I still remember the first time a friend of mine told me about Bitcoins. "You know those scam emails that tell you you can get money for free? That's kinda what Bitcoins are. Except they're not a scam - people actually accept them." I was, like many people, skeptical. Still am, though their value has skyrocketed from less than $1 per Bitcoin back then to close to $1k now. I'll leave the economic commentary to other writers, but there are some interesting implications for ecommerce businesses.
If you haven’t heard of Bitcoin, perhaps you’ve been living under a rock. This alternative currency has made news lately for its unprecedented growth in value over the last few years. Those who began mining bitcoins when they equaled less than a dollar per coin certainly have something to be excited about. If you have heard of it and still have no clue what it is or how to use it, you’re just like all the rest of us. Alternative currency—those not based on government issued currency—has seen plenty of attention lately, but we’re all still wondering exactly what it does, why it exists, and where we can even use it.
When you really think about it, alternative currencies aren’t so different from the money we use every day. Most of us never actually see the cash our bank account says we have. Money is transferred from our place of employment directly into an account. From there, it is dispensed by way of debit or credit card. And that cash is no longer backed by gold reserves, either. We simply trust that we have the funds our bank says we have because various protective layers are in place. That traditional currency is also used to purchase other intangible currency in the forms of investments in stocks, bonds, and even precious metals.
What Is Bitcoin?
While Bitcoin is the alternative currency gaining the most attention right now, it’s not the only type available. Bitcoin itself spawned various other cryptocurrencies, which are essentially electronic currencies protected by cryptography and proof-of-work systems. Bitcoins are earned through a network of interconnected peers who make electronic resources available to others for the purpose of completing various tasks. To put the process in much simpler terms, Bitcoins were something like electronic brownie points, earned and traded and eventually shared with those who hadn’t actually earned the brownie points but were still able to purchase them with traditional currency.
Other brownie-point-style currencies exist, though some are only available in certain locales. LiteCoins are based on the Bitcoin model but have a higher limit for mining. Because there is a higher limit, they’re not worth as much as the Bitcoins and also not as widely accepted. Bitcoin is, as of now, the only alternative form of currency accepted by thousands of online merchants and ecommerce sites.
Familiar Alternative Currencies You’re Already Using
Two of our largest corporations are also introducing their own forms of alternative currencies. Starbucks uses the Stars, which are earned through various purchases or completing certain tasks. You can even earn Stars through purchases from other companies. Amazon Coins are also earned by making specific purchases, and those coins can then be used to purchase other items through Amazon. Nike’s alternative currency, Sweat, is earned in other ways. By tracking your movements, calories burned, and energy levels, Nike gives Sweat rewards that can be redeemed for Nike products.
Localized Alternative Currencies
There is a very “IOU” feel to many of the localized alternative currencies. For instance, BerkShares, which are only available in the Berkshires. These are accepted by many local businesses and can be converted to traditional currency at many of the banks in the area. They’re earned pretty much the same way we earn our money—for work, in exchange for goods and services, or even as gifts.
Ithaca Hours are currency exchanged for goods and services, created specifically to grow and strengthen the local economy in Ithaca, New York. Though they can only be earned and spent in Ithaca, they’re a model for many other areas considering a hyperlocal currency.
Philadelphia is introducing Equal Dollars. Just for signing up, participants receive 50 Equal Dollars. More can be earned through volunteering, referring friends, or selling your goods on their online marketplace.
Not to make light of these enterprising locales, but these alternative currencies used in only one specific place have also been successful in other ways. Ever heard of Disney Dollars? These are rarely considered “real” money, but as they can be exchanged for goods while inside any of the parks and converted to traditional currency upon leaving. By the standards that define money, Disney Dollars are real, as are those used in various other theme parks around the world.
While hyperlocal currencies aren’t currently beneficial to ecommerce sites, unless those sites are located within the city that accepts and issues the currency, they are a sign of where alternative currencies are going. In some near-future scenario, your ecommerce site might need to have checkout process for all three of these currencies.
But Can We Use It?
As mentioned, hyperlocal alternative currencies are probably not a great idea to accept on your ecommerce site. Also, unless you create a partnership with one of the corporations already using their own version of alternative currency, you probably won’t be accepting those, either. Bitcoin and Litecoin, however, are certainly possibilities. In fact, plenty of ecommerce sites already do accept these forms of payment—more Bitcoin than Litecoin, of course.
In fact, we're starting to see Bitcoin in various places we might never before have considered. This real estate in Las Vegas might be sold for Bitcoin, if the price is right. There's also this Bitcoin pawn shop in San Francisco, where you could get cash in exchange for your Bitcoins as a loan, just like you would if pawning your diamond earrings. Of course, to use them, processing must be possible. Various digital currency companies are springing into existence, led by Circle Internet Financial--a Bitcoin bank of sorts. Ecommerce sites can also process Bitcoin payments with the help of Bitpay. Shopify, a provider of various services for ecommerce companies, now offers Bitpay as a part of their payment processing package, making it available to more than 75,000 online retailers.
With more automated ecommerce platforms incorporating payment methods for Bitcoin, even more ecommerce sites will begin accepting these instead of credit cards. If you’re a believer, hop on board now. If you still doubt, remember the Winklevoss twins who were the laughingstock of the financial world until their Bitcoins nearly tripled in value over the course of just a few months.
What do you think of Bitcoins and other alternative currencies? Are there any you’ve already adopted for your ecommerce site? We’d love your thoughts!
Originally published Dec 17, 2013 10:00:00 AM, updated February 01 2017