When Pua Pyland, 33, heard that Overstock.com - one of the largest online retailers in the United States - was accepting bitcoins, she immediately logged on and bought a weighing scale. It cost 0.03945139 bitcoins, which at that time translated to US$31.7
“I was going to run down to Target that day to purchase one, until I saw the announcement about Overstock,” says Pyland, a blogger and bitcoin trader. “I immediately purchased it from them online to show my support of the business of accepting bitcoins.”
That day – January 9 – Overstock. com received 840 orders amounting to $130,000 in sales, all paid through bitcoins.
“People want to use bitcoins, they have bitcoins, they think it’s cool … there’s a huge demand, and you can either choose to service that demand or step out of the game,” says Bitcoin Foundation’s director of public affairs Junyoung Lee Englund.
Bitcoin is a digital currency created about five years ago. The conversion rate fluctuates wildly, but as of yesterday 1 bitcoin was worth $881.80. The virtual currency is accepted by a large number of tech-friendly businesses on the West Coast of the United States, but it is slowly gaining ground throughout the US.
Blogging site Wordpress and dating site OKCupid now accept it as a form of payment. It can even be used to purchase big-ticket items like luxury cars.
The latest announcement by Overstock.com is a coup for the bitcoin community, as the retailer is by far the largest mainstream operation to accept bitcoins. Experts say this might spur a more widespread acceptance of the virtual currency; the more widely accepted, the more legitimacy it has and, generally, the higher its value.
Accepting bitcoins allows businesses to increase their profit margins because there are either no transaction fees, or they are very low compared with those of large credit companies such as Visa and MasterCard.
Consumers mostly buy bitcoins because they want to trade or invest in them, and some then use their stash to buy items because they say it averts problems like credit card fraud and prevents personal information from being stolen. A hacker can steal bitcoins but, since personal information is not linked to the bitcoins, there is no identity theft.
The main downside with bitcoins is that they are not tangible, and not easily defined, so people are wary.
Lee Englund says: “It is normal for people to be afraid of what they don’t know.”
Richard Weston, 55, an engineer, says he sells bitcoins to regular clients and new customers – who find him on a directory called localbitcoins.com that links sellers and buyers – on a daily basis. He meets people at places such as cafes, charges them a 2.6 per cent service fee, and transfers bitcoins from his digital wallet to theirs online, in exchange for the cash. It takes less than five minutes.
But Weston, a big believer in the technology and its future applications in the areas of micropayments and forming online contracts, says he is not making a business out of it. “I just want to promote it,” says the enthusiast, who is also co-organiser of the Washington DC bitcoin users group.
Those who invested at an early stage when one bitcoin was worth just $6 are perhaps the biggest proponents of the virtual currency, which crossed the $1,000 mark in November last year. The wildly fluctuating currency, however, dropped to under $600 the following month.
“It’s a horrible unit of account. You can’t price anything in bitcoins,” says Weston, who acknowledges that the currency might not replace cash or credit cards but says it does have a place alongside these modes of payment.
Regulation, too, is an issue at this point.
China announced last month that it would restrict its banks from using bitcoins as currency, citing concerns about money laundering and financial stability.
The Inland Revenue Authority of Singapore has said bitcoins would be treated as a supply of services and thus subject to the goods and services tax of 7 per cent.
The US has yet to issue any regulations, but the Internal Revenue Service has said that it would continue to “study virtual currencies and intends to provide some guidance on the tax consequences of virtual currency transactions”.
To be sure, bitcoins beg respectability in some parts of the world.
Finland, for instance, designated it as a commodity this week after the central bank said it did not meet the definition of currency or an electronic payment form.
But as the community watches and waits for regulations to be announced, enthusiasts will continue to support bitcoin.
Weston says he remembers when the Internet was uncharted territory and says bitcoin technology is something like that. “There are lots of areas still getting explored right now,” he says.
Pyland, too, says she will continue using it: “Bitcoin isn’t going anywhere. It’s going to continue to evolve and progress. It’s the future of money.”