An IMRWorld report estimated that in 2010, global e-commerce sales grew to €591bn, an annual increase of close to 25%. IMRWorld estimates that growth will continue in the coming years, passing the trillion-euro mark in 2013, with sales doubling since 2009. The world leader in e-commerce is the USA, followed by the UK and Japan, but the report predicts that the biggest growth region in the next decade will be the Asia-Pacific region in China, Japan, India and Australia, with substantial growth in Latin America. UK e-shoppers had the highest spend in 2010 of over €1,300 per capita, followed by the Scandinavian countries.

The payment systems required to facilitate this growth in e-commerce have been provided by main stream financial providers such as the credit card companies and PayPal. However, small or micro payments are an issue, since there is a need to keep costs for individual transactions low, which is impractical (and unprofitable) when the transaction fee is just a few cents. PayPal defines a micropayment as a transaction of less than US$12, while Visa describes these as transactions under $20. Practical systems to allow transactions of less than US$1 have seen little success, but the growth of virtual currencies, such as Bitcoin, may provide a solution as transaction costs are extremely low and allow micropayments in a way that traditional payment processors cannot.

Bitcoin is a peer-to-peer digital currency created in 2009 based on a research paper by a computer programmer, Satoshi Nakamoto. This is a currency that exists purely online, developed to facilitate payments for technical support services. However, Bitcoins are growing rapidly in popularity in the broader community with approximately US$100m already in circulation, which can be exchanged for other currencies on money exchanges, such as the US Dollar, the Euro and pound sterling. Peer-to-peer means that no central authority issues new money or tracks transactions; instead these tasks are managed collectively by the network.


Bitcoin enables rapid payments and micropayments at a very low cost. To obtain bitcoins a user will have to visit Bitcoin online and download software that acts as a digital wallet to hold the currency. The user then bids for Bitcoins on a Bit Market, say $US15 for one Bitcoin, and waits for a seller prepared to deal at that price. The transfer takes place directly between the buyer’s and seller’s computers, with no intermediaries taking a commission. As of July 2011, there were just over 6.8 million bitcoins in existence. The total number of bitcoins is programmed to approach 21 million by 2040 – being released in annual batches to ensure that value is maintained and inflation avoided.

Bitcoin offers a distinct USP in satisfying a market for quick, cheap transfers as e-commerce continues to experience exponential growth. However, its long-term success will depend on the willingness of major online retailers to accept Bitcoins in payment. As yet there are few beyond the technical support world. Government authorities have also raised significant concerns about the potential for the laundering of cash by criminals, since the system is un-policed and to a great extent transactions are untraceable and the code itself exists only on users’ computers.

So will virtual currencies, such as Bitcoin, replace traditional payment systems such as credit cards or PayPal? Probably not in the short-run and probably not in their existing form. Bitcoin’s value recently underwent a near collapse, caused by fake bitcoins flooding the market; ironically caused by hackers into the Bitcoin’s currency changer. Earlier attempts at creating virtual cash systems have already been tried and mostly failed, including ‘beenz’, ‘flooz’ and ‘e-gold’. Unless consumers and merchants can be persuaded that adopting it will make them better off, Bitcoin is likely to go the way of other online currencies. However, where there is a market opportunity, there will be individuals or firms willing to offer a solution in another form, especially in niche markets. In the fast-moving technology market, this is likely to be sooner rather than later.

Further reading:

Internet currency BitCoin exchangeable for real world money

Bitcoins: What are they, and how do they work?

IB style written questions

1.   Define the terms:

  • Unique Selling Proposition
  • Niche products

2.   Explain the different views that Bitcoin may take of its social responsibility in an international context.

3.   Analyse the effect of e-commerce on the marketing mix of established retail organisations.

4.   To what extent does the internet allow small organisations such as Bitcoin to compete more effectively with larger organisations?