Communications of the ACM
The Increasing Familiarity of Cryptocurrencies
Companies large and small are implementing cryptocurrency payment systems.
Credit: Umberto Tarantino
In the last year, the market capitalization for cryptocurrencies has risen from around $15 billion to over $600 billion at time of writing, a more than 40X increase in 12 months. Despite being highly volatile, cryptocurrencies like bitcoin have appreciated dramatically in value over this interval. That means some who have owned bitcoin since its early days (it was created in 2009) and didn't sell are now sitting on a fortune.
As it turns out, plenty of businesses would love to help them spend it.
A number of companies, large and small, have implemented cryptocurrency payment systems that give customers the ability to receive goods and services in exchange for bitcoin or other top cryptocurrencies, like Ripple.
Overstock.com, a billion-dollar Internet retailer, began accepting bitcoin as payment back in 2014. An Internet company in Japan just announced its employees could get paid partially in bitcoin. A global realty group based in Los Angeles will help you buy a house with bitcoin, in case you want to trade Internet gold for a more traditional asset class.
There is no doubt cryptocurrency fever has gripped the world. Some have even called it a bubble or mania, as a growing number of companies are beginning to accept these digital currencies in addition to government-backed bills.
The big question is: Are these companies just cashing in on some free publicity, or do they actually believe cryptocurrencies are going to change the way consumers pay and business is conducted?
Cryptocurrency shopping spree
Overstock.com is an online retailer with a market capitalization of nearly $2 billion. It began accepting bitcoin years ago, and the powers that be at the company became so enamored with blockchain technology, which powers bitcoin, that they created Medici Ventures, a blockchain incubator wholly owned by the firm.
"Bitcoin was an opportunity for us to provide another convenient payment option for our customers," says Jonathan Johnson, president of Medici and a member of Overstock's board. In the summer of 2017, he says, the company began to accept "dozens of top cryptocurrencies" in addition to bitcoin.
Johnson says roughly 0.25% of all Overstock.com revenue comes from purchases made with cryptocurrencies—and bitcoin makes up the majority of that. He adds that Overstock keeps up to 50% of the bitcoin it receives, exchanging the rest for U.S. dollars.
Another big Internet company, online payment provider Square, is experimenting with cryptocurrency, too. Business Insider reports the company is testing a feature with select users to buy and sell bitcoin through its Cash app. If successful, this could eat into the business of cryptocurrency exchanges like Coinbase.
However, it would be far more interesting if Square rolls out cryptocurrency payment capabilities to the vast network of merchants who rely on the company to power their businesses. If that happens, cryptocurrencies could enter the mainstream as viable ways to pay for goods and services on one of the larger networks that small businesses use for payments.
That could have major implications for commerce as we know it.
Expanding the pie
While there have been well-publicized critiques of bitcoin's relatively high fees, Overstock.com sees cryptocurrency in general as a potentially cheaper, better option than credit card fees.
"The reduced frictional costs of cryptocurrency when compared to traditional credit card fees make it financially advantageous to any retail company, e-commerce, or brick and mortar," says Johnson. He says the Overstock products being purchased with cryptocurrencies are "very similar" to the company's top sales categories.
"These early adopters are using cryptocurrencies in a similar way to fiat currency with regards to purchase patterns," says Johnson. "We think this shows an opportunity for any industry that adopts cryptocurrencies as payment method."
Lowering fees is laudable, but it could be a huge growth driver for many of the small businesses that use a payment system like Square. The profitability of these businesses is often make-or-break based on credit card fees—one reason that Square's business model, which relies on better tech and lower fees, took off in the first place.
As more companies accept cryptocurrencies as payment, they present a real way to expand global economic activity. Internet retailers like Overstock.com and Square span borders. While many people in the world remain unbanked, or without a formal bank account, cryptocurrencies could offer a solution, allowing these individuals to buy goods and services in today's digital economy using only a digital cryptocurrency wallet.
The more seamless it is to buy, the more you sell. As a result, everyone, from merchants to payment processors to consumers, benefits.
Logan Kugler is a freelance technology writer based in Tampa, FL, U.S.A. He has written for over 60 major publications.
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