Why some merchants have dropped bitcoin

Wednesday 30 July 2014

Over the last couple of years, the cryptocurrency community has seen a great rise in the number of merchants accepting bitcoin around the world. Hitting the headlines in just the last couple of weeks have been Newegg, airBaltic, and Dell, all of which represent multi-billion dollar companies that have joined the growing list of bitcoin-accepting merchants. In addition to these notable brands, the community has seen hundreds of smaller merchants, both online and offline, supporting cryptocurrencies.

Bitcoin Merchant map BitScan

There are quite a few reasons for these businesses to start accepting bitcoin. Some of the most obvious incentives include lower transaction fees, ease of transfer over international borders, and opening up to an active consumer base. With services such as Coinbase and BitPay, accepting Bitcoin is easier than ever. There seems to be very little reason to not accept bitcoin these days – or is there? The other side of the coin (no pun intended) should be analyzed: what about the merchants who have stopped accepting bitcoin? What is their story?

The EFF U-turn

Back in 2011, popular non-profit advocacy group Electronic Frontier Foundation (EFF) stopped accepting bitcoin for donations, with their primary reasoning being the uncertain legality of it all - mostly due to no official governmental stance on the subject. Being only two-years old at the time, there were unanswered legal concerns with the young and unregulated cryptocurrency. The EFF cited potential issues that included security laws, the Stamp Payments Act, and tax evasion, all of which caused the EFF to be wary of potential legal troubles that may arise from accepting and spending bitcoin.

In their official press release, Cindy Cohn from the EFF stated, “Since there is no caselaw on this topic, and the legal implications are still very unclear, we worry that our acceptance of Bitcoins may move us into the possible subject role.” Branching from this, the EFF also did not want to appear as an official “endorser” of the cryptocurrency, nor did they want to have their funds be subjected to uncertainty once donors had trusted the EFF with their hard-earned money.

In what many in the bitcoin community would consider a wise move, the EFF began accepting bitcoin donations again in May of 2013, citing a high demand for acceptance and not seeing any current concrete legal issues with using the cryptocurrency. The EFF being at the forefront of internet and technology advocacy made this a big step for bitcoin - but it’s important to note that the EFF has still not officially “endorsed” the cryptocurrency, along with any of its other modes of online payment (including credit cards and PayPal).

China Cracks Down

In December of 2013, bitcoin’s value took a slump shortly after Chinese officials banned financial companies from transacting with bitcoin in the most populated country in the world. This instance of government regulation was one of the biggest bitcoin had seen, and it took its toll.

State-owned China Telecom, one of China’s largest telecommunication companies, dropped its support of bitcoin after just beginning to accept it in November. Baidu, China’s largest search and web service provider, also dropped bitcoin, despite having been accepting it since October. Baidu, however, didn’t cite China’s regulatory legislation as the reasoning behind their dropping of bitcoin; rather, Baidu blamed the unpredictable fluctuation of bitcoin’s value as the reason behind their decision. Interestingly enough, Baidu’s announcement came just a day after China’s bitcoin ban. Baidu’s reasoning is still perfectly sound, however: from bitcoin’s $1200+ high in November to the mid-$800 value at the time of Baidu’s drop, there was certainly some unease in the bitcoin community about just how low it would go, and this uncertainty wasn’t enjoyed by merchants, either.

Russia’s Uncertainty

Shortly after China’s regulatory legislation, bitcoin took another hit when Russia’s Central Bank stated in January of 2014 that accepting bitcoin in exchange for goods, services, or money, would be cause for “suspicion” from authorities. Killfish Discount Bar, a bar in St. Peterburg, was one example of a local business that dropped bitcoin support. Killfish started accepting bitcoin in December of 2013, but quickly discontinued it after the Central Bank’s announcement.

Merchant Complaints

There are few other kinks with accepting bitcoin that can lead to discouraging, or even burdening, merchants. One issue is returns: bitcoin transactions cannot be reversed, which can cause a few issues in the event that a refund is required. Many merchants do not provide refunds, or at best, in-store credit. This can lead to problems when a refund could otherwise be provided through fiat - and can be particularly frustrating for unknowing bitcoin spenders.

bitcoin questions

Recently on reddit’s bitcoin subreddit, user scotty321 brought up an interesting little story. A local food truck called Little Lucy’s Mini Donuts in Austin, Texas used to advertise their acceptance of bitcoin with a bitcoin-sticker on their window. They have since taken it down for one simple reason: curious customers would frequently ask all sorts of questions about bitcoin. While not a problem in itself (in fact, it’s quite encouraging to have people curious about it), the number of people asking about it was enough to slow down the flow of customers waiting in line. Beyond that, many of the food truck’s employees were not fully educated on the cryptocurrency in order to answer customer queries. While not a reason to discontinue accepting bitcoin, it was reason enough to stop advertising their support of bitcoin to the general public. A few users commented with an excellent solution: provide small business cards or brochures that provide websites and discuss the basics of bitcoin.

The Future

There is no doubt that bitcoin is growing as more and more merchants continue to accept bitcoin, thanks to increased stability and growing usage among consumers. The many benefits seem to outweigh the limited list of cons. However, with risks such as sudden price fluctuations; 51% attacks; and governments starting to regulate, or even ban cryptocurrencies, it’s important to note that bitcoin isn’t infallible. It still has a long way to go to become a universally-accepted form of payment.

Based on previous events, it appears that government regulation seems to be the biggest enemy of merchants that are interested in accepting cryptocurrencies. These regulations could make all the difference between widespread acceptance and sudden drops over the next few years.

Kevin Payravi

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