Electronics retailer Newegg has begun accepting payments in the Bitcoin virtual currency, a move designed to appeal to its technically inclined clientele.
"Our customers have been asking for Bitcoin as a payment option for months," said Soren Mills, chief marketing officer of Newegg North America. "We believe there is a pent-up demand just waiting to be served and we are happy to open this payment option to them."
The company is accepting Bitcoin payments through a partnership with BitPay, a Bitcoin transaction processor.
The move could help push Bitcoin from crypto-incomprensible technology with a bit of a checkered past into just another way to buy stuff. That's what travel site Expedia had in mind when it embraced Bitcoin in June, and it's a future that's more likely with Apple's App Store reversing a Bitcoin app ban and California legalizing alternative currencies this month.
"In an era of evolving payment methods, from Amazon Coins to Starbucks Stars, it is impractical to ignore the growing use of cash alternatives," said Democratic Assemblyman Roger Dickinson, author of the California bill.
Act of faith
All currencies require faith to work, but Bitcoin's unusual nature and difficult start mean that its users have needed a bit more faith than usual. It's not backed by any physical material like gold or by any country's promise of stability. That kind of backing hasn't preserved traditional currency from problems over the centuries, but Bitcoin's technological novelty has added an extra element of complication.
Bitcoin transactions are logged publicly and verified through a computationally complicated process -- in a technique known as a public ledger -- that protects against an owner of bitcoins spending the same value more than once. The complicated process of verifying those transactions is called bitcoin mining, because those who run the computers that do the chore are occasionally rewarded with new bitcoins.
Newegg has been close to the process, selling computing equipment to bitcoin miners.
"Our customers are among some of the earliest bitcoin miners and are enthusiastic proponents of the crypto-currency," Mills said. "Adopting bitcoin as a payment method is another way we're responding to our customers' diverse needs."
Bitcoin's value in traditional currency has been volatile, with a single bitcoin worth less than $100 a year ago, surging above $1,000 in late 2013, and now with a price near $620. Such volatility makes it an unpredictable mechanism to store one's financial worth, but that unevenness could diminish if Bitcoin becomes a mainstream way to pay for goods and services instead of a vehicle for speculative trading.
There have been challenges in getting Bitcoin beyond its early uber-technical niche. Speculators -- and perhaps market-manipulating programs dubbed Willy and Markus -- drove up its value in 2013. Shortly afterward, the value plunged to half of the high-water mark. On top of the volatility came the bankruptcy problems of an exchange site called Mt. Gox where people could buy and sell bitcoins for ordinary currency.
For a retailer, that volatility poses extra risks: no business wants to sell $620 worth of goods for 1 bitcoin, see the bitcoin value drop rapidly, then exchange it back for only $500 worth of traditional currency.
Handling bitcoin volatility risk
That's where the payment processors like BitPay come in. They instantly convert the bitcoins customers spend into traditional currency, charging a fee for the service. BitPay's intermediate tier of service charges $300 per month for up to $100,000 worth of Bitcoin transactions.
"We take the bitcoin exchange-rate risk, your customers get the best rate on the market, and you get a payment you can count on, every time," the company promises on its Web site.
BitPay, a 31-person startup headquartered in Atlanta, Ga., has raised $32 million and plans to hire 70 new employees in 2014. Its services power bitcoin transactions for 35,000 merchants including Shopify, TigerDirect, and WordPress.
Here's how Newegg describes the payment process on its site:
If the customer has digital wallet software installed, that customer can complete an order by clicking the "Pay with Bitcoin" button.
If the customer's digital wallet is stored in a smartphone, a QR code can be scanned on the Bitcoin Payment page to complete the transaction.
If the customer's digital wallet is hosted on the web, the customer clicks the "View Address" link to display the digital wallet address and send the bitcoin amount due.
Newegg also sees other advantages in Bitcoin. For one thing, a bitcoin transaction costs less than a credit-card transaction, though "this was not a driving force in our decision," Mills said.
For another, bitcoin payment support should help the company spread its business beyond North America.
"Newegg has an aggressive global expansion under way," Mills said, "and we believe that the ability to execute bitcoin transactions increases our appeal to Newegg's new international customers."