Touted in some circles as the future of money, Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by lots of people running computers all around the world, using software that solves mathematical problems. It’s the first example of a growing category of money known as cryptocurrency.
While Bitcoin offers a provocative way to think of the future of money, the number of people who understand what Bitcoin is seems almost immeasurably small—and that probably includes some of its users.
To learn more, we spoke to Judd Bagley, Chief Marketing Officer of Overstock.com. Overstock.com was the first major retailer to accept Bitcoin, and is one of the most supportive and enthusiastic Bitcoin advocates. Below, Judd shares his first reactions to Bitcoin, the benefits and challenges of supporting Bitcoin transactions, and where he sees Bitcoin in 10 years.
When and from whom did you first hear of Bitcoin, and what was your first reaction?
I still remember, it was a story on an NPR podcast called Planet Money. It was 2011, and in retrospect, they did not do a great job explaining what exactly Bitcoin was. By the time the podcast was over, I remember thinking this was a big scam. To be fair, this was really the very first credible piece of reporting on the subject. It was not until later when I was truly able to refute the common misconceptions on digital currencies.
Bitcoin as a currency has many of the virtues of gold. It’s inflation proof, with the added virtue of being instantly and anonymously transferred over the web. Bitcoin and internet commerce were truly made for each other.
Overstock.com was one of the first retailers to accept Bitcoin? How did you decide to do this?
By the middle of 2013, Bitcoin had become a legitimate phenomenon. We decided we would give it a try, take a step back and watch and see what happens. We figured it wouldn’t take long to determine if this is the real thing, or just a brief internet fad. In November 2013, we decided to go for it, which, in the retail industry, is just about the worst time you could decide to launch something new. Our team of developers worked many late nights and ordered a lot of pizzas, and on January 9th 2014, Overstock.com first made purchase with Bitcoin an option. We became the first major retailer to accept Bitcoin, and today Bitcoin purchases represent nearly 40% of our business.
You’ve gotten a lot of praise for accepting Bitcoin, I think it’s great. But I’m curious what you’ve found to be the biggest challenge or drawback with accepting this new form of currency. What is something new merchants need to keep in mind before accepting Bitcoin?
I’ll tell you the good and the bad. The Good: Bitcoiners are very loyal, very avid, and they are eager to express their loyalty to people who are willing to take the currency. As soon as we launched our Bitcoin payment platform, there was a shocking influx of business. In the first 24 hours alone, we completed transactions for over $ 108,000 worth of Bitcoin.
Wow! How did that happen?
As part of our announcement, we went to the blogs and sites where Bitcoin enthusiasts congregate. We found that Bitcoiners wanted to shop on Overstock.com simply to show their gratitude for our support of the currency. Now, more than half of the people who come and shop with us are new customers. On average, industry internet retailers will spend $ 20-25 to acquire a new customer. As a result of our decision to accept Bitcoin, we have thousands of new customers, and half of them are new, very loyal customers.
That sounds like the best return on investment ever. So what are the more difficult aspects that businesses need to know about?
Due to volatility of the currency, there is a direct correlation between how people want to spend their bitcoin and the direction currency has taken. When Bitcoin is on an upswing, people spend, and when it is trending down, people hold off. These factors are out of your control, but you have to take them into account. For example, this time last year, during the first and second weeks of January, Bitcoin was at the peak of its value. Everyone made a lot of money, and people were spending freely. Since then, Bitcoin had been steadily declining, and we see that people are not spending quite as readily.
There’s still only a handful of companies experimenting with Bitcoin, what does the Bitcoin community need to really get going here?
It’s really a “Chicken and Egg” kind of problem. As in, the more people who accept Bitcoin, the more people will want to spend it if there are places to spend it. For example, here at Overstock.com, we give employees the option to be paid in Bitcoin, and just today, we installed a Bitcoin ATM in the building. We give our employees a bonus if they choose to be paid in Bitcoin, and we even incentivize our suppliers, adding a bonus if they choose to be paid in Bitcoin. Little by little, at a grass roots level, as more and more companies begin to accept payment that way, fertilizing every layer of the ecosystem, then more people will be converted to become Bitcoiners.
Many others think that a collapse of the dollar is imminent. What do you think about that? And what impact this collapse will have on digital currencies like Bitcoin?
Overstock.com has two main reasons why we choose to accept Bitcoin. First, Bitcoiners are a large community of people that have funds, and willing to spend it. The second reason is more philosophical. We live in a time when the federal reserve or department of treasury can just whip up hundreds of billions of dollars by signing a paper. Anyone who has a broad historical sense should be deeply disturbed by this fact. There will come a time when inflation will catch up to this money that can be whipped up and dumped into the market, and it will be a problem.
Bitcoin, on the other hand, is more similar to gold, which has expanded by a rate of 3% per year. With Bitcoin, the amount of currency that can be added to the economy is constrained mathematically. Bitcoin is protected from inflation, and its value will permit commerce to continue, in good times and bad. Bitcoin could be the thing that saves our economy.
I always hear people talking about the “Killer App” or the application that will make Bitcoin truly mainstream? What do you think is the Killer App for Bitcoin?
I’ve been paying attention, and one of the things that jumps out when I think about the “Killer App” for digital currency is tipping. I think tipping is the the application that is most likely to move Bitcoin into the mainstream. Tipping represents the real overlap between digital media and digital currency. Tipping benefits from the value of a niche audience. When people feel affinity towards a writer or blogger that is saying things they want to hear, people want to show gratitude. We’ve seen this at Overstock.com, this gratitude and sense of loyalty. Bitcoin tipping could really help these writers, journalists and bloggers who are struggling to make a living. That sounds like the killer app to me.
Where do you see Bitcoin in five years time? Ten years time?
It seems like we’re right in the middle of the golden age. I think we will look back on these days fondly as a time when anything is possible. One of the biggest debates we have (at Overstock.com) quite often is the question of whether Bitcoin going to be the dominant form of Crypto-currency. It’s certainly as good a candidate as any, but they also said that about the Ford Model T for cars, and you don’t see anyone driving around in one of those.
Probably the true value is not even Bitcoin itself, but rather it’s this new technology, this approach to open decentralized ledgers, that’s the big innovation. You’ve probably heard references to the Block Chain, which is the record of all Bitcoin transactions, where they are stored eternally. It’s things like the Block Chain that keep this whole approach to money alive, things that will really last, that we will look back on years from now.
But even if that isn’t the big thing, it’s clear that Bitcoin is not going anywhere. 5 years from now, I still think Bitcoin will largely be the realm of the young and geeks. It’s like the internet itself in that way — the young ones adopt it early, and then help jettison Bitcoin into the mainstream in 10 years.
Bitcoin has taken a big dive in the past 48hrs. What are your thoughts on this, and what impact it has on the future of Bitcoin?
It’s important to not confuse the price of Bitcoin with the value of the Bitcoin concept. The exchange rate is going to rise and fall. That’s inevitable. But the real value of Bitcoin is as an inflation-proof, decentralized, digital, stateless means of exchange, and it’s impossible to place a value on something like that. Those whose interest in Bitcoin is purely speculative are missing the point, entirely.
This article is part of our Upwardly Mobile content series, exploring our global theme for 2015, Upwardly Mobile: The Rise of the Connected Class. In this series, we explore how a connected world will help us to achieve more in the ways we live, work and create, and how access and connectivity will transform every sector of our society, including business, politics, journalism, education, transportation, economics, art, and culture.
You can read the first post in the series here.
About Judd Bagley
Judd Bagley is Director of Communications at Overstock.com and heavily involved in the company’s cryptocurrency-related initiatives. During his time at Overstock.com, Judd has also served as director of social media and manager of the company’s efforts to integrate Web 2.0 technologies within the enterprise. Prior to joining Overstock.com, Judd worked as a political consultant, speechwriter, journalist, podcaster and even the wacky side-kick on an FM radio morning show. Judd’s favorite things in life are jogging, edamame, family, and vanilla ice cream with those little bean specks mixed in.