Bitcoin shows staying power as online merchants chase digital sparkle

Bitcoin shows staying power as online merchants chase digital sparkle
A customer feeds cash currency in to a Bitcoin ATM located in Flat 128, a boutique in New York's West Village.

NEW YORK - Bitcoin is catching on at US online merchants including Overstock.com and Expedia, as customers use a digital currency that just a few years ago was virtually unknown but is now showing some staying power.

Though sales paid for in bitcoin so far at vendors interviewed for this article have been a fraction of one per cent, they expect that as acceptance grows, the online currency will one day be as ubiquitous as the internet.

"Bitcoin isn't going anywhere; it's here to stay," said Michael Gulmann, vice president of global products at Expedia Inc. in Seattle, the largest online travel agent. "We want to be there from the beginning." Expedia started accepting bitcoin payments for hotel bookings on July 11.

Until recently a niche alternative currency touted by a fervent group of followers, bitcoin has evolved into a software-based payment online system. Bitcoins are stored in a wallet with a unique identification number and companies like Coinbase and Blockchain can hold the currency for the user.

When buying an item from a merchant's website, a customer simply clicks on the bitcoin option and a pop-in window appears where he can type in his wallet ID number.

Still, broad-based adoption of bitcoin is at least five years away because most consumers still prefer to use credit cards, analysts said.

"Bitcoin is a new way of making payments, but it's not solving a problem that's broken," said George Peabody, payments consultant at Glenbrook Partners in Menlo Park, California. "Retail payments aren't broken."

There are also worries about bitcoin's volatility: its price in US dollars changes every day. On Wednesday, bitcoin was up 0.4 per cent at US$514.09 (S$641.41).

That risk is borne by the consumer and the bitcoin payment processor, such as Coinbase or Bitpay, not the retailer. The vendor doesn't hold the bitcoin and is paid in US dollars. As soon as a customer pays in bitcoin, the digital currency goes to the payment processor and the processor immediately pays the merchant, for a fee of less than 1 per cent.

"We don't have to deal with the actual holding of the bitcoin: it's the payment processor that takes the currency risk for us," said Bernie Han, chief operating officer at Dish Network Corp, in Englewood, Colorado. "That's what makes it appealing for us and I guess for other merchants as well."

Dish, with about US$14 billion in annual revenue, started accepting bitcoins in mid-August.

Payment processors do some form of hedging though, said Gil Luria, a financial technology analyst at Wedbush Securities in Los Angeles. These entities would, for instance, sell bitcoins in the market to offset the ones they have processed and in their books, so they're not left with much exposure, Luria said.

The only risk for the retailer is if the counterparty, or payment processor, doesn't fulfil its obligation. That risk is minimal, Luria said,

"Coinbase and Bitpay are now well-funded start-ups and they have put a lot of resources behind security," Luria said. "You can consider them as secure counterparties, as opposed to a year ago, when they were very small."

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