The news: One of the complications to using the digital currency bitcoin in everyday transactions is pretty simple: because it's not fiat money, lots of retailers won't accept it. But starting in 2014, you'll have a pretty easy time using your bitcoins to purchase everything from gold chains and Xboxes to microwaves and headphones, given that Overstock.com CEO Patrick Byrne has announced that the site will begin accepting bitcoin payments by the second half of the year — and possibly in as little as the next four months.
"I think we'll pick up market share ... the market share of people who'd prefer to pay in bitcoin, with an honest currency," Byrne told the Los Angeles Times, noting that his choice was "also philosophical, part and parcel with my belief in a limited government — that if you want limited government you can't give it power to expand the monetary base."
Overstock.com has no plans, though, to enter the market in any holding capacity. "We'll want to avoid any currency exposure by converting bitcoins to dollars as soon as they come in," noted Byrne, dashing the possibility that Overstock's stock prices could be hurt in any significant capacity via exposure to bitcoin's wildly fluctuating prices (ranging from as high as $1,210 and as low as $455) in the past few months.
Byrne says that for retailers, bitcoin is a "chicken and egg problem — there hasn't been a strong reason to use bitcoins because there's not a major retailer who takes them."
Is this the path to making bitcoin legit? Yes and no. The Overstock.com decision is big news in the bitcoin world, and if it pays off, other major retailers will doubtless follow. With the instant conversion model, where the companies aren't exposed to the currency's volatility (essentially keeping the risk of holding bitcoins firmly in the hands of the consumer), there seems to be little downside to accepting digital currency.
But the idea that this is the first step to bitcoin transitioning to the mainstream as a currency is little more than speculative fantasy and more than a little premature. Banks aren't very bullish on bitcoin, trying to steer clear of opening accounts for bitcoin-centric businesses and avoiding recognizing it as a medium of exchange. With wild price fluctuations and limited safeguards (in addition to being prone to theft), it's much more comparable in its current state to a speculative investment than a currency.
Instead, it might be useful to see bitcoin's primary use for mainstream use as a replacement for conventional online payment systems like PayPal. With its ability to instantly transfer wealth across international borders, bitcoin could quickly carve out an important niche in online retail while markets and regulators wait to see how digital currency can evolve into a more stable form.