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If you have been paying any attention to the payments industry in the last few years, you have probably heard of cryptocurrency. Overstock.com has recently announced that they will accept all cryptocurrencies, such as BitCoin and Ethereum, via a partnership with ShapeShift.

What is Cryptocurrency?

Cryptocurrency is a digital currency system that uses encryption and blockchain technology to transfer money outside the control of traditional banks. It is strictly digital in the sense that there is no physical bills or coins. The “crypto” part refers to cryptography, the practice of encoding information to prevent third party access. Cryptocurrency avoids regulation and decentralized control by having its users share responsibilities for maintaining the system. Someone calling themselves Satoshi Nakamoto is recognized for inventing blockchain and Bitcoin in 2009; their real name remains unknown.

The process can be a bit difficult to understand, so here’s a fairly simple explanation:

Cryptocurrency is similar to traditional online banking in that someone has a digital “wallet” where all of their money is held and go online to access the money. This wallet has a unique identifier that is used to send and accept money, like a bank account number. However, unlike banks, there is one ledger that contains all transactions within the network. Since the process is decentralized, many people keep a copy of the ledger. When a purchase is made, signature keys and passed serial numbers are used to make transactions while keeping the involved parties anonymous. A file is created saying that User A is transferring X amount to User B and is “signed” by User A. To verify the transaction, a “miner” solves a small puzzle or hash as proof-of-work. Whoever solves it first, their ledger is considered correct, all other ledgers are updated accordingly, and the transaction become part of the chain. These miners are incentivized by receiving cryptocurrency for their work. The chain (ledger) continues to grow as each new block (transaction record) is added.

Different Types of Cryptocurrency

There are many different types of cryptocurrency in use today, such as Bitcoin, Etherum, Ripple, Litecoin, DogeCoin, Dash, and more. The first was Bitcoin, and it is still one of the most popular.
The other types of cryptocurrency share the same essential processes as Bitcoin, though they may possess other unique features. Etherum offers smart contracts, where a contract between two parties is built into the blockchain. If certain conditions are met, both parties receive what they agreed on; if not, a refund is issued or the transaction is canceled. Others, like LiteCoin and Dogecoin, use scrypt for proof-of work.

Advantages & Disadvantages of Cryptocurrency

Advantages:

• Cryptocurrency is more secure than traditional currency and payment methods
• It is also anonymous
• There are no fees, unlike bank transactions or credit cards
• It is easy to send money between accounts
• The account holder is the sole owner.
• There is no third party who can freeze your account or otherwise control your funds.

Disadvantages:

• Cryptocurrency is not backed by the gold standard or the FDIC
• You can’t dispute a transaction the way you with a credit card or fraudulent purchase
• You also can’t get it back if you lose it. One early adopter of cryptocurrency spent years digging through a landfill after throwing away a hard drive containing millions of dollars’ worth of currency.
• It is still not widely accepted as payment, so you may not be able to spend it where you want to

For better or worse, cryptocurrency is also highly volatile. The value of one bitcoin was worth about $680 at this time last year; today (November 2, 2017) it was over $7340.

What it Means for eCommerce

Now that Overstock is accepting many types of cryptocurrency, other big retailers probably won’t be far behind. There are millions of people who have cryptocurrency, but not many well-known retailers have caught up. That’s a lot of money to be missing out on. Cryptocurrency makes sense for eCommerce because it is already fully online and digital, just like eCommerce purchasing. Merchants don’t have to pay fees to third party systems, or pay much lower fees, to process payments. They don’t have to deal with international fees and exchange rates. Payment processing is faster and more secure. It seems likely that cryptocurrency will become a standard payment option of eCommerce in the near future.

There is an extension or two around to allow Bitcoin currency to be used on a Magento store, but they haven’t been very successful. Cryptocurrency for Magento seems likely in the future, but we’re not there yet.