Over the past year, there has been no better-performing asset class than cryptocurrencies. In fact, over a roughly 53-week period from the beginning of 2017 through Jan. 7, 2018, cryptocurrencies have probably delivered the biggest increase in value we've ever witnessed for a single asset class -- over 4,500%.
Not surprisingly, at the front of the pack for digital currencies is bitcoin. As the world's first tradable virtual coin, and the one that brought blockchain technology into the mainstream -- blockchain is the digital and distributed ledger that logs all transactions and underpins virtual coins -- it's somewhat expected that bitcoin retains its spot as the world's most valuable cryptocurrency by market cap.
Overstock leads the way in bitcoin acceptance
Additionally, bitcoin also happens to be the most popular virtual currency with merchants. Back in 2014, bitcoin snagged five brand-name businesses that began accepting its virtual coin, and it's been steadily adding retailers ever since. Perhaps none stands out more than online home-goods retailer Overstock.com (NASDAQ:OSTK).
Overstock became the first major retailer to jump onboard with accepting bitcoin, and has since expanded to accepting a half-dozen cryptocurrencies, including Ethereum, Bitcoin Cash, Litecoin, Dash, and Monero. The latter two are among the popular privacy-coin movement.
It's also heavily involved in developing blockchain technology, with CEO Patrick Byrne exploring the possibility of selling the Overstock.com retail business in order to focus on the blockchain projects of its subsidiaries.
But for as much as Overstock has been a pioneer of cryptocurrency use, it's also made some rookie mistakes. Perhaps none was more glaring than what happened two weeks ago when it had a snafu with its cryptocurrency integration system in recognizing the difference between bitcoin and Bitcoin Cash.
This bitcoin boo-boo could leave a mark
For those who may not recall, Bitcoin Cash forked from bitcoin in late August 2017. The reason Bitcoin Cash came into existence, as with other previous forks from bitcoin, is that the bitcoin community couldn't reach the needed 80% consensus regarding the future path bitcoin would take. In this specific instance, the fork was cause by the inability of the community to reach consensus regarding a software upgrade designed to improve capacity and lower transaction fees. While most were in favor of the upgrade, which would take some information off bitcoin's network in order to improve capacity, it didn't reach the needed 80% consensus, leading to a fork into two separate digital currencies.
Earlier this month, for a short period of time, Overstock's cryptocurrency integration system allowed customers to buy goods in either bitcoin or Bitcoin Cash, interchangeably. The problem is bitcoin wasn't priced anywhere near Bitcoin Cash at the time, with bitcoin carrying around a $14,000-per-coin price tag, and Bitcoin Cash closer to $2,400 per coin. The result was that consumers were able to pay for goods on Overstock.com with Bitcoin Cash instead of bitcoin, yet Overstock's system recognized the Bitcoin Cash as bitcoin, effectively providing a massive discount to purchasers.
Making matters worse, independent journalist Brian Krebs, who first documented this glitch, found that after requesting a refund following a heavily discounted Bitcoin Cash-glitch purchase, Overstock refunded his purchase in bitcoin. In other words, this individual netted a hefty profit in the process since he was refunded in bitcoin, despite having paid in Bitcoin Cash.
Overstock issued this statement in response to Krebs' documentation of the glitch:
We were made aware of an issue affecting cryptocurrency transactions and refunds by an independent researcher. After working with the researcher to confirm the finding, that method of payment was disabled while we worked with our cryptocurrency integration partner, Coinbase, to ensure they resolved the issue. We have since confirmed that the issue described in the finding has been resolved, and the cryptocurrency payment option has been reenabled.
While it's unclear if this will have any material impact on Overstock.com's top- and bottom-line results, it can't be discounted that this bitcoin boo-boo could leave a mark. If anything, it could turn on-the-fence virtual-currency users off from using digital coins for the time being.
This highlights a bigger long-term issue for virtual coins
What this bitcoin snafu does bring to light, though, is that the cryptocurrency market is incredibly confusing for the average American (and apparently even experienced businesses from time to time). Sure, bitcoin can be purchased on most decentralized cryptocurrency exchanges, but gaining access to virtual currencies not named bitcoin can be a cumbersome process.
A few weeks back, a friend inquired about how he'd go about purchasing a virtual coin (which I'll keep nameless) that had a market cap of around $700 million at the time, placing it in the neighborhood of 40th in terms of largest market cap. This digital currency, as you might imagine, isn't carried on Coinbase, but it can be found on Bittrex. Of course, it can't be purchased by converting dollars to this particular cryptocurrency. Here was the rough process he'd have to go through:
- Create a bitcoin wallet to protect purchased coins from cybercriminals.
- Create an account where bitcoin can be purchased.
- Purchase bitcoin, and wait for the transaction to settle, which can take up to an hour depending on the exchange.
- Transfer the purchased bitcoin to the wallet that's been created.
- Open a Bittrex account.
- Transfer the previously purchased bitcoin to the Bittrex account, and wait around three hours for this process to complete.
- Exchange the purchased bitcoin for this cryptocurrency in question, and wait around 10 to 20 minutes for confirmaton.
- Download another wallet designed to hold this particular digital coin.
- Transfer this digital currency to the wallet, and once again wait for confirmation.
This whole process would probably take four to six hours to complete, and it's far too confusing for the average American to grasp. As soon as folks get one look at the number of steps required to purchase any cryptocurrency not named bitcoin, Ethereum, or Litecoin, they're going to do an about-face and head right back to the trusted greenbacks in their wallet.
Until the cryptocurrency market and exchanges find a more uniform way of converting traditional dollars into nontraditional virtual currencies, I'm afraid they'll struggle to gain any tangible and sustainable momentum.