Ebay Is Embracing Bitcoin—Almost

Whenever eBay makes a move suggesting it's ready to embrace Bitcoin, ears perk up throughout cryptocurrency circles. That's because the e-commerce giant and its 124 million active users have the power to catapult Bitcoin into the mainstream—that is, if it ever stops flirting with the digital currency and decides to go all the way.

In its latest tease, eBay announced last week that it’s changing its UK policy to allow buying and selling Bitcoins on the site and it is going to add a "virtual currency" category to the classifieds section, starting February 10. “To promote a trustworthy marketplace and ensure compliance with applicable regulations, eBay is currently updating its Currency Policy," an eBay spokesperson said. “The updated policy will clarify that listings for Bitcoin and other, similar virtual currencies must be listed in the Virtual Currency Category in the Classified Ad format.”

Trading bitcoin on eBay is already allowed in the US, and is become an increasingly popular way to cash out the digital coins, turning the website into a bitcoin exchange by default. This could be a boon for the most famous cryptocurrency—by lowering the barrier to entry into the virtual currency game, it becomes more welcoming to people from outside the techie niche. It’s also a potential solution to one of Bitcoin's biggest challenges, which is that it’s still a pain to buy and sell it. Motherboard's Alec Liu recently explained:

Prominent exchanges are often located in countries with loose regulations. But being outside of the world's financial centers means transferring cash the old way. Cashing out of BTC-e, a popular exchange that trades Bitcoin and an assortment of altcoins including Litecoin, requires not only getting your money out of your account but also out of Bulgaria.

And since they’re poorly regulated, service can be unpredictable. Without needing to follow strict reserve requirements, Bitcoin exchanges are notoriously cash poor. It’s not uncommon to wait months to withdraw money from Mt. Gox due to a “large backlog,” which is one reason in particular why prices on Mt. Gox are generally 10 percent higher. Rather than cash out, impatient users are forced to buy Bitcoins so they can send them to another exchange to sell …

Even reputably managed exchanges struggle with reliability. As the price of Bitcoin soars, the exchanges have become a prime target of malicious hackers. A popular strategy is a well orchestrated DDoS attack, which can send prices tumbling.

Ebay, on the other hand, happens to own a fully regulated money transmitter: PayPal. Granted, “exchanging” Bitcoin on eBay via PayPal isn't without its own risks. Buyers can get fleeced by merchants that mark the price way up to take advantage of eBay’s more accessible and convenient platform. Sellers face the problem of chargebacks. PayPal allows refunds if the buyer claims they never received the product, but Bitcoin transactions can’t be reversed—once they’re sold, you can’t get them back.

That said, some savvy merchants are choosing the e-commerce site over Bitcoin-specific marketplaces to unload their digital gold. There’s an auction open right now for 12 Casascius coins, copper and gold physical coins funded with bitcoin, that’s already up to $9,000. The one-man mint behind the popular Casascius coins, Mike Caldwell, was shut down by the feds last month for operating without a money-transmitter license through the Financial Crimes Enforcement Network (FinCEN). The regulatory snag just drove the coins’ value up on eBay, though, where they're now marketed as a collector’s item.

But for all its potential as an alternative Bitcoin exchange, how eBay affects the futurist currency hangs on whether or not it accepts it as a form of payment, like its competitor, Overstock, which began accepting Bitcoin just a week ago.

Ebay jumping on the Bitcoin bandwagon would likely be a watershed moment for the cryptocurrency, and benefit the company, too, by allowing it to avoid transaction fees. The problem, though, is that embracing Bitcoin could mean the end of PayPal, which is a valuable property that eBay isn’t likely to risk until it's sure Bitcoin is the real deal.

So it's hedging. Back in September, eBay caused a stir in the Bitcoin community by briefly adding a “virtual currency” line one to the list of “Category changes: Coins and Paper Money” on the site, but then removing it just hours later. Around the same time, the company posted a YouTube video explainer about Bitcoin, raising suspicions it was gearing up to accept the new currency.

Despite persistent speculation, it hasn't. Yet. Ebay president John Donahoe has hinted on more than one occasion it might in the future, and made it clear both eBay and PayPal are Bitcoin believers.

For now, the jury's still out on whether eBay will take the leap and commit to the virtual currency. Earlier this month, a 2012 PayPal patent was unearthed, sparking rumors that it might be planning its own virtual currency to rival Bitcoin. The patent is for a "gift token," which is a way to make a digital payment without a PayPal account or credit card.

It looks like eBay might still be playing the field.