PYMNTS Topic TBD

Bitcoin: From Store Of Value To Value At Store?

Commodity. Currency. A hybrid of the two. Where you stand on bitcoin determines how you use it, but as Gene Kavner, founder and CEO of iPayYou notes in the latest PYMNTS Topic TBD with PYMNTS’ Karen Webster, as bitcoin moves more mainstream, its presence in retail as a method of payment should blossom.

Headed into the end of 2016, bitcoin trades on the high end of $700, and much has been made about the price appreciation in the wake of geopolitical surprises, such as Brexit and, of course, the U.S. presidential election. The question remains, however, just how bitcoin should be viewed and used.

In the most recent installment of PYMNTS Topic TBD, Gene Kavner, founder and CEO of iPayYou, noted that bitcoin is moving through a transition. Said Kavner: “Bitcoin is a commodity. In some ways, it is like gold, and in many other ways, it is a new revolutionary way to make payments. But to really wrap your head around how it’s priced and why the price moves up or down, I think gold is a fairly good equivalent.”

People buy gold based on world events, he said, and the same is true for bitcoin. For both, he noted, there exists another similarity: “There is only going to be so much bitcoin ever produced.” Against this backdrop, he said: “Any time there is a world calamity, any time there is an unpredictable event … any time there is a country that bans a currency, people go towards something that they know, where there is a limited supply … and they have a portion of it … Bitcoin makes it super easy to transfer from person one to person two in any quantity, no matter how big or small.”

There’s safety in the fact that “nobody is going to go duplicate your portion … Nobody will steal it from you.”

He noted that the virtual currency was invented in 2008, and after 2012 and 2013, its holders were speculative and “not registered much on the value side”, and within the past year, bitcoin’s become a valuable property beyond which people will use to speculate. More lately, swings have dropped in size and duration, and “people want to start using it for commerce,” he said. As people use bitcoin more often for actual buying and selling, he said, the value of bitcoin will rise, along with the transformation from bitcoin speculation to bitcoin usability.

Webster asked whether this transition might help set the stage for bitcoin to make the leap to wallet and merchant acceptance. Kavner said one of the firm’s recent agreements allows bitcoin payments from digital wallets to be transferred as dollar amounts to Amazon Direct — an example that “we are trying to bring bitcoin closer to retailers and allowing people that have bitcoin to spend it with retailers, whether those retailers accept bitcoin.”

He noted announcements recently that Overstock, Microsoft and Dell have started to accept bitcoin, a hint that acceptance of bitcoin is going to develop over time. “When we say we are transferring bitcoin over to a retailer, what we are doing is we are taking the bitcoin and giving that exact amount of value on the side of the retailer and we use several different techniques to do this. One of them is through gift cards.”

But there are other techniques that work as currencies as well, said the executive, “but in effect, if you wanted to purchase things with big retailers, whether it is Starbucks, Amazon, Netflix … you could go in an purchase a Netflix gift card and instantly spend that Netflix gift card at Netflix.” In this case, the consumer is using bitcoin directly, but Netflix as a retailer need not accept the cryptocurrency directly (they get U.S. dollars, as does Amazon, so this is a redemption of a gift card), but other clients, such as a babysitter, can accept bitcoin directly.

Is the boost in bitcoin value helping consumer transactions? Yes, said Kavner, with the lure that people can make payments with bitcoin to “anyone in their lives … When they receive bitcoin in their wallet, the most traditional group are the people who are most used to payment systems such as PayPal or even credit card, so when they see a [digital] wallet with some amount of dollars in it, these are the people who are going to … go to traditional retailers to shop with the funds in their wallet. Even though they are holding bitcoin, they are not even necessarily realizing ‘Oh, it is this new currency’ … They look at it more in terms of ‘It’s PayPal. I have some funds in my wallet, and I need to spend it.’”

The holidays represent opportunity for bitcoin to make inroads, said Kavner, as “twice the gift card activity has been observed with iPayYou than has been seen before.”

Beyond ease of use and convenience, Webster asked about security. Kavner said that safety hinges on the chance “that you will not have the amount of bitcoin [in actuality] that you think you have.” He noted that there have been instances of sites being hacked and that bitcoin can get stolen, but bitcoin can also get lost. In one example, if bitcoin is being used in a wallet, it is incumbent upon the user to remember the password. If that password is forgotten, whatever money that is held in those wallets is effectively gone.

For iPayYou, he continued, “all the money is saved in your account.” Should a user have 0.742 bitcoin translating into $74.20 (this is a hypothetical example), then the user can go right on the blockchain and see that that amount is contained in the corresponding individual account. IPayYou is simply working as a holder for that password, and should it be lost to the user, the firm can help him or her recover it.

And while speculation runs rampant as to where bitcoin could trade at this time next year, Kavner said, a boost to usability could bring the cryptocurrency to as high as the four-digit level (that’s thousands of dollars).

From store of value to value at the store? Time will tell.

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