Overstock, an online retailer which sells home furnishing, is one of the few large retailers which claims to accept bitcoin. All of their goods are, however, priced in US dollars. Apparently, until 2017, the company liquidated 90% of bitcoin received and converted it to dollars. In 2017, the company adopted a new strategy of only liquidating half of the bitcoin received for US dollars.i Only a small percentage of the company’s totals sales is conducted in bitcoin, and only a percentage of those sales are not instantly converted to dollars. Therefore, if the company is pricing their merchandise in dollars, and selling the overwhelming majority of goods for dollars, and converting bitcoin to dollars, does this really support the notion that bitcoin is currency? It would seem that this supports the position that bitcoin is an asset, like shares of stock or collectible baseball cards. Shares and baseball cards could also be sold for dollars which are then used to make purchases, but would not themselves be considered currency.
One of the primary benefits which bitcoin supporters ascribe to cryptocurrency is that the transactions are anonymous. This seems, however, not to be the case. To order merchandise from Overstock customers have to create an account using a valid phone number and zip code. And of course, the merchandise will need to be shipped to someone, somewhere, so both a delivery name and address are required. Next, payments made in bitcoin are most frequently transacted through a virtual wallet service, the most popular of which is Coinbase. To utilize Coinbase, you must download a phone app and allow the app to connect to your bank account. So much for anonymity.
Another perceived benefit of cryptocurrencies is that they “cut out the middleman” as the transactions theoretically circumvent banks and credit card companies. First of all, the virtual wallet company is technically a middleman, and according to CNN, “as with other stock trading applications, you pay a small fee for each transaction, buying and selling. But the transaction can take significantly longer.”ii
The length of time that it takes to complete transactions is yet another reasons why bitcoin essentially does not function as a currency. Virtual currency transactions can take as long as four days to confirm. In a CNN article about journalist Seth Fiegerman attempting to make a purchase using bitcoin on Overstock, he reported “My original $100 bitcoin purchase won’t officially be completed on Coinbase until Friday, more than a week after the transaction. The price I bought it at remains the same, but I won’t be able to sell at the earliest until Friday.”iii
Lack of processing infrastructure at both retailers and cryptocurrency exchanges is another issue. In 2018, there was a glitch at Overstock which allowed holders of another cryptocurrency, bitcoin cash, which is worth a fraction of bitcoin, to make purchases and walk away with a hefty profit in merchandise.iv As of March, 2018, on its bitcoin payment page, Overstock informs customers who select the bitcoin payment option that if bitcoin cash or any currency other than bitcoin is sent, it will be permanently lost. If a customer had selected Master Card as a payment option, but then accidentally input a Visa Card number, the money would not be permanently lost. In fact, the payment system would simply refuse to process the purchase and request a valid Master Card number. And of course, credit card purchases are cancelable. The credit card companies offer a certain amount of consumer protection, often acting as intermediaries for a consumer who feels he has been cheated. With bitcoin, once a transfer has been made, there is no way to cancel it or reverse it. And there is no company to call for help.
Price volatility is another issue. The value of bitcoin has been known to fluctuate by hundreds of dollars in a single day. With transactions taking days to complete, this could leave either retailers or purchasers with a significant profit or loss. “This volatility may be great for bitcoin investors, but the growth has hindered bitcoin’s effectiveness as a currency.” Only one country, Sweden, recognizes bitcoin as currency. Most of the rest consider bitcoin as an investment asset or a speculative investment asset, rather than a currency. And this seems to be how people are using bitcoin. Wild price fluctuations lend themselves to day trading and other forms of high-risk, short-term investment. Consequently, only a small fraction of Overstock’s sales is made in bitcoin, and only the smallest percentage of bitcoin market activity is the result of people using bitcoin as currency.
As the first company to accept bitcoin, Overstock has received a great deal of press exposure which the company has capitalized on to launch its own initial coin offering (ICO). Even Overstock the company which is most frequently held up as proof that bitcoin can function as a currency is not only deriving most of its retail income from traditional payment systems such as credit and debit cards, but may be getting out of the retail business altogether. The company’s owner, Patrick Byrne has told CNN that he is considering selling the retail company so that he can focus on his 10 block chain businesses.v
It seems that even the leading retailer and supporter of bitcoin as currency is not interested in using bitcoin as currency. The fact that the company is launching its own cryptocurrency and investing in block chain companies strengthens the notion expressed by CNN Money’s Seth Fiegerman “Rather than a currency, bitcoin is being treated more like an asset, with the hope of reaping great returns in the future.”vi
This economist’s conclusion is that bitcoin is not a currency. It is a speculative investment asset.