writing in Forbes, said, “the wild swings, both up and down, in the value of bitcoin do not make it a more plausible substitute currency; they make it a speculative asset, a get-rich-quick scheme.”
Many bitcoin holders don’t use bitcoin like they would use a dollar or their payment card. Rather, bitcoin is treated like a stock or a commodity.
Small Percentage Of Shoppers Use Bitcoin
Given this level of uncertainty, it is little wonder that only a small percentage of shoppers use bitcoin. In fact, bitcoin holders — owners? — watch the market and buy or sell bitcoin to earn a profit. That profit is then translated, if you will, into some other currency.
Folks will do this sort of bitcoin speculation far more frequently than they use bitcoin to buy real goods or services.
This fact is reflected in data from Pew Research, which found, as an example, that while 48 percent of American adults have heard of bitcoin, just 1 percent have used it.
And that is just 1 percent of Americans who have used bitcoin in any way, including simply hoarding it or making speculative buys. A much smaller subset are likely to have used this best known cryptocurrency to make a purchase.
Merchants Have Concerns, Too
Instability is also a problem for sellers.
If a shopper went to Overstock.com and bought a diamond ring in July only to realize she could have had two for the same price in August, she would be understandably upset. She might even be mad at Overstock, and her anger would be just one concern. For example, what if bitcoin’s value had gone the other way and lost half of its value?
If the company were storing payments as bitcoin, it could earn a lot of extra margin as bitcoin rose, but it would also need to take on a lot of risk, possibly suffering losses if bitcoin’s value fell.
Merchants primarily want to focus on the business of selling products, not necessarily speculating on cryptocurrency. If a seller accepts bitcoin, it may be to attract a small audience of potential customers, which is certainly a good thing. But the store will want to convert bitcoins into a more traditional currency rather quickly.
Cryptocurrencies Have Promise
Instability explains why shoppers and merchants are not necessarily enthusiastic about bitcoin, and it could explain why bitcoin has not gone mainstream. But it doesn’t mean that cryptocurrencies like bitcoin won’t be an important retail technology someday.
In fact, bitcoin and similar electronic currencies have many advantages.
- Low transaction fees. Bitcoin and other cryptocurrencies (such as Ethereum, Ripple, and Dash, as examples) often have either no associated transaction fees or very low transaction fees compared to payment cards. A business doing $1 million in annual revenue might add $30,000 to the bottom line if it processed all transactions with bitcoin.
- Less fraud. In many ways cryptocurrencies are more like cash then they are like a payment card, making them less vulnerable to fraud than a debit or credit card are. For merchants, bitcoin and similar currencies should eliminate chargebacks.
- Personal security. Cryptocurrencies, like cash, are anonymous, which can give buyers and sellers additional protection from some kinds of cyber theft.
- International sales. Bitcoin and other digital monies are inherently international. They do not require governments or banks, which may, someday, make them ideal for cross-border ecommerce.