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Published On: Thu, Aug 28th, 2014

An increasing number of customers and retailers have been using bitcoin in their transactions

Bitcoin, a several-year-old digital currency, is soaring in popularity as it offers convenience for users and lower transaction fees for online retailers.

Bitcoin, a several-year-old digital currency, is soaring in popularity, as it offers convenience for users and lower transaction fees for online retailers.

Bitcoin is already showing some strength with US online merchants, such as Overstock and Expedia, despite the short history of its existence. The acceptance of that digital currency is expanding, and it is expected to rise to further.

Bitcoin has developed into an online payment, software-based system. Bitcoins are stored in a wallet with an identification number. The amounts can be kept with Coinbase and BlockChain and can be used for online purchases.

The broader adoption of the unit, however, has still to come, as credit card payments are the preferred payment method. The unit’s volatility is another deterrent, with the risk undertaken by the consumer and the payment processor. Online merchants accepting bitcoins are paid in US dollars terms and charged less than 1 percent of the amount for processing the payment. In credit card payments the fees charged are 3 percent.

Payment processors are engaged in hedging to a certain extent, as they sell bitcoins on the market offsetting the units processed and those in their books. The sole risk for online retailers, though a minimal one, is if the payment processor fails to carry out the obligation. Both Bitpay and Coinbase, however, are well-funded and abide by large security measures.

The advantage of bitcoin payments for online merchants lies in lower transaction fees. It has added to the 2014 earnings for Overstock, for example, 4 cents per share, as the company’s CEO said. Overstock was the first company in the US with at least $1 billion of sales annually to adopt the new digital currency. It was followed by companies such as computer manufacturing Dell and a number of online computer hard- and software retailers.

It is estimated that the predominant amount of sales for Overstock are accomplished with new customers who seek the company as it offers this method of payment. The profile of bitcoin purchasers comprises both affluent and tech-savvy online shoppers.

Currently, the number of online merchants accepting bitcoin payments totals around 63,000 worldwide, according to CoinDesk. The number is growing and by the end of the year is projected to reach 100,000.

Consumers sometimes face a common disadvantage, as sales in bitcoins are irreversible. Some vendors though return Bitcoin amounts if products prove defective.

Companies dealing with transactions in the virtual currency, like Dell and Expedia, say that while sales in bitcoins form just a small part of overall revenues, they still surpass their expectations so far.

According to Bitcoin wallet company BlockChain data, in the last three months transactions in the digital currency ranged between 50,000 and 75,000 per day, yielding from $45 million to $85 million. In comparison, the July daily sales in the US retail sector amounted to around $15 billion, according to the US Census Bureau.

Since the end of June, the growth of bitcoin wallets has reached 5.32 million accounts, an impressive growth since last year’s 765,039 users, according to CoinDesk data. The forecasts for the end of the year point to 8 million users.

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ProfitEase.com

- ProfitEase.com is a global financial portal that provides news, analysis, economic calendars, streaming quotes, technical studies and other resources about the global markets. The materials on the website cover a variety of fields including: economics and politics; monetary policy; forex, CFD and derivatives trading; commodity markets; bond markets.

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