An online electronics retailer, Bitcoinstore, has had such a successful trial run accepting only bitcoins for payment that it will continue operating.
Bitcoinstore, which officially launched last month, sells its goods at wholesale prices. Additional savings come from the use of bitcoin as a payment method, which is intended to show retailers such as Amazon.com and NewEgg its utility, said Jon Holmquist, Bitcoinstore’s head of marketing, who is based in Anaheim, California.
“We are trying to provide them motivation by taking away their customers,” he said.
Proof of concept
Payment processing companies such as Visa, MasterCard, and PayPal charge fees for transactions, which translate into a higher price for goods, Holmquist said. The site is designed to show those retailers the benefits of adopting bitcoin, which uses a peer-to-peer verification and transmission system.
Bitcoin transactions are free, although people can pay a very small fee in order to speed up the time in which a transaction is verified by the bitcoin network. In a low-margin business such as consumer electronics, eliminating payment processing fees, which can range from one to three percent, “means the difference between making a profit and going under,” Holmquist said.
“This is the first time a store has been able to provide a proof-of-concept…of how much people can save with bitcoin,” Holmquist said.
Bitcoinstore aimed to sell US$850,000 worth of consumer electronics in a three-month period ending last month. It fell short of its goal by around $350,000 due to technical problems early on with its website not related to bitcoin.
But its trade was so brisk in March alone that Bitcoinstore’s supplier of electronics, Ingram Micro, has opted to renew its contract. It is aiming again for $850,000 in sales by the end of June. As of Tuesday, it had already sold $27,000.
The average order size on Bitcoinstore is about $400. Ingram Micro handles Bitcoinstore’s shipping, which is predominantly to customers in the United States.
The site had done a few international sales, but Holmquist said overseas shipping costs and high customs duties in many countries on electronics have kept away international buyers. Still, it has shipped goods to Canada and some eastern European countries, he said.
Virtual currency draws interest
Bitcoin has attracted wide media attention in the last couple of months due to a massive price increase. Last week, a single bitcoin was selling for as much as $123. In January, a single bitcoin was worth as little as $13.45.
Bitcoinstore experienced a hiccup on March 11 due to a software glitch in the bitcoin network, which disrupted how transactions were cryptographically verified. The site was shut down for a couple of hours but resumed trading after bitcoin’s developers fixed the issue, Holmquist said.
Bitcoin’s potential is somewhat limited now since it is hard for people to obtain. There are many exchanges where bitcoins can be bought, such as Mt. Gox in Japan and its U.S. partner, CoinLab. But it can take days to actually obtain bitcoins, due to the time it takes to wire money and delays in approving new users to comply with anti-money-laundering regulations.
Holmquist said Bitcoinstore is keeping a close eye on payment processors that could link bank accounts with bitcoin. People could then convert their money to bitcoins to pay for an item, which would also limit their exposure to bitcoin’s rapid price fluctuations.
“We are watching all of the payment processors very closely,” Holmquist said. “I think it [bitcoin] has the potential to basically be a PayPal-like system.”