Asian Ecommerce Market Will Impact Cryptocurrency and Blockchain’s Global Adoption
Overstock’s blockchain investment arm made an announcement on September 14th that it would allow the retailer’s clients to purchase the Bitcoin directly from its website. Overstock, a US based e-commerce platform and Bitcoin pioneer has continued to grow its relationship with the cryptocurrency following the launch of a beta version of a crypto wallet and exchange by its subsidiary company, Bitsy. Overstock began allowing clients to make payments with Bitcoin back in 2014, but the e-commerce industry is yet to enjoy mass adoption of cryptocurrencies. Asian players are however, coming together to create a much greater push for this adoption.
Overstock Cryptocurrency Journey And Success
Overstock became the first large stock company to accept Bitcoin as payment on its online retail platform in January 2014. The move was facilitated by a group of supporters from Wall Street and Patrick Bryne, a cryptocurrency enthusiast. In an interview with Business Insider, Bryne noted that at the time of Overstock’s adoption of Bitcoin payment, the largest retailer accepting the coin was a restaurant in Australia with USD 800,000 a year in Revenue. Overstock effectively became the largest company in the space with its USD 1.4 billion year revenue.
Bryne notes that the early movement of Bitcoin into mainstream e-commerce was accidental. He claims to have simply commented, without much thought, that his company Overstock might begin accepting Bitcoin as payment. The ensuing media reports on the company’s potential move provoked Bryne to contact Coinbase, a San Francisco based wallet and exchange platform leading to the introduction of the Bitcoin payment option for Overstock within a few weeks. The move was a hit for the online retailer as crypto enthusiast flocked the site to make purchases in support of the move. Bryne says,
“Bitcoin users started to come to our site and buying a set of pillows or a bed just to show their support. We sold few hundred thousand just in two days after getting live.”
Since Overstock began accepting Bitcoin payments, the company’s stock and the Bitcoin price have experienced a correlation of up to 85.5% despite the online retailer having no significant holdings of the cryptocurrency. While this was a welcome benefit as the price of Bitcoin continued to climb, the high volatility experienced in the crypto currency industry has also led to similar levels of volatility in the company’s stock. In a letter to investors in 2017, Bryne pointed out this fact and warned the public not to directly associate Overstock’s share price with the Bitcoin since the company’s holdings in Bitcoin were not significant.
Overstock has however continued to leverage cryptocurrency and blockchain for various aspects of the business. Overstock launched a subsidiary venture capital firm, Medici Ventures, in 2014 through which most crypto related projects are carried out. tZERO, another one of Overstock’s subsidiaries is also planning to start a trading platform for Initial Coin Offerings (ICO) and has secured major institutional investments from GSR Capital, a Hong Kong based private equity firm. A more recent development has been the launch of the crypto wallet and exchange by Overstock subsidiary, Bitsy which has enabled Overstock customers receive the option to purchase Bitcoin directly from the retailer’s website. In Bryne’s words:
“Integrating with Bitsy will allow Overstock to take the next step in its cryptocurrency journey by allowing the company to offer Bitcoin for sale directly from the retail website.”
Crypto Payments In Shopify, Expedia And Other U.S.-Based Businesses
Before Overstock, several other smaller retailers were already taking Bitcoin as payment for goods and services. One such company is Shopify, a Canadian based e-commerce platform. Shopify began accepting Bitcoin in 2013 having a base of over 70,000 online stores. This was done in collaboration with Atlanta based global Bitcoin payment service, BitPay.
BitPay was created in 2011 to facilitate mobile checkout to companies that wanted to accept Bitcoin. At its early stage, Shopify was not ready to roll out the new payment service to all stores despite having confidence that it worked. Instead, Shopify allowed interested stores to contact them first in order to have the service enabled and kept in touch with these stores in order to get feedback.
Shopify grew its integration of cryptocurrency payment services with a partnership with Coinbase in 2014. In the announcement, Shopify pointed to Coinbase’s simple 2-click checkout experience and refund policy as features that made it more convenient for merchants to accept Bitcoin as payment. Shopify opened doors to all its merchants to accept Bitcoin payments through Coinbase.
It also became possible for users with US bank accounts to convert their Bitcoin into USD making it a more reliable and attractive mode of payment. Shopify’s partnership with Coinbase gave users more alternatives as they could access Bitcoin payment services from 2 different providers with different pricing models. At the time, BitPay charged a transaction fee of 1% for casual sales and offered monthly subscribers services at no fee. On the other hand Coinbase offered free services for transactions of up to USD 1 million.
According to Shopify, bitcoin payments incurred very low and in some case no fees unlike credit cards. In addition, blockchains made it nearly impossible to have fraudulent activities and charge backs making the new payment mode more desirable. Other benefits Shopify lists for using Bitcoin are fast international payments and lack of Payment Card industry compliance issues. There is no mention by Shopify of the rate at which cryptocurrency is used on the platform. It is however notable that in 2014, the year after it began accepting Bitcoin, its revenue more than doubled to USD 105 million.
Payments with Bitcoin and other cryptocurrency have not been limited to purchase of goods in online stores. Among the early adopters of Bitcoin payment was CheapAir, a Calabasas based online travel agency. This company began allowing its users to pay for airline tickets in cryptocurrency in 2013, becoming the first to bring cryptocurrency into the airline travel industry.
“Bitcoin is really easy. You can do it in two clicks. It’s a much easier way to pay and it’s also much more secure,” the company’s CEO stated in an interview. CheapAir partnered with Coinbase in order to make this possible. To shield them against the high volatility experienced by Bitcoin, Jeff Klee, CheapAir CEO noted that they were not highly exposed as they were able to exchange Bitcoin received as payment for USD almost instantaneously in order to make airline payments. At the time of the interview, airlines were yet to accept payments in cryptocurrency.
CheapAir expanded its acceptance of Bitcoin to include payments for hotels by early 2014, becoming the first in that sector as well. Klee notes that Bitcoin has the potential to make transactions between businesses and individuals cheaper. This, he says, is due to the low transaction fees incurred in the use of Bitcoin which are far less than the 3% embedded in every purchase made by consumers using conventional payment methods. Another travel agency, US based Expedia began partnered with Coinbase and began taking Bitcoin payments for hotel bookings in 2014 growing the number of crypto friendly businesses.
How BitPay Compares To Coinbase Exchange
Merchants choosing to accept Bitcoin payments have had the option to work with either BitPay or Coinbase to enable them offer the service to their customers. A report by BitPay stated that the payment platform had facilitated more than USD 1 billion in Bitcoin payments in 2017, a 328% growth from 2016. It estimated that merchants using its platform receive up to USD 100 million in Bitcoin payments every month. BitPay introduced Bitcoin Cash (BCH) on its platform towards the end of 2017 and set the minimum transaction amount at USD 5 in order to increase access to its services.
Coinbase has over the years accumulated a number of online retailers on it platform and in February 2018, announced that it was expanding further into the e-commerce business. The platform opened Coinbase Commerce, a platform that is aimed at assisting more online retailers integrate cryptocurrency payment options. Merchants have the option to integrate the new service into their check out flow or have it as a payment option on an e-commerce platform. Besides Bitcoin, the platform has also added Bitcoin Cash, Ethereum and Litecoin as acceptable payment currencies. In a press release, Coinbase stated that,
“Our mission at Coinbase is to create an open financial system, so we’ve designed this solution to serve merchants worldwide. Unlike previous merchant products we’ve offered, Coinbase Commerce is not a hosted service, so merchants have full control of their own digital currency.”
Coinbase has however introduced new policy suspending “custodial” solutions for merchants, a move that has not gone well with merchants using its services. In June, Expedia which relied on Coinbase stopped accepting Bitcoin while CheapAir CEO announced that they were shifting to BitPay. Klee argues that the new policy is not convenient and will make it difficult for merchants to accept Bitcoin payments. Speaking to their intentions to shift completely to Bitpay, he stated that CheapAir and BitPay had had a great relationship and that their integration was almost complete. The challenge with BitPay however was its lack of support for non-payment protocol wallets. He notes that,
“… if you do not have a compatible wallet, you would have to get one and use it as an intermediate stage for your Bitcoin payment.”
Chinese Approach: Focus On Blockchain Rather Than Cryptocurrency
Local government politics in China have leaned towards support of blockchain while remaining cautious when it comes to cryptocurrency and Chinese online retailers have shared the same sentiment. To this end, Alipay, the online payment platform for Alibaba, a Chinese e-commerce giant, announced at a 2016 conference in Shanghai that it was going to create a blockchain based cloud service platform.
Gao, Alibaba’s Group Vice President stated that the use of the blockchain would grow as the transaction records stored in it continued to grow. The platform’s founder Jack Ma further noted in May this year that while he appreciated the importance of blockchain, his team did not pay much attention to Bitcoin. Ma looks to leverage on blockchain technology to address the issues of data privacy and security noting how important these issues are for governments, corporations and individuals.
Asia’s E-commerce Future On Blockchain
The US ecommerce industry had a good start but has fallen behind international players as some early Bitcoin adopters drop alternative payment methods altogether. Ticket Monster (TMON) founder Daniel Shin announced in August that he had raised USD 32 million from investors such as Binance labs, OKEx and Huobi Capital to build a stable coin called Terra. The coin will maintain a stability reserve from user deposits with varied rewards to ensure the system is over-reserved. Ticket Monster is a Korean based ecommerce market place with over USD 4 Billion in total sales. The aim of the stable coin according to Shin, is to create a new payment option providing an alternative to payment options such as Visa which charge a fee for facilitating the payments. Terra stable coin will use special discounts to attract users.
Rakuten, the largest ecommerce platform in Japan is planning to launch its own Rakuten coin as part of a new blockchain based loyalty program. The company, with a market valuation of over USD 12.5 billion revealed in August that it had spent USD 2.4 million to acquire a domestic crypto exchange platform called Everybody’s Bitcoin in an acquisition that is expected to be finalized on October 1st. In Rakuten’s view, “the role of cryptocurrency-based payments in e-commerce, offline retail and in p2p [peer-to-peer] payments will grow in the future.”
Majority of the crypto friendly online merchants are based in Asia. However, Latin America has been pushing to reach mass adoption of the technology as well. Via Varejo, a consumer electronics and home appliance retailer in Brazil partnered with Boston based mobile financial service provider, Airfox to enable for fiat and blockchain payments via its ERC-20 AirToken (AIR) coin. The retailer is currently integrating Airfox’s digital banking platform on its e-commerce platforms and about 1,000 of its offline shops. It is clear the importance of collaborations in achieving mass adoption for alternative payment methods in the ecommerce space.