During the next shopping season, you could be buying your dog a discount bed with bitcoin, the digital currency that’s become infamous as a way of sidestepping the traditional financial system.
The discount online retailer Overstock.com plans to start accepting the alternative to government-minted money by the end of June, said the company’s chief executive Patrick Byrne. The news first broke late last week on the bitcoin news site NewsBTC.
The Salt Lake City company will be the largest internet outfit of its kind to make the move, opening the door for regular folks to start getting comfortable with bitcoin.
“Here’s the first big mover, and we’re going to see more come along behind it,” said Aaron Williams, the founder of Atlanta Bitcoin, a local operator of one of the world’s first bitcoin ATMs (made to dispense the currency into digital wallets).
“It definitely gives it more legitimacy in the retail space, and it gives more legitimacy in the eyes of potential adopters, because one of the big questions people always ask is: Where can you spend it?”
Proponents of bitcoin say there are advantages for both shoppers and merchants. The shoppers can make online purchases as simply as they pay in a store, without filling out tedious forms. The merchants can accept bitcoins without paying costly fees, and at less risk, because bitcoin transactions are irreversible once they’re made.
You can think about the crypto-currency as a long string of random letters and numbers. Each unit of bitcoins – just like dollars, there are denominations – is randomly generated by a decentralized network of computer servers.
Each time a bitcoin changes hands, that same network authenticates it and posts the transaction to a public, online ledger, the Blockchain.
In that sense, the system is totally open and transparent. On the other hand, bitcoin transactions are essentially anonymous, because most users share their information only with brokers or exchanges in order to buy into bitcoin.
Unlike a card transaction but like paying in cash, bitcoin payments don’t require a person to share any account information with a merchant.
That’s an attractive feature in an era in which data breaches are making regular news. Take, for instance, this month’s revelation by Target that cyber thieves had stolen the personal information of as many as 40 million of its shoppers.
Bitcoins are also very difficult to counterfeit. The computer systems needed to generate them are so complex and expensive that it’s not cost-effective for forgers to reproduce bitcoins.
There are bitcoin naysayers, though. They point to wild swings in price – at its height, a bitcoin was worth as much as $1,200, almost twice its current value – as a reason not to use the crypto-currency. And, famously, New York Times columnist Paul Krugman has argued that bitcoin is a form of “monetary regress.”
The dramatic fluctuation of bitcoin’s value matters if you’re buying it as an investment, but not if you acquire and spend it in quick succession, using it simply as a convenient method of payment.
In order to undertake a transaction, consumers first have to sign up for a digital wallet. There are software wallets that live on your computer; mobile wallets that store your cash on your phone; and web wallets that host bitcoins on the internet.
A secret key – really just a string of letters and numbers – that can be stored on a computer, written down or stored on a QR code, unlocks a person’s wallet and allows a payment to be sent and the Blockchain to be updated.
Byrne of Overstock said that for his company, accepting bitcoins means more than just allowing people to pay in a new way.
“I’m agnostic on the value of bitcoin, but I do think it’s an alternative payment system that will make us and the country more robust,” he said. “We don’t like a fiat currency. We don’t like a monetary system that something, that a government, can swipe into existence with the stroke of a pen.
“That applies to dollars, and we’re against that.”
So, just how worried should American Express be?
Well, as a website managed by Bitcoin core developers says, the bitcoin software is a work in progress, “still not ready for everyone.”