We don’t know if Bitcoin is the payment method of the future, but before Bitcoin might ever be widely adopted by retailers and consumers, it (or rather the Bitcoin community) has several challenges to overcome.
Accessibility – an easy to use interface
In 1993 the development of the Mosaic web browser started a chain of events that led to the “browser wars”, accelerated browser development, and rightly or wrongly resulted in visual web browsers being widely available for free, just a few years later.
Ultimately it was web browsers (an improved human interface) which made the information and infrastructure of the web accessible and useful to everyone.
A simple human interface is precisely what Bitcoin is lacking.
In a recent interview on CNBC, Marc Andreessen (who led the Mosaic browser development team) said of Bitcoin “I compare it to the Internet; the Internet was a new way to transmit data, Bitcoin is a new way to transmit money”, in that same interview he goes on to point out that the staggering number of Bitcoin start-ups means that there is every reason to expect Bitcoin innovations to continue.
Perhaps one day we will see an easy to use human interface for Bitcoin. Whether a user will know their “payment app” is using Bitcoin or not, is another matter, and probably shouldn’t matter.
In the age of instant downloads, and ubiquitous apps, it’s easy to forget that software development takes time.
In June 2014, Apple updated their App Store policy to permit the publication of apps involved in sending and receiving Bitcoin — presumably in response to requests from developers, and perhaps a sign that an avalanche of Bitcoin apps is on its way.
Compelling reasons for consumers
For an ecommerce business like Ink Factory in the highly commoditised printer cartridge market, the benefits of a payment method like Bitcoin are clear: near-zero transactional costs and no risk of chargebacks.
However, the benefits for a consumer to use a payment method like Bitcoin are currently less compelling; anonymity is one often mentioned attribute, but clearly that anonymity is somewhat lost if goods are to be posted to a home or business address.
It requires little imagination to think of the types of late-night transactions some consumers might prefer to conduct with anonymity, but in the context of mainstream retail (online or offline), it’s less easy to think of any compelling reason for an average consumer to choose Bitcoin.
A retailer could use money saved from near-zero transactional costs (and the overall reduction in chargebacks) to incentivise customers to pay with Bitcoin, and such a scenario might work for high value transactions, like buying gold bullion for example, but “1% off the cost of your ink” is not an offer likely to drive thousands of our customers to pay with Bitcoin.
Ink Factory has been accepting Bitcoin since November 2013, and the number of orders placed with Bitcoin as the payment method represent less than 1% of our total order volume in that period.
Because Bitcoin is decentralised there is no authoritative Bitcoin “exchange rate”. Bitcoin is volatile because the market capitalisation is small (but growing) and speculation is thought to be high (recent analysis Charles University in Prague supports this).
At inkfactory.com the total amount payable for an order is calculated and translated to a Bitcoin price at the time of payment and that payment must be rendered promptly (Ink Factory allows 15 minutes before a quoted Bitcoin price expires). Most retailers will immediately sell the Bitcoin received for cash, making Bitcoin little more than a token.
Whilst goods and services could easily be priced in Bitcoin on a website, the price would be constantly changing (assuming the retailer is planning to convert the Bitcoin received back to their local fiat currency). Picture the slot-machine “gamble” style tension at the checkout, as customers watch the price flashing high to low and wondering when to hit the pay button and bank it.
One start-up is tackling this Bitcoin price fluctuation for offline retailers is BitTag who make a self updating price tag with a live Bitcoin price.
In all likelihood, a margin or tolerance could be built into online and offline Bitcoin pricing to provide some price stability, but that surely means a higher sticker price for consumers.
Storing or holding Bitcoin
Taking the time to understand Bitcoin and learn best practices for selecting a strong password and keeping a secure virtual wallet are essential first-steps.
For some, this might already be too much.
The online service Blockchain.info makes this somewhat easier, by offering a virtual wallet client accessible with a web browser which can be protected by two-factor authentication.
With other online services that actually hold customers’ Bitcoin on account, there is a clear issue of trust. There are some well-regarded businesses in this market, but sadly there have been news stories of business failures often surrounded by allegations of fraud or Bitcoin theft with some of these types of “virtual wallet” sites.
For consumers to pay with Bitcoin, first they must have some Bitcoin.
As a private citizen, there are a few ways you could get some Bitcoin:
1.) Create an account with a Bitcoin exchange or trading site
This has the advantage that you could buy and sell Bitcoin easily, but in accordance with UK Anti-Money-Laundering rules the site will need your photo ID, proof of address, and you won’t be able to make a cash withdrawal without confirming your bank account. Proceed with caution and ensure you are dealing with a company you trust before handing over your identity documents.
2.) Purchase Bitcoin from another person, in a private transaction through Localbitcoins.com
It’s very easy to create an account, no identity documents are required and LocalBitcoins.com holds the sellers Bitcoin in escrow, so whilst it’s not without risk you can be reassured that the seller has enough Bitcoin for the transaction.
To complete a purchase, unless you want to meet the seller in person, you will most likely need to share your bank account details with them (a private citizen or perhaps a trader) — Bitcoin sellers won’t accept Paypal because of the risk of chargebacks — so you might consider opening a second bank account, or at least make sure your bank will not accept instructions in writing (as you will be sharing your account number and sort-code with a third-party).
3.) Bitcoin Faucets
So-called “Bitcoin Faucets” are websites that give away tiny amounts of Bitcoin. There are a few still active (refer to your favourite search engine), and usually just require a wallet address — proceed with caution if any other information is requested.
4.) Win some Bitcoin
For so many reasons, most consumers are not going to sign up to a Bitcoin exchange or participate in a peer-to-peer transaction, and because Bitcoin is in its infancy there aren’t any other obvious choices.
So at Ink Factory, we decided we would give ten lucky people the chance to experiment with Bitcoin — by giving them some for free.
We’re only a small company, so the lucky ten will be selected at random, and the budget for our giveaway is limited to ten tenths of one Bitcoin: that’s ten lucky winners of 0.1 Bitcoin — more than enough to buy a set of ink cartridges for an average inkjet printer, although there’s no obligation to do that!