Bitcoin Believers
While regulators debate the pros and cons of bitcoins, this volatile digital currency inspires the question: What makes money, money?
By Channon Hodge, David Gillen, Kimberly Moy and Aaron Byrd on Publish Date November 24, 2013.Another well-known company is embracing digital money.
On Friday, Dell announced that customers would be able to make purchases on its website using Bitcoin, claiming to become the biggest retailer yet to accept the virtual currency.
“We put this together quickly as a result of listening to our customers,” said David Frink, a Dell spokesman. “It’s another way for customers to have a relationship with Dell.”
When retailers started accepting Bitcoin, the appeal was largely the currency’s ability to attract new customers with its novelty. But as Bitcoin has become more mainstream, merchants may now be embracing digital money to lower payment processing fees and make purchases easier for already-loyal customers.
“Retailers have very low margins, and online especially, and they’re in a constant battle with credit cards and banks to lower those fees,” said Gil Luria, an analyst with Wedbush Securities. “Now that they see this avenue for fees to go away, that’s really their big motivation.”
To make accepting Bitcoin possible, Dell teamed up with Coinbase, a third-party payment processor that converts customers’ Bitcoins into dollars. Coinbase, which began with $25 million from the investment firm Andreessen Horowitz, approached Dell about accepting Bitcoin as a payment option a few months ago, said Adam White, the director of business development and strategy at Coinbase, who worked with Dell on the partnership. Dell reached out to Coinbase two weeks ago about adopting Bitcoin quickly, in time for back-to-school shopping, he said.
“Merchants are really waking up and seeing just how powerful using Bitcoin as a payment option is,” Mr. White said. “Adding Dell to our roster of merchants that accept Bitcoin is a great signal for the industry that Bitcoin is here to stay.”
Dell, which offers products ranging like personal computers, tablets and printers, had annual sales of nearly $60 billion in 2013. Companies working with Coinbase pay it a 1 percent processing fee after the first $1 million in sales.
About 35,000 merchants use Coinbase’s payment tools, Mr. White said, including Overstock.com, which began working with Coinbase in early January. The online travel booking website Expedia and the satellite television provider Dish Network have also partnered with Coinbase to accept Bitcoin.
Despite a more widespread adoption of Bitcoin, it is not clear how many customers are using the currency to pay for goods and services. In its most recent quarterly filing, Overstock said that less than 1 percent of its sales were made in Bitcoin.
When Bitcoin was introduced in 2009 by a programmer, or a group of programmers, it appealed to a core group of anti-establishment enthusiasts and technology buffs, who operated on the fringes of the financial system. Since then, it has gained popularity, attracting venture capitalists and investment firms.
But without government regulation, the mainstream has yet to fully embrace the virtual currency. The price of Bitcoin has fluctuated wildly, from a few cents to more than $1,000 at its peak. Its current price is about $625, according to the website CoinDesk.
On Thursday, New York became the first state to propose regulations for virtual currency companies operating in New York. And with more merchants accepting Bitcoin, it may be only a matter of time before it is widely adopted as a viable form of payment.
“If you’re a retailer, there’s really no reason not to accept Bitcoin at this point,” Mr. Luria said.