I’ve had this blog sitting unfinished for quite some time. Today’s annoucement that Balanced and Coinbase are partnering spurred me to wrap it up.
Shtick to Serious
Raise your hand if you’re tired of seeing PR headlines reading “X is now accepting Bitcoin!”. If you’re not tired because it’s a lame marketing ploy you’re definitely tired because you have no idea what this Bitcoin thing is and where to get it.
Maturing liquidity markets, like Coinbase, and continued state-sponsored-currency instability, like Argentinan Pesos, mean that Bitcoin and cryptocurrency are here to stay. While Bitcoin searches for its watershed moment, I think Coinbase will be its shepard.
For Bitcoin to gain mindshare limiting transactional friction is paramount. Streamlined online purchases will have the lowest transactional friction versus the physical world.
Another perceptual hurdle for Bitcoin is connecting it’s price to physical value. Buying digital goods that rarely hold intrinsic value doesn’t create intrinsic value for Bitcoin.
The perfect markets for Bitcoin to capture mindshare are online and sell physical goods.
E-commerce is the perfect vertical
Bitcoin’s watershed moment will be when my mom uses it. She’s a frugal online shopper and also couldn’t tell you a single thing about bitcoin. About the only thing she could tell you about it is that it’s so foreign it scares her.
What wouldn’t scare her would be lower prices. At the time of writing this Coinbase’s bid/ask spread was about .02%, two hundredths of a percent. In pure money, the spread (price to exchange) was $0.09!
Consider Coinbase’s recently announced partner Balanced. Balanced’s pricing for marketplace transactions is 2.9% + $0.30 for credit cards and 1% + $0.30 for debit/banking accounts.
If I can already convince my customers to pay with debit why not use Coinbase to seemlessly convert the buyers dollars to bitcoin, transfer them, and convert them back all for the whopping price of less than four hundredths of a percent?
The merchant and consumer save money and never have to know they’re touching Bitcoin. At the same time, Coinbase gains account information and increases liquidity for Bitcoin.
What About Returns?
The real magic comes with the invariable returns assocaited with e-commerce. I’ve paid for something, I don’t like it, I want my money back. Most of these transactions will be the reverse of the above scenario.
The merchant buys bitcoin and transfers it to the customers (Coinbase powered) account. The Bitcoin is immediately converted back to dollars where it’s deposited into the customer’s bank account.
With increased liquity and a correlation to real world goods, we should expect more stable Bitcoin prices.
Merchants already plugged into Coinbase’s system may choose to not convert all their transactions back to dollars but instead save the nominal converstion fee.
Customers may also make similar decisions and reap a small reward of buying across a network of Coinbase powered e-commerce sites. Extrapolate a little bit and soon my mom has a Bitcoin wallet and all our minds are blown.
Originally posted 20 Feb 2014