Ecommerce and Bitcoin, a solution looking for a problem

Posted by Pat Phelan on January 9, 2014

Over the past few weeks we have seen lots of chatter around how Bitcoin can solve the problem of fraud in ecommerce and a number of companies building transactional models around this. Call me crazy but I just don’t see the long-term view here.

Lets start by looking at the state of currencies in general;

  • There are 951 billion Euros in circulation as of Nov 2013
  • There are 62 billion British Pounds in circulation.
  • There are 1.24 trillion USD in circulation as of December 25th

So it’s not as if your customers don’t have plenty of choice in the currencies to pay you with! For instance there are 28 trillion Chinese Yuan in circulation and show me a merchant that is accepting Yuan as a payment? I would certainly be looking to take Chinese Yuan as online payments before I would go down the road of concentrating on accepting Bitcoin.

Of course it does make for great PR.

It all comes down to numbers in the end. Business these days is incredible tough and most businesses follow the money. For a long, long time to come your customers using Bitcoin to transact will be a fraction of a fraction. Granted you cannot have ‘normal’ fraud on this minute fraction but there’s a whole other set of identity related issue to manage. The returns to your business will also be minute, unless of course your business is based solely upon the Valley Hipster demographic, the insane race for PR or the next big thing. Plus what rate is your bitcoin merchant giving you? I have seen swings of 10% today from many Bitcoin exchanges, do you want to leave that 10% on the table?

And then there’s the big issue - with the BitCoin framework being open source, we’re already seeing a pile of new crypto currencies from DogeCoin to the new kid on the block, CoinyeWest, named after Kayne West (which probably won’t be around for long since Kayne is suing them ).

BitCoin is a niche play when compared to the $1.6 trillion+ that will be spent online this year and its hard to imagine how it will break out into the mainstream in the short term. The novelty appeal might make great stories and interesting reading but where will the global imperative to completely transform how commerce is currently done come from?

Finally re: Bitcoin it’s worth remember that there are 12 million in circulation right now with over 50% of those 12 million are held by 1,000 people, you can see where I’m going here I presume.. it’s a big win for a small audience. (Thanks to Kevin Abosch for this nugget of info).

Let’s be clear, I’m not anti Bitcoin, far from it, but I am pro business and if you’re happy to invest massive time and resources into its adoption and subject the future of your business to the currency hedging of a virtual currency which fluctuates wildly I think you must have bigger cohanas than me.

Topics: fraud, Identity