Programming Flaws, Volatility, And Sky-High Fees Bedevil Bitcoin Acceptance

While most payments executives have been fascinated by the spectacular year-long rise—and recent crash—in the value of Bitcoin, merchants that accept the cryptocurrency continue to struggle with a wide range of vexing issues.

Overstock.com, one of the first merchants to accept Bitcoin, this week had to fix a programming flaw that had the online retailer accepting Bitcoin Cash instead of Bitcoin for purchases, and then refunding canceled transactions in Bitcoin instead of Bitcoin Cash. The glitch was brought to light Tuesday in a blog post by KrebsOnSecurity.

This was a serious issue because Bitcoin Cash, which debuted last summer as an offshoot of the Bitcoin blockchain, is worth only approximately one-tenth of Bitcoin’s price. Bitcoin was trading just shy of $14,000 at mid-morning Wednesday, according to Coinmarketcap.com.

As he related in his blog post, the flaw allowed security researcher Brian Krebs to place an order that called for a certain fractional amount of Bitcoin and then pay for it with the same amount of Bitcoin Cash. He reaped an even bigger windfall, however, when he canceled the order and received his refund in Bitcoin.

Made aware of the issue, Overstock and its processor, Coinbase, have corrected a piece of code that was causing the problem, according to Krebs, who donated his proceeds after being told by Overstock to keep the windfall.

Also this week, Microsoft Corp. restored Bitcoin acceptance at its online store after shutting it down for a few days in response to issues surrounding the digital currency’s volatility and transaction costs.

Rising transaction volumes have congested Bitcoin’s blockchain, the decentralized ledger that tracks and records transactions, forcing users to pay higher fees to get their transactions processed. This is a particularly acute problem for low-value purchases, since the median transaction fee was $18 at mid-morning Wednesday, according to bitinfocharts.com. The Microsoft site, which sells various digital products from the software giant, doesn’t accept Bitcoin directly but allows users to fund their accounts with the digital currency.

Price volatility and slow transaction times are also a problem because they can require customers to make follow-up transactions to make up a deficiency caused by a drop in value. The follow-up transactions are subject to the same fees.

Unlike Microsoft, online-game seller Valve Corp. last month dropped Bitcoin acceptance permanently, citing the same issues.

Moves like this have prompted exchanges dealing in Bitcoin to lay plans to add alternatives. Some of these alternatives, though, may exhibit similar volatility. Ether, second only to Bitcoin in market capitalization, has seen its price jump nearly 12.5% in just the past 24 hours, to $1,348, according to Coinmarketcap. Over the same period, the value of the third-largest currency, Ripple, dove 17%, to $1.88. While not as severe as the case with Bitcoin, some of these prominent currencies are also experiencing rising transaction costs.