Can Coinbase's new tech salvage bitcoin payments?

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Big companies like Stripe and Visa have written off the idea of bitcoin being used for payments, citing the cryptocurrency’s inconsistent fees and speed — but Coinbase may be uniquely positioned to succeed where others were forced to give up.

Coinbase, which brands itself as "the world’s most popular way to buy and sell bitcoin, ethereum, and litecoin," has something other bitcoin payments companies don't have: a large consumer base with vast amounts of unspent crypto coins. Its newly unveiled Coinbase Commerce tool lets global merchants tap into that market.

Though major companies like Microsoft, Expedia and accept cryptocurrencies, there has always been a chicken-and-egg problem of crypto payments — for consumers to spend bitcoin and other currencies, they must first obtain them, and that has never been a user-friendly process.

The recent bitcoin-buying craze seems to solve that, drawing countless new buyers into the system with the prospect of cashing out big. But all of those crypto coins are still trapped in exchanges run by Coinbase and its rivals. If cryptocurrency hoarders are looking for ways to tap into their wealth, Coinbase Commerce may be the very thing to finally connect merchants with bitcoin zealots.

Coinbase is working with Shopify to dramatically expand the range of goods available from large and small merchants. Coinbase suggests other companies could come aboard depending on the success of what Coinbase is calling a “soft launch.”

Unlike previous merchant products from Coinbase, the new approach isn’t hosted, so sellers maintain control of the digital currency they accept, Coinbase said in a Wednesday blog post. This distinction may prove crucial.

Enabling merchants to control the flows of cryptocurrencies they accept through a dashboard could limit exposure to other problems cited by Stripe when it announced that it would stop supporting bitcoin payments. Due to bitcoin's rising popularity and volatility, its transaction fees and processing times had ballooned, wiping out much of the perceived benefits of accepting an alternative currency.

Through this project, Coinbase can triangulate areas of demand for cryptocurrencies to purchase niche goods and fund cross-border commerce.

Services like Coinbase Commerce could also improve global merchants’ options to sell goods in different scenarios where cash or money transfers aren’t convenient, operating as a complementary payment approach, said Elizabeth Rossiello, founder and CEO of BitPesa, a Nairobi, Kenya-based startup that leverages blockchain for business-to-business payments around the world.

Rossiello, who moved to Africa from the U.S. 10 years ago and launched BitPesa in 2013, said the business case for bitcoin and other cryptocurrencies have been widely misunderstood so far by mainstream payment providers, and points to its growth in niche channels, such as emerging economies in Africa.

“African companies trading with global companies often struggle to find a common currency for transactions, and bitcoin is an ideal solution that we make possible,” she said, noting that most of BitPesa’s clients are African businesses and multinational companies paying suppliers.

An example is an African company purchasing auto parts from Japanese suppliers that lack a convenient, affordable counterparty to exchange currencies.

“For a small company in Africa, paying with bitcoin is a great way to exchange for Japanese yen, avoiding the need to go through a traditional foreign exchange window,” she said.

Operating in bitcoin also enables African companies to conduct transactions after hours, on weekends and holidays, irrespective of other countries’ business hours.

There is also strong demand from consumers living in emerging economies who use cryptocurrencies to make purchases that are very difficult with cash or credit card, Rossiello said.

“We use bitcoin to make certain Microsoft purchases, and I make all my hotel reservations and payments in bitcoin via Expedia, because many hotels don’t accept credit cards from African consumers,” Rossiello said.

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Bitcoin Payment processing Retailers Online payments U.S. Africa