Bitcoin, and all blockchain-based currency, doesn’t lack for ways to be interesting. Given that it's a technological marvel, an unceasing font of interesting headlines about the players who trade in it and a thrill a minute roller coaster ride for investors, bitcoin is never boring.
It's not actually all that easy to use, though. Investing in bitcoin as a commodity is fairly straightforward, but using it as a currency suffers from a major limitation - most merchants don’t accept bitcoin, which means holders generally must first convert their digi-coins into fiat currency before they spend it. Making bitcoin into spendable dollars (or Euros or Yuan) costs money, which generally speaking has depressed interest in actually using bitcoin.
But what if using bitcoin saved consumers money instead? That is the founding question Purse—an Amazon-based bitcoin marketplace that allows bitcoin owners to indirectly trade their crytpocurrency into goods—asked itself, co-founder Andrew Lee told MPD CEO Karen Webster.
Lee, a self-professed payments geek, comes from a more mainstream payments background at Bank of American and working with and ISO start-up, but says he saw something totally new with bitcoin.
"When I stumbled upon bitcoin, I was completely intrigued. It was unlike a lot of innovations I had been looking at in payments."
Unlike most of what Lee had been seeing, which were mostly user experiences related to modifications to payments, bitcoin represented an entirely new type of opportunity.
"The advantage over all other payment types isn’t just the cheaper transaction cost, which is what most people talk about in bitcoin, but the fact that you can have decentralized payments and funding to really empower entrepreneurs to build great products."
Lee further noted to Webster that while banks can spend unfathomable sum creating core banking and international payment systems, bitcoin - within a few months of founding - has given purse to the same level of service all through free, open source software.
Although Webster agreed the technological and infrastructural advance represented by bitcoin is impressive, it is still something more likely to be viewed as an investment vehicle rather than a valid way to spend money.
Lee agreed, noting that when it comes to bitcoin use "there’s this huge lack of consumer incentives."
And so Lee set about thinking differently about what it would take for users to want actually to use bitcoin, and he quickly realized that just developing a digital wallet for them wasn’t going to do it.
"Why use bitcoins if you have PayPal or if you have a credit card? It’s hard to imagine my mom getting excited about bitcoin."
But what he could imagine was his mom getting excited about was discounts and from that idea—making it cheaper for consumers to buy with bitcoin than it would be for them to buy with a credit card—purse was born.
The idea is pretty simple. "We allow someone who wants bitcoin to pay for someone else’s stuff on Amazon," Less told Webster.
The site functions as a sort of reverse auction. Bitcoin holders post the good they want and how many bitcoin they are willing to offer for it. So, for example, if one wants a bike that has a direct cost 5 bitcoin, one might post on Purse offering 4 bitcoin for it. The purchasers of the bike gets the bitcoins, the bitcoin owner gets a bike, Purse is the middleman that makes the transaction happen (and they collect a fee).
On average, Purse customers save 20 percent, which creates a reason to actually spend.
"Why would you spend bitcoin?" Lee asked. "Suppose you believe that bitcoin will go through 10K per bitcoin. You’ll hold them and not spend them because most people with bitcoin also have credit cards. So the problem we’re solving is getting people to spend their bitcoin and use it more like currency and less like a commodity."
Suddenly, bitcoin is less frightening and hard to use, which Lee thinks will open it up to new users.
"I think there’s still a little bit too much friction for my mom to use, but in the future, as more tools and infrastructure have evolved, you will be able to abstract bitcoin out of purse."
So why would someone who wants bitcoin get it this way? There are easier and cheaper ways to come across it.
Lee says they found a use case that surprised them when they were working. Worker (mechanical turk survey takers) in India faced a payments problem. They could either get paid via paper check, in U.S. Currency two months later or they could take their entire payment in Amazon gift cards.
Given Amazon doesn’t deliver, this meant those gift cards were made much less valuable by increased goods shipping.
Purse created a new option--it allowed gift cards to be turned into bitcoin, which are much easier to change into fiat currency in India.
"What we’ve found on Purse is that a lot of people are using this platform, Amazon’s virtual currency, for bitcoin," Lee noted.
And when he says "a lot," he is not kidding.
"We had a really hard time explaining that, so we started doing surveys. We found out over 80 percent of our power buyers are liquidating Amazon."
Purse does not directly deal with Amazon, though they do a lot of business liquidating their virtual currency. That's mostly because Amazon is so large that they are hard to deal with directly, Lee said. However, he believes they ought to be supportive of what Purse does.
"Amazon has competitors that are taking bitcoin now. And the bitcoin segment is very valuable--and we’re driving their business to Amazon but Amazon is getting paid the way they want to be paid. I think this is something Amazon should look favorably at."