Online Retailer Overstock Officially Accepts Bitcoin Payments

Since December, Overstock's free-thinking CEO and chairman Patrick Byrne has been touting that his company would accept Bitcoin within six months. But Byrne is a man of haste, and last Tuesday the company signed a deal with Silicon Valley startup Coinbase to use its Bitcoin payment service. Since then, Overstock's engineers have been working overtime to get Overstock ready for this critical moment for Bitcoin.

“I don’t want to let anyone else surpass us,” Byrne said.

So, just a few hours ago, all items on Overstock began accepting Bitcoin. This is not just a business decision. Byrne is a staunch libertarian, and choosing to accept Bitcoin is also a political statement. Like many people, he believes that Bitcoin can liberate the world from big banks and big governments.

Bitcoin, which was created five years ago, became a big hit last year, but many people only see it as an investment option, hoping that its price will continue to grow. Overstock and Coinbase hope to turn it into a widely accepted currency for purchasing goods and services.

Bitcoin can already be used to purchase many goods, but the merchants that accept it are mostly small. This time, Overstock, a retailer with an annual turnover of more than $1.3 billion, has become the largest merchant accepting Bitcoin.

Coinbase is the PayPal of Bitcoin, with about 19,000 merchants using its payment service. Coinbase co-founder Fred Ehrsam said this is an important step for Bitcoin because Overstock is a household name and we have all seen its cable TV ads.

However, Overstock is unlikely to see a large number of Bitcoin transactions. The Bitcoin community is still relatively small, and many people hold Bitcoin just for investment and do not intend to spend it.

Byrne is taking the long view. "I'm not worried about, 'Acorns can grow into trees,'" he said.

Coinbase co-founders Fred Ehrsam (left) and Brian Armstrong (right)

The risks of Bitcoin

Because of the volatility of Bitcoin prices, many people believe that Byrne and Overstock face huge financial risks in accepting Bitcoin. If Overstock starts accepting Bitcoin at $1,000, it may find that the price drops to $750 in the blink of an eye. At the beginning, there will not be many transactions using Bitcoin, so the risk will be relatively low, and Coinbase will help solve this problem.

Before each transaction is completed, Coinbase sets an exchange rate and immediately converts the buyer's bitcoin into U.S. dollars, which are then transferred to Overstock. The retailer does not hold the bitcoins.

This approach could ultimately undercut Coinbase, similar to the situation faced in foreign trade, where you have to face fluctuations in exchange rates. But unlike government-backed currencies such as the euro and yen, there is no derivatives market for bitcoin to help these companies hedge their risks.