Nick Tomaino is currently on the business development team at Coinbase, and is also a first-year business school student at the Yale School of Management. Prior to that, he worked in venture capital, most recently for Softbank Capital.
It is becoming increasingly clear to the public that Bitcoin is compelling for merchants as a more efficient payment processing option.
But one question that is far from clear and will likely take longer to become apparent is: what are the consumer benefits to using the digital currency, outside of investment and speculation?
Most mainstream consumers view bitcoin as a volatile asset that has no true benefit for consumers looking to spend on goods and services. In Senator Joe Manchin’s letter to the Treasury Department, he wrote:
“Its deflationary trends ensure that only speculators such as so-called ‘Bitcoin miners’ will benefit from possessing the virtual currency.”
This is a dangerous misconception that is often voiced by newcomers to bitcoin. While bitcoin is currently volatile and there are clear risks associated with it, there are also major benefits to spending bitcoin that are likely to become apparent as consumers learn more about the digital currency: cost savings, privacy, and ease of use.
Cost savings may ultimately be the most compelling benefit for bitcoin consumers.
The cost savings on the merchant side are clear when you consider the interchange fees, assessment fees, chargeback fees and false declines that merchants currently incur by using existing payment methods.
Ultimately, these fees are passed on to consumers, evidenced by the $0.75 fee you may pay for a transaction under $10.
We’re already seeing large merchants pass the cost savings bitcoin brings on to consumers. Tiger Direct is currently offering $20 off all orders over $100. Fancy.com is currently offering a 25% off coupon on all bitcoin purchases until Sunday.
These promotions are short term, but we expect many large merchants to offer long term discounts on bitcoin purchases in the near future.
As these cost savings continue, consumers will soon realize that unlike credit cards companies, who cause merchants to price their goods higher and pass savings back to only a subset of the consumer base (credit card holders in the form of reward points), bitcoin enables lower prices for the masses.
Privacy is on the minds of many US consumers right now, following the significant security breaches that occurred over the past few months at large retailers such as Target and Neiman Marcus.
These security breaches highlight a fundamental difference between bitcoin and traditional online payment methods.
Generally, when you pay for something online with a debit or credit card, you are giving that merchant personally identifiable information about yourself that is susceptible to theft.
While tokenization techniques are becoming more commonly used by credit card companies, these techniques are still susceptible to error. The full details of the Target breach haven’t emerged yet but many believe that the perpetrator found a way to circumvent Target’s tokenization.
When a consumer uses bitcoin to pay for goods or services online, they only share the public key and the amount of the payment with the merchant. There is no personally identifiable information shared that makes the consumer susceptible to identity theft.
In order for a consumer’s funds to be used, the public key and private key must be obtained by the thief. For consumers that value privacy and want to prevent identify theft, bitcoin provides an alternative to existing payment options.
Ease of use
Anyone that has used a Coinbase wallet to make a purchase on Overstock, Fancy or any of our 25,000 merchants has likely recognized that our two-click check out process is a truly seamless buying experience.
Paying in bitcoin eliminates the need to enter personal information and jump through additional verification hoops, steps which most existing payment methods require.
Coinbase and other bitcoin companies provide what is arguably the most frictionless checkout experience on the internet.
These three key benefits are likely to appeal to different consumers, and it is unclear which one will become the primary driver of long-term consumer adoption.
Since Bitcoin is still in the early stages of its development, the benefits to consumers are myriad, and those listed above will be realized very soon. But as the technology matures and becomes ever more mainstream, the possibilities are endless.
Follow Nick Tomaino on Twitter.