Posted Thursday, March 7, 2013, at 11:49 AM
This article originally appeared on IEEE Spectrum’s Tech Talk blog.
BitcoinStore, an online electronics mega-store that deals exclusively in Bitcoins, went live last week. It's not the first company to trade electronics for Bitcoins; BitElectronics opened just a couple of weeks ago. But BitcoinStore is doing it at cutthroat prices on an inventory of 500,000 items, ranging from laptops to motion sensors to binoculars.
Company representatives claim that by not having to pay credit card fees, they will be able to keep prices 1 to 10 percent lower than the top competitors. And by doing so, they are hoping the company will be so successful that it eventually fails.
You see, profit is not the main goal of the project. Roger Ver, the founder of the site, launched it to serve as a high-level demonstration for companies like Amazon and NewEgg, a lesson in the benefits of Bitcoin. If any of these companies begin taking payments in Bitcoin, representatives at BitcoinStore say they will close shop in triumph.
"The point of the site is to show both consumers and business owners that using Bitcoin can drastically lower the cost of providing products," says Jon Holmquist, the head of marketing for BitcoinStore.
"Ideally what we want this site to do is to force Amazon, Newegg, Buy.com [now Rakuten.com], to start accepting Bitcoin. If they do that, our job is done. We're not going to be able to compete with them on that size or level. The only reason we're able to compete with them now is because of Bitcoin. So, if they started accepting Bitcoin, they get rid of our competitive advantage and we would be happy at that point."
While it's not the case for every product, BitcoinStore is beating its top competitors' prices on many of the items they sell. For example, the same Xerox printer that costs $3,263 at Amazon costs the equivalent of $2,366 at BitcoinStore. A Pyle-pro digital drum kit costs $40 less at BitcoinStore than at Amazon—and that's their discount rate.
Ver has taken the prices as low as they can go for the opening of the site, stating that he will forego any mark-ups for the first full month of operation. That means customers will pay the same price that Ver has agreed on with his distributor, Ingram Micro.
But Holmquist says that it's BitcoinStore's payment method that will allow it to keep prices low in the long run. Because Bitcoin transactions occur over a peer-to-peer network, it costs nothing to receive them. BitcoinStore is using BitPay, a well-established payment processor, to conduct the transactions, and the fees they pay for this service are less than what they would be paying to credit card companies, which generally take around 2.3 percent from each purchase.
More importantly, Bitcoin removes the ability of credit card customers to commit chargeback fraud, a scam in which customers dispute the charge on an item that they have already received with the intent of getting it for free.
"I think the chargebacks are really going to continue to be a problem in the industry. And one way or another—it doesn't have to be Bitcoin—but it's going to have to be solved somehow," says Holmquist.
If the higher purpose of BitcoinStore is to evangelize Bitcoin to the giants of online commerce, then the timing of its launch may be problematic. Amazon just released its own virtual currency last month, a token system called Amazon Coins, and it will likely be sorting out the ramifications of that odd decision for the next few months at least.
According to its agreement with Ingram Micro, BitcoinStore will have to sell $800,000 worth of electronics by the end of March in order to renew its contract. So far, they've brought in $50,000. At the very least, they will have a month to grab Amazon's attention.