On Sept. 14, the blockchain investment arm of United States-based e-commerce Bitcoin pioneer Overstock announced that the retailer’s clients can now purchase the cryptocurrency directly from its website. It became possible after its subsidiary Bitsy began a beta launch of its cryptocurrency wallet and exchange, marking another step in Overstock’s rich relationship with Bitcoin.
However, although Overstock first allowed its customers to pay with the cryptocurrency back in 2014, the e-commerce industry has yet to experience mass adoption. Meanwhile, Asian players are gathering to make an even greater push.
First brick in the wall: Overstock’s initial success
In January 2014, Overstock, an online retailer led by a “scourge of Wall Street” and crypto enthusiast Patrick Byrne, became the first large stock company to accept Bitcoin. As Byrne recalls in an interview with Business Insider:
“We were the first. The largest company accepting Bitcoin then was a $800,000 a year restaurant diner in Western Australia. We stepped up and started taking it — we were $1.4 billion. So I like to think we saved that community about five years in their adoption cycle.”
Curiously, the pioneering transition for Bitcoin’s integration into mainstream e-commerce was somewhat accidental: In December 2013, Byrne mentioned to a journalist that his company might start accepting Bitcoin. “I said it off the top of my head,” Byrne later admitted. Soon after the interview, media outlets from all over the world started to report on Overstock’s potential move. That provoked Byrne to swiftly contact San Francisco-based crypto exchange and wallet Coinbase, and, in a matter of few weeks, they jointly introduced the Bitcoin payment option on Overstock.
The initial payoff was worth it. “The implementation pays for itself a hundred times just by the press,” Byrne claims. The cryptocurrency community turned up to show their support: “Bitcoin users started to come to our site and buying a set of pillows or a bed just to show their support. We sold few hundred thousand just in two days after getting live.”
Interestingly, Overstock shares have trended significantly close to BTC price ever since Byrne joined part of the crypto crowd. For instance, Overstock's stock rose four times between July and December of 2017, as Bitcoin grew more than sevenfold, and closed the year with an approximate gain of 200 percent. However, such reliance on Bitcoin has worked both ways for the company. In September, when Byrne had to sell 10 percent of his equity in the company in order to reinvest the proceeds in two investment projects and satisfy tax obligations, he wrote in a letter to investors:
“I am disappointed that when the deadline arrived for my sales this quarter, the stock had dropped (I sadly note that over the last 180 days the correlation between OSTK's and Bitcoin's daily movements has been 85.5 percent, and again warn people: We don't have significant holdings of Bitcoin).”
Nevertheless, Byrne continues to rely on cryptocurrency and blockchain in his business. Most crypto-related projects are carried out by venture capital firm Medici Ventures. It was established within Overstock in 2014 to use the company’s money to invest in blockchain projects. Another Overstock blockchain subsidiary, tZERO, has plans to launch an ICO trading platform. It has already secured major institutional investments from Hong Kong-based private equity firm GSR Capital.
Most recently, in September, Medici Ventures announced that its investment choice, Bitsy, had begun a limited launch of its cryptocurrency wallet and exchange. Due to the new integration, customers of Overstock received the option to purchase Bitcoin directly from the website.
“Integrating with Bitsy will allow Overstock to take the next step in its cryptocurrency journey by allowing the company to offer Bitcoin for sale directly from the retail website,” Byrne stated in the press release.
First wave: Shopify, Expedia and other U.S.-based businesses
Even before Overstock, there were smaller online retailers paving the way for crypto. Back in 2013, a Canada-based e-commerce platform for online stores and retail point-of-sale systems called Shopify announced a Bitcoin payment option for its sellers. Back then it had a base of over 70,000 online stores.
Introduced via a collaboration with BitPay service, the feature could be activated upon contacting Shopify’s team. BitPay is a global Bitcoin payment service provider headquartered in Atlanta. It was founded in May 2011 to provide mobile checkout services to companies that wanted to accept Bitcoin.
“Due to the fact that it's a very new feature and not something we're ready to roll out to all stores just yet, you will need to contact me to have it enabled, and I may want to follow up with you for your feedback once you've been using it for a while, but it works,” its representative Brian Alkerton wrote on Nov. 9, 2013.
In July 2014, Shopify expanded its crypto integration by announcing a partnership with Coinbase: “Coinbase offers a two-click checkout experience and simple refunds that make accepting Bitcoin payments easy and convenient. All Shopify merchants can currently use Coinbase to accept Bitcoin and anyone with a U.S. bank account can convert their Bitcoin to USD.”
The users could now choose between the two service providers, who offered slightly different pricing models: BitPay reportedly charged a one percent transaction fee on casual sales and a zero percent fee for monthly subscribers at the time, while Coinbase charged zero percent standard transaction fees on up to $1 million in processing.
Additionally, Shopify website mentions that “unlike processing credit cards, Bitcoin payments have low to no fees,” while frauds and chargebacks are allegedly non-existent due to the nature of blockchain. Moreover, the e-commerce platforms lists fast international payments and no Payment Card Industry (PSI) compliance as other other benefits for using cryptocurrencies on their platform. Shopify has not released any statistics on how often cryptocurrencies are used in their transactions. However, in 2014, after the first full year with crypto payment option, it reportedly earned $105 million in revenue, twice as much as it raised the year before.
In November 2013, Calabasas-based company CheapAir became the first online travel agency in the world to accept Bitcoin as a form of payment for flight tickets. To introduce the option, CheapAir teamed up with Coinbase.
“Bitcoin is really easy. You can do it in two clicks. It’s a much easier way to pay and it’s also much more secure,” CEO Jeff Klee stated in an interview with Fox at the time.
When answering if his company is concerned about Bitcoin’s volatility, Klee declared that they feel “pretty insulated”: “The airlines don’t [accept] Bitcoin yet, so we have to pay them in U.S. dollars. When the sale comes in, we take the Bitcoins, [and] exchange them almost right away.”
Moreover, Cheapair’s CEO stressed that Bitcoin might make the transaction between the company and customers cheaper, albeit on their end: “Consumers don’t know this, but there’s a three percent cost embedded into everything you buy. Bitcoin does not have those. The transaction fees are much lower.”
By February 2014, the travel agency added the option to pay for hotels with the cryptocurrency, which was also a first for the industry.
Relatively soon, one of Cheapair’s competitors followed its move. In June 2014, Expedia, a travel booking website owned by U.S.-based Expedia Group, joined the ranks of crypto-friendly businesses by announcing it would accept Bitcoin as a form of payment for hotel bookings, also via a partnership with Coinbase.
BitPay vs. Coinbase
Thus, U.S.-based retailers who chose to support Bitcoin have partnered up either with Coinbase or BitPay. Both of them have their specific benefits and shortcomings.
In 2017, BitPay reported processing more than $1 billion in Bitcoin payments. “We've already grown our payments dollar volume 328 percent year-over-year from 2016,” the processor claimed. “Altogether, BitPay's merchants are receiving $110 million in Bitcoin payments per month.”
In order to increase the application’s reach and popularity, BitPay announced support for Bitcoin Cash (BCH) in December 2017. A couple of weeks later, the company confused the crypto community: First, BitPay announced it would raise its minimum transaction amount to $100. However, just two days later, the company backpedalled, setting the value back at $5.
In February 2018, a couple of years after securing its first customers among online retailers, Coinbase announced its further expansion into the world of e-commerce: The exchange and wallet service opened Coinbase Commerce, a service with the aim to assist more online retailers. It was reported that the new service could be integrated into a merchant’s checkout flow or added as a payment option on an e-commerce platform. Additionally, it supported Bitcoin, Bitcoin Cash, Ethereum and Litecoin. The company announced in the press release:
“Our mission at Coinbase is to create an open financial system, so we’ve designed this solution to serve merchants worldwide. Unlike previous merchant products we’ve offered, Coinbase Commerce is not a hosted service, so merchants have full control of their own digital currency.”
Around the same time, Coinbase upgraded its policy, reportedly suspending “custodial” solutions for merchants. Soon after the announcement, Cheapair’s CEO Jeff Klee issued an open letter to customers, where he argued that the new policy will make accepting BTC more difficult.
“Our intention at this point is to use BitPay as a processor [now]. We have had a great experience with them so far and our integration is largely complete. But our one giant concern is that Bitpay does not support ‘non-payment protocol wallets’ [wallets that aren’t BIP-70 compliant]. So if you do not have a compatible wallet, you would have to get one and use it as an intermediate stage for your Bitcoin payment,” Klee wrote.
Interestingly, the Coinbase move could also be the reason why Expedia quietly stopped accepting Bitcoin circa June 10 (Expedia later confirmed to Cointelegraph that their business stopped accepting Bitcoin).
Chinese approach: Blockchain over Bitcoin
Chinese online retailers have been more cautious to interact with cryptocurrencies, instead focusing on their underlying technology, blockchain, which echoes the local government’s politics.
Thus, in 2016, at a conference in Shanghai, Alipay — an online payment platform of the Chinese e-commerce titan Alibaba — announced it may develop a cloud service platform based on blockchain.
“The usage of the blockchain will grow with the transaction records stored in it,” Alibaba Group Vice President Gao Hongbing declared at the time.
In May 2018, Alibaba founder Jack Ma famously stressed blockchain’s importance, while noting that his team “does not care” about Bitcoin.
In the same speech, Ma stated that he strongly believes in blockchain’s potential to address issues of data privacy and security for society at all levels — governments, corporations and individuals — in an "era of big data.” He also stressed that security is a top priority for the e-commerce conglomerate.
In March, the concern came through with more blockchain-related news: Alibaba's T-Mall e-commerce platform began adopting the technology for its cross-border supply chain via a partnership with logistics company Cainiao, as per local news agency Xinhua. The collaboration will reportedly use blockchain to track goods’ country of origin, method of shipping, arrival port and customs report details.
According to data published in late August by Chinese media outlet iPR daily, Alibaba has reached the top of a list that ranks entities by the number of blockchain-related patents filed to date; the e-commerce conglomerate has filed a staggering 90 blockchain patents, outracing even IBM.
But Alibaba is not the only Chinese e-commerce outlet looking to adopt blockchain. In August 2018, another local retail giant, JD, introduced its own blockchain plans, as it revealed its new Blockchain-as-a-Service (BaaS) platform — dubbed JD Blockchain Open Platform. The new tool aims to enable businesses to build, host and implement blockchain solutions without having to develop the technology from scratch. JD outlined a number of potential use cases for the platform:
“The technology can help companies streamline operational procedures such as tracking and tracing the movement of goods and charity donations, authenticity certification, property assessment, transaction settlements, digital copyrights and enhance productivity.”
The future belongs to international giants who are not afraid to step in
While U.S. e-commerce companies seem to be lagging behind after a promising start — with a number of players dropping alternative payment options altogether — international players appear to be much more ambitious.
In late August 2018, Daniel Shin, the founder of Ticket Monster (TMON), a major Korean mobile e-commerce marketplace which boasts a $4 billion in total sales, disclosed that he had raised $32 million from a number of investors — including Binance labs, OKEx and Huobi Capital — to build a stablecoin named Terra. According to Terra’s white paper, the protocol maintains a “stability reserve” made up of user deposits with rewards varied to ensure the system is over-reserved.
As Shin explained to TechCrunch, Terra’s goal is to offer a new payment option which would allow for the bypass of existing payment networks like Visa, who take their cuts in the process. The use of the token will be stimulated through special discounts.
Interestingly, Terra is off to a jumpstart, granted that the group backing the stablecoin, the Terra Alliance, includes e-commerce players as big as Woowa Brothers, Qoo10, Carousell, Pomelo and TIKI — combined, those companies make around $25 billion in sales. The token would be spendable at each of those services.
Similarly, Japan’s largest e-commerce company Rakuten, with a market capitalization of over $12.5 billion, announced plans to launch its own cryptocurrency as part of a new blockchain-based loyalty program earlier this year.
Called the Rakuten coin, the asset will allegedly serve as a “borderless currency,” underlining Rakuten’s vision of differentiating itself from its online retail rivals, like Amazon, Alibaba or eBay. The company’s CEO Hiroshi Mikitani elaborated:
“Basically, our concept is to recreate the network of retailers and merchants. We do not want to disconnect [them from their customers] but function as a catalyst. That is our philosophy, how to empower society, not just provide more convenience.”
Additionally, in late August 2018, Rakuten revealed a 265 million yen ($2.4 million) deal to acquire domestic crypto exchange Everybody’s Bitcoin. The purchase will reportedly occur on Oct. 1.
According to Rakuten, it has been “considering entry into the cryptocurrency exchange industry” as it believes "the role of cryptocurrency-based payments in e-commerce, offline retail and in p2p [peer-to-peer] payments will grow in the future."
While the majority of crypto-friendly online retailers come from Asia, Latin America has been pushing for mass adoption: Via Varejo, one of the largest consumer electronics and home appliance retailers in Brazil, teamed up with blockchain payment service Airfox. Airfox is a mobile financial service launched in February 2018 in Boston, MA. Designed for emerging economies, it allows making fiat and blockchain payments via its AirToken (AIR) coin, an ERC-20-based token.
Via Varejo is now integrating Airfox’s digital banking platform on its e-commerce platforms, as well as in nearly 1,000 of its offline shops. Customers will be able to purchase goods in Casa Bahia by paying directly via Airfox, or will be able to use microloans provided by the retail group.
The press release outlines the importance of the collaboration for the mass adoption of blockchain-powered payment services, letting the platform “extend its mobile digital wallet to Via Varejo's national customer base and drive mainstream adoption.”