Bitcoin, the crypto-currency that has drawn both positive and negative reaction from investors, is back in the news.
The United States Marshals auction of 30,000 Bitcoins seized from defunct online marketplace Silk Road has ended. Details on winning and losing bids are, as of this writing, impossible to come by. What we do know is that forty-five registered bidders participated in the event, and sixty-three bids were received over the course of the twelve hour auction on June 27. According to the Wall Street Journal, bidders included law firms, major Hedge Funds, and other more traditional Bitcoin players. We also know the price of a Bitcoin was stabilizing at approximately $625 at the end of day, up from $595 before the auction began. Still, it’s expected that the selling of large blocks of Bitcoins to institutional investors will likely come at a discount and be followed by another Bitcoin bubble.
Bitcoin Wallpaper (2560×1600) (Photo credit: PerfectHue)
Separately, a patent filed by MasterCard in March 2013, entitled “Payment Interchange for Use With Global Shopping Cart” was published on June 19. It has not yet been approved by the Patent Office. The concept itself is interesting, and is certainly not limited to Bitcoin. What it does do is recognize that there are other ways to pay for goods and services beyond sovereign currencies, and that a buyer may have very good reasons to use them.
In layman’s terms, MasterCard is attempting to create a global payment Interchange that accommodates multiple forms of non-traditional payments including digital wallets, barter, social media credits, coupons, and yes…Bitcoins. As long as the payment type is accessible through an API (Application Programming Interface) and can have an agreed-upon value, it can pass through this new interchange.
On one level, the notion of putting Bitcoins through a MasterCard exchange is a bit of an oxymoron: they have fundamentally different rules of engagement. Bitcoin transfers are both anonymous and irrevocable. MasterCard transactions are subject to chargebacks (that is to say, they can be disputed by the buyer) and most definitely not anonymous.
On another level, it makes a lot of sense for MasterCard to embrace any form of payment that is regulated. The US government created regulations around Bitcoin earlier this year that made it less amorphous and safer for investors: the IRS ruled that Bitcoins are considered property. Within that context, exchanging them for goods and services is a form of barter. The MasterCard patent filing seems to have assumed that’s the way Bitcoins would be treated.
According to the blog “Seeking Alpha,” other traditional financial companies like Western Union, Gemalto, and Visa have also filed patents to support non-traditional currencies.
This begs the question: Who is actually accepting Bitcoins as payment today, and what do they trade them for? Well, starting with the borderline silly, Virgin Galactic will accept Bitcoins as payment from those who are interested in flying to space. I imagine those transactions are a bit few and far between. But a search of the web reveals some surprising additional companies.
Overstock.com and Tigerdirect.com are best known as Bitcoin takers, but rapidly growing electric car company Tesla also accepts the currency as payment. The WordPress blogging platform will take payment in Bitcoins, Dish Network now accepts them, and a plethora of independent retailers around the world. Casinos have been accepting them for some time.
In May, at its annual shareholder meeting, eBay CEO John Donahue said he was thinking about integrating Bitcoin into PayPal. If the company follows through, it will create an additional level of legitimacy around the currency, even as it also creates another level of abstraction between buyers and sellers. People often use PayPal to avoid exposing their credit card to a retailer. Using Bitcoins to fund a PayPal transaction would allow further anonymity for the buyer. The disconnect between chargebacks and irrevocable transactions must be sorted out for this to work. That will take time, thought, and a willingness to give on both sides of the table.
What’s the bottom line? Crypto-currencies like Bitcoin are gaining interest from legitimate investors and businesses alike. Now that the rules of engagement have been made clear, and the US government has deemed them valuable enough to auction them off in large blocks, speculators will continue investing. It would be fascinating to see these currencies absorbed into MasterCard’s switches and PayPal’s system.
Capitalism is nothing if not resilient, and absorbing the fundamentally anarchistic currency into its mainline business processes would be, on some level, a triumph of fluidity. MasterCard is hedging its bets. Perhaps others should too.