Will the Daily Deals Industry Cash In on Virtual Currencies?

With the arrest of Bitcoin Foundation's Charlie Shrem, Amazon.com's announcement of Amazon Coin and the collapse of Mt. Gox, many e-commerce experts are debating the survival and future of Bitcoin. Meanwhile, a new breed of tech-savvy shoppers are already using Bitcoin to hunt for great deals. However, the daily deal industry has been hesitant to accept Bitcoin and other virtual currencies. Daily-deal websites were quick to adopt alternative payment methods like Authorize.net and PayPal, so what will it take before they cash in on virtual currencies?

Unlike PayPal or Authorize.net, which still deal in traditional government-backed currencies, Bitcoin is unhinged from central authority. The currency can be spent, sold and moved around almost anonymously online. It's not tied to any government or central bank and regulation, though its current iteration is compliant with U.S. anti-money laundering laws. Consequently, Bitcoin has been linked with criminalities such as tax evasion and the underground website Silk Road and its successor Silk Road 2.0, which is a known marketplace for illegal drugs and contraband. Bitcoin's somewhat nefarious reputation has certainly hurt adoption.

However, virtual currencies have shown legitimate uses as well. Recently, eBay U.K. opened up a virtual currency category for selling virtual currencies and using them to make purchases outside of eBay but within its online marketplace. Overstock.com, TigerDirect and Etsy all accept Bitcoin. Last year, hundreds of merchants and charities also offered discounts on consumer products for Bitcoin's first Black Friday Event. With approximately 12 million bitcoins in circulation, the virtual currency gives consumers the ability to diversify how they pay for goods and services.

Despite all the attention Bitcoin has garnered, it's not the only virtual currency option. For example, Amazon has created its own marketplace currency, Amazon Coin, with which customers will be able to purchase items at a one-coin-to-one-cent ratio. In other words, an app for $3.99 will cost 399 Amazon Coins. Amazon gave away millions of free Amazon Coins when it launched the currency last May. Following this model, virtual currencies could function more like credit card reward points than a volatile currency driven by market forces.

The widespread acceptance of digital payment methods like PayPal and Google Wallet along with the growth of virtual currencies in marketplaces like Amazon, eBay and Etsy demonstrates that nontraditional currencies and payment methods can serve as viable tender. However, can daily-deals sites that typically run on tight margins handle a volatile, fluctuating payment method? Now that established Bitcoin exchanges like Coinbase will convert Bitcoin to dollars the instant after a transaction, Bitcoin's volatility is more of a concern for consumers than merchants. Compared to credit cards, Bitcoin already offers lower transaction fees and comparable payment processing speeds without the risk of chargebacks.

What Bitcoin really lacks is maturity. The daily deal industry was very quick to adopt alternative payments methods in the past because there was competition and stabilization. That's why Authorize.net and Paypal were adopted so quickly. Potentially, virtual currencies have a bright future if several front runners distinguish themselves in the market and show understanding of regulation and retail customer needs. So far, Bitcoin is uncontested, inaccessible to non-techies and poorly understood. If the Mt. Gox debacle is any indication, there are also some kinks to work out and a lack of trust. To succeed in the e-commerce space, I'd argue that Bitcoin and other emerging currencies will need to forge strategic partnerships with companies that can provide transaction opportunities and incentivize consumers to use virtual currency. That or we need a virtual currency backed by Elon Musk.

The retail ecosystem as a whole is still working through the boom of e-commerce, so for now, most merchants will probably sideline the Bitcoin question. Currently, they're focused on converting mobile device users into mobile customers. Virtual currencies could become very appealing if they can make mobile transactions faster, cheaper and safer than competing alternatives. In the immediate future, retailers will probably ignore virtual currencies and focus on translating virtual sales into offline sales and vice versa. For legal businesses, the choice to accept Bitcoin now is more about buzz than practicality.

Any successful advancement in technology is riddled with initial problems. The future of virtual currency will depend on how well it can separate itself from criminal activity and build a technological advantage over card payments, digital wallets and other alternatives. Until then, we will watch how well it performs against traditional currency, how many retailers embrace it and how many consumers use it to pay for that must-have deal.

Deeon Brown is the brand and communications manager for DailySteals.com, an electronic consumer and lifestyle products daily-deal site.