Early in 2014, Overstock.com became the first major retailer to begin accepting Bitcoin as a form of retail payment, and since that time it has continued to invest heavily in the cryptocurrency.
In the first day accepting the digital currency, Overstock saw a 4.33% increase in online sales, representing $126,000 of Bitcoin. Since that time, payments in the form of Bitcoin have cooled but remain steady. There are now more than a dozen major retailers who accept Bitcoin as a form of payment. While Bitcoin accounts for less than one quarter of one percent of Overstock.com's online payments, depending on day-to-day fluctuation, the company continues to see it as an important part of its retail strategy.
Jonathan Johnson is an Overstock.com board member and the president of Medici Ventures, Overstock's subsidiary responsible for advancing blockchain technology by expanding its adoption and through venture capital investments other crypto firms. Johnson admits he's a "HODLer" — someone who holds onto Bitcoin as an investment — believing that someday cryptocurrency will be as common a form of payment as government-backed fiat currency is today.
The following are responses from Johnson about why and how Overstock.com deployed its Bitcoin strategy, plus advice for other organizations considering a similar route:
Medici Ventures
Medici Ventures President Jonathan Johnson
Why did Overstock choose to accept Bitcoin? Our leadership team wanted to make it easy for customers to purchase products from the website by many payment methods, and more importantly, believed in the positive, transformational impact blockchain technology will have on society. We saw accepting cryptocurrency as a way to explore that technology.
Bitcoin is well suited and convenient for online transactions, particularly for our international customers. The company has experimented with multiple cryptocurrencies. Today, the only cryptocurrency Overstock accepts is Bitcoin.
When you initially decided to begin accepting cryptocurrency, what technical challenges were there? Not many... and it has had many technical benefits. When we decided to accept cryptocurrency as a payment on our retail website, we set up a war room with a dozen or so people to work on the project in the week between Christmas and New Year's Day. The team completed the project in just a couple of weeks. The system the team created served as a proof of concept that further formed the foundation of creating multiple subsystems for different types of payments.
How do you convert Bitcoin into fiat currency considering the volatility of bitcoin? When an Overstock customer makes a purchase, we charge an amount of Bitcoin based on the U.S. dollar [USD] price of the Bitcoin at that exact time. Overstock uses Coinbase to convert to USD, and the Bitcoin is transferred to our Coinbase wallet from CoinPayments. Every day, we convert those coins to USD, keeping up to 50% in Bitcoin for payment of services and other financial considerations.
How did you integrate Bitcoin exchange with legacy sale and clearance and settlement systems? There were many legacy systems within our payment infrastructure and associated systems. We quickly realized we needed to create a new family of systems that form the basis of our payment infrastructure, which we are still using today. Before integrating Bitcoin payments on our site, we had one system handling all payments for Overstock. Adding Bitcoin was our opportunity to build out a new system to support cryptocurrency payments that work with the entire organization.
Other than technical challenges, what other hurdles did you encounter? Overstock took just a couple of weeks to integrate Bitcoin payments onto the retail website. In the process, we recognized the entire organization needs to be on the same page about all payment options. Each team needs a basic understanding of how the crypto payments work so they can assist customers with their payments and provide a seamless and simple customer experience. Thus, not only must the developers understand the back-end technology, but the customer service agents must be well trained on the high-level processes and common customer questions.
One hurdle retailers must consider when accepting cryptocurrency is returns processing, especially online. The returns process becomes more complicated since there is no simple refund to a credit card by the retailer. The user must be a little more active in the returns process to provide a refund address for the cryptocurrency transfer. There is no "undo" in crypto payments like there is in credit card payments through charge backs or refunds.
There must also be a clear store policy in place so customers know if they will be refunded in crypto or fiat, and if in crypto then is it the amount paid, or the fiat equivalent at the time of the return? Either choice may expose the retailer to crypto pricing risk during the returns window.
What tips would you offer other retail or financial services firms considering accepting cryptocurrency? Have a clear vision about your crypto payment strategy. Have executive support for the initiative. Make sure the entire organization understands the basics of cryptocurrency and how the customers will use it within the company's systems. Understand what the value of accepting cryptocurrency is to the business and the risks it may pose. Make sure customers can use the payment option seamlessly and have a positive experience doing so.
Where do you see the greatest potential for cryptocurrency moving forward? Once widespread adoption increases — for example, when more people are paid in cryptocurrency or when more merchants accept it as a form of payment — I see cryptocurrency becoming another common form of payment.
Considering the volatility of cryptocurrency, especially when not backed by fiat money, why do you believe it will or won't thrive as a commerce medium? Cryptocurrencies like bitcoin will ultimately thrive for two reasons: One, because they are an efficient means for peer-to-peer transactions, cutting out fees associated with banks, financial advisors, credit card processors, and other expensive intermediaries. Two, cryptocurrencies like Bitcoin that are capped in the number of coins that can be mined will hold their value well — meaning they will be less subject to inflation than fiat currencies that can be printed unchecked and ad infinitum.
Money should hold or "store" value or worth over time. Inflationary currencies do not store value, because over time the same amount of currency buys less goods. Because many cryptocurrencies (e.g., Bitcoin, Ravencoin) have a finite number of coins that can be mined, over time they will hold value well. They should not be as inflationary as fiat currencies that have no cap on the amount that can be printed and are no longer backed by a physical good (e.g., gold).
Yes, cryptocurrency is volatile. But I believe it's still a good store of long-term value, and it's a valid and legitimate form of payment. As more people begin to use cryptocurrency, we want them to be able to spend it on Overstock.com.