Magazine article CRM Magazine

Can Bitcoin Be Trusted? the Cryptocurrency Gains Momentum despite Its Value Volatility

Magazine article CRM Magazine

Can Bitcoin Be Trusted? the Cryptocurrency Gains Momentum despite Its Value Volatility

Article excerpt

Introduced in 2009 by software developer Satoshi Nakamoto, Bitcoin has a notorious association with illicit activities. Yet in October, when the FBI shut down Silk Road--a Web site the agency alleges was used for the trafficking of illegal goods and services--and seized bitcoins then worth $28.5 million, instead of disappearing like many predicted it would, Bitcoin set off on a trajectory toward mainstream adoption.

The peer-to-peer payment system is a cryptocurrency, meaning it relies on cryptography to control the creation and transfer of funds. Payments are made after a group of network members, called miners, are able to verify and timestamp each digitally signed transaction; the miners then enter the transactions into the block chain, a public ledger. Though transaction fees--which miners collect in the form of newly minted bitcoins--are charged, they are much lower than those associated with other payment methods. This makes Bitcoin lucrative for retailers as well.

Most credit card companies charge roughly 3 percent for every transaction. The price to process a Bitcoin payment, however, is currently just 1 percent, a rate that proved irresistible for online retail giant The company began accepting bitcoins at the end of 2013, and, according to CEO Patrick Byrne, initial results appear promising.

"Bitcoin's first day on Overstock was a huge success," Byrne tweeted on January 10. During the first full day, the company saw 840 Bitcoin transactions totaling $130,000, which represents 4 percent of the retailer's average daily revenue. Granted, the success could be attributed to the novelty of paying with a crypto-currency, but for Bitcoin supporters, this was a reason to be optimistic.

"Historically there were two costs to accepting Bitcoin: the technical cost, which is becoming very low, thanks to [payment-processing] companies such as Bitpay, and the political cost of being associated with something so new and controversial. The latter cost is rapidly falling as Bitcoin goes more mainstream and bigger retailers get on board," Mike Hearn, an independent Bitcoin software developer and senior security engineer at Google, says.

Still, critics express concern over the currency's volatility, and believe Bitcoin's instability is a major obstacle to wider adoption. According to Mark Williams, professor of finance and economics at Boston University, Bitcoin's value can fluctuate by 20 percent to 30 percent on any given day. …

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