Bitcoin: There’s a Good Reason Why Amazon’s Head of Payments is Skeptical

Apr 29, 2014

Jeff Glenzer CTP, Vice President and Chief Operating Officer, AFP

It may be stating the obvious, but risk is inherent in all markets—it is one of the many hurdles we face in finance. In today’s wildly fluctuating economy, we must be constantly vigilant, ever prepared for change. Today’s hottest finance trend could be tomorrow’s doom.

The news and hype surrounding Bitcoin serve as an appropriate metaphor for our times—part cautionary tale, part crystal ball into a growing finance trend. With potentially powerful benefits, Bitcoin also demonstrates the importance of differentiating between a craze and simple common sense.

The Internal Revenue Service treats bitcoins as property, not as currency, which also has major implications—most important, they are not fungible, nor are they subject to capital gains tax.

While the bitcoin system certainly has its share of skeptics, there are plenty of cheerleaders as well. According to some recent research, “at current valuation, the bitcoin system surpasses the average market cap of $4.5 billion of the world’s three largest wire-transfer services: Western Union, MoneyGram, and Euronet.”

And no less a financial figure than Ben Bernanke recently said virtual currencies “may hold long-term promise, particularly if the innovations promote a faster, more secure, and more efficient payment system.” But are payments professionals ready to accept bitcoins?

Here are the main reasons why finance and payments professionals globally are not as enthusiastic about bitcoins:

  • Safe Haven for Illegal Transactions: Bitcoins can be traded anonymously, making trades difficult to track—meticulous and reliable records are imperative. U.S. Treasury Secretary Jack Lew recently expressed his concern about Bitcoin being used for illegal activity. The anonymous nature of bitcoins makes it extremely difficult for treasury and payment professionals to track illegal activities like money laundering and terrorist financing activities.

  • Volatility and Absence of Legal Oversight Hinders Acceptance: One of the biggest risks associated with accepting Bitcoin as a form of payment is its volatility and the absence of legal oversight; e.g. its dramatic tumble in December 2013 following the Chinese central bank warning that “Bitcoins don't have any legal status or monetary equivalent and shouldn't be used as currency, adding that financial institutions and payment systems could not sell, trade or store Bitcoins.” The high volatility coupled with a lack of any legal governance is the main reason why payment heads must tread carefully in accepting bitcoins as a form of currency.

  • Security a Big Concern: The safety and security of Bitcoin is suspect, at best. The world’s largest Bitcoin exchange, Mt. Gox, filed for bankruptcy after hackers apparently drained it of several million Bitcoins, casting serious doubt on whether the money can ever be recovered. The Mt. Gox incident proved that Bitcoin like any other payment form is susceptible to cyber-attacks, a critical issue that keeps finance and payments organizations awake at night.

  • Lack of Consumer Confidence: Amazon, the largest online retailer recently announced that that it has no immediate plans to accept bitcoins. According to Amazon’s head of payments, “Obviously it gets a lot of press and we have considered it, but we’re not hearing from customers that it’s right for them.” This general lack of consumer confidence is making payments professionals take a more cautious approach to bitcoins even though other major retailers, including the largest online furniture outlet,, accept bitcoins.

Pindar Wong, a Hong Kong-based consultant who has been working on Internet-based payment technologies, recently told Reuters: “Money, or what one perceives as money, is just a form of disintermediated trust. There's a whole scope of innovation here, and we're just touching the tip of a very big iceberg." Whether bitcoins could one day be completely worthless or become the most popular form of payment is a debate that I believe will continue. In the meantime, I hope heads of finance and payment organizations are treading more cautiously and taking a calculated risk with bitcoins.

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