When it comes to major retailers accepting payment in Bitcoin, Overstock and TigerDirect are only the beginning.
This revelation came in testimony by Fred Ehrsam, co-founder of the Bitcoin exchange and wallet service Coinbase, during the second day of hearings organized by New York state's top banking regulator to discuss the promise and peril of cryptocurrencies.
Ehrsam described how the Bitcoin economy has been going through a speculative phase, with people around the world driving up the digital currency's value enormously in terms of U.S. dollars, euros, Japanese yen and other national currencies. But now, he said, the market is beginning to shift away from speculation and toward spending.
"One great beacon here is major retailers like Overstock -- and there have been others -- hopping onboard," said Ehrsam, whose startup's service makes it possible for Overstock to accept bitcoins in exchange for its products. "There are others of similar stature in the pipeline."
Already, 21,000 merchants are using Coinbase to accept Bitcoin from customers. Overstock, for one, is reaping the benefits of opening itself to the new form of money. Since announcing its acceptance of Bitcoin on Jan. 9, the retailer has received nearly 3,000 orders in Bitcoin, with a total value of more than $600,000.
TigerDirect, a Fountainbleau, Fla.-based online and brick-and-mortar retailer of electronics, experienced similar results when it began accepting bitcoins on Jan. 23. Within three days of the company's announcement, it reportedly processed more than $500,000 in Bitcoin payments.
Jonathan Johnson, the executive vice chairman of Overstock's board of directors, testified Wednesday before members of the New York Department of Financial Services that Overstock uses Coinbase to immediately translate any bitcoins it receives into U.S. dollars. Because of this instant exchange, said Johnson, the company is not exposed to the ups and downs of the Bitcoin market, which has seen wild price fluctuations over time. "Our Bitcoin currency risk is nearly nonexistent," he told regulators.
Coinbase, which is located in San Francisco, is one of the most prominent Bitcoin startups in the United States, allowing individuals to buy and sell Bitcoin with a U.S. bank account and allowing merchants, including Overstock, to accept the digital currency as payment.
Last month, Coinbase announced that it had raised $25 million in a Series B round led by venture capital firm Andreessen Horowitz -- the largest fundraise ever by a Bitcoin business. If the startup is indeed becoming the service of choice for top-flight merchants, then it's already living up to the prediction of Andreessen Horowitz's Chris Dixon, made at the time of the Series B, that Coinbase will "significantly accelerate Bitcoin's proliferation."
Asked what was the incentive for retailers to accept Bitcoin or another digital currency as payment, Johnson's rationale was simple. "We are merchants, and we are willing to accept any practical form of exchange" that allows the company to sell goods in exchange for value, he said.
Most of the nearly 3,000 Bitcoin spenders were first-time Overstock customers, he added.
For the time being, however, there are limits to the company's embrace of digital currency. Overstock, which is based in Salt Lake City, accepts Bitcoin only on domestic U.S. orders, and mobile orders with Bitcoin are not yet possible on the merchant's website.
As for the bugaboo of regulation, a primary concern of entrepreneurs and investors in the nascent Bitcoin market, Ehrsam admitted that further requirements for digital currency startups are both inevitable and necessary. "Once you open up a business that's moving money around, bad stuff can happen right out of the gate," he said.
Although new regulation is likely, the hearings held in lower Manhattan on Tuesday and Wednesday have been largely positive on the subject of digital currencies' potential benefits to the economies of New York state and of the U.S. as a whole. Even a Wednesday morning panel of federal and state prosecutors paid lip service to Bitcoin's legitimate uses.
Among the founders and investors who testified, some made dramatic claims about the ability of Bitcoin to revolutionize ecommerce, the payment processing and banking industries and even the exchange of stocks, bonds, contracts and property deeds. Others, including Ehrsam, were careful not to raise expectations too high for mass adoption of Bitcoin. "One should expect volatility in the near term," he said. "We are a long way away from a world in which things just stay in Bitcoin all the time."
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