I haven't been guest blogging here at Julia's AuctionBytes since I've caught the Bitcoin bug. However there are times that eBay and Bitcoin intersect. In fact, my first Bitcoin article, "How PayPal Almost Liberated Cyprus," was for AuctionBytes and discussed PayPal's early ambitions which mirror those of Bitcoin.



To be clear, there is no "Bitcoin Company." Bitcoin is open source and decentralized. It uses a system of distributed trust and a public ledger called the block chain that allow bitcoin to be exchanged directly from person to person (i.e. P2P / Peer to Peer) without the need to trust a third party.



On New Year's Eve I wrote an article for Bitcoin Magazine, "eBay Files Patent Application for Programmable Money" (a.k.a the "Gift Token Patent") that led to quite a few sensational headlines and misunderstanding of a concept called a "colored coin."



Why the speculation? Because Bitcoin is a threat to PayPal. I posted on Reddit under the user name Bidofthis a link to eBay's annual report "eBay 10K:eBay mentions Coinbase and Bitpay in annual report as competition (among others)", and quoted from the filing: "...PayPal also faces competition and potential competition from:...services such as Coinbase and Bitpay that help merchants accept and manage virtual currencies such as Bitcoin..."



Matthew Miller, a reporter for Bloomberg Television who has also been smitten by Bitcoin, recently interviewed John Donahoe where he abruptly advised the eBay CEO that Bitcoin will make the PayPal model obsolete and asked what is eBay going to do about it? Donahoe let the proverbial cat out of the bag (or did he?...): "...PayPal is building a digital wallet that can take multiple types of currency..."



As it happens, eBay did file a patent application mentioning Bitcoin (20130173416) with the United States Patent and Trademark Office. The application was published on U.S. Independence Day 2013 by USPTO and reveals that eBay is a Bitcoin pioneer: eBay actually filed the application back on December 29th, 2011, three years after Bitcoin's "genesis block" was released on January 3rd, 2009.



I almost called eBay an early adopter, but that phrase should really be reserved for the likes of BitMit.



BitMit was the first successful Bitcoin marketplace (well, second if we count Silk Road) and actually launched its service the same month and year of the eBay patent filing. and actually launched its service the same month and year of the eBay patent filing. BitMit closed its doors last November due to a security threat (a reported modest Bitcoin heist and potentially compromised database) about a week after my investigatory piece for Bitcoin Magazine Issue 14 "Bitmit Bitcoin Auction is With Bits but Without a Face" (print exclusive).



In eBay's Patent Application (20130173416) called a "System And Method For Managing Transactions In A Digital Marketplace," we can find the following extract:



"...{We have created a system for} digital currency processing. In example embodiments, the transaction request indicating an amount in a first currency and a desired second currency is received by the currency module. A non-exhaustive and example list of currencies capable of being exchanged may include frequent flyer miles, loyalty and reward points (e.g., credit card reward points, hotel loyalty points, retail loyalty points), virtual currency, cash, Bitcoins, Facebook credits, eBay bucks, cash-equivalent currency (e.g., gift cards, travelers checks, cashier's checks), and any other form of currency…"



The eBay filing further details that:



"...The currency module is configured to manage exchange of digital currency. Accordingly, the currency module allows a user to trade one form of currency for another form of currency. In one embodiment, one of the forms of currency being traded is cash. The digital currency may be used to pay for real-world financial obligations (e.g., bills) as well as for virtual-world obligations…"



"...The payment system allows users to accumulate value (e.g., in a commercial currency, such as the U.S. dollar, or a proprietary currency, such as points, miles, or other forms of currency provide by a private entity) in their accounts, and then later to redeem the accumulated value for products (e.g., goods or services) ….elsewhere on the network."



Actually, this sounds eerily similar to my first article for AuctionBytes in 2002, "Reaching eBay Global Markets with the Help of PayPal Multiple Currencies" where I explained that in November 2002, PayPal announced that its users could send and receive multiple currencies. This enable sellers to "take advantage of disparities in seller fees across international sites in an arbitrage-like situation," I wrote, and speculated on currency fluctuations. Basically, the realization of the PayPal dream.



The technology behind eBay's 20130173416 patent application appears to work with the eBay platform as it mentions auction-format listing compatibility:



"...The publication system provides a number of publishing, listing, and price-setting mechanisms whereby a seller may list (or publish information concerning) goods or services for sale...{the} auction engines... support auction-format listing and price setting mechanisms (e.g., English, Dutch, Chinese, Double, Reverse auctions, etc.)."



PayPal has the ability to become a trusted Bitcoin wallet and people would be willing to pay good Bitcoin (err, money) for such a service. Basically just like you wouldn't keep your entire life savings in your everyday wallet, users of Bitcoin shouldn't keep their entire bitcoin savings online. An elegant trusted cold storage (i.e. offline) solution is needed and I hope that PayPal is chiseling away at this problem. One potential solution I recently discussed over at Let's Talk Bitcoin is Alcatel-Lucent's Vault to Wallet Transfer System.



What BitMit offered (and eBay will likely offer) is essentially "trusted" third party escrow services. The Bitcoin model offers a paradigm shift whereby trust is delegated to the Bitcoin protocol. Because Bitcoin is "programmable money" it will be (possible) https://www.bitrated.com to push escrow to the Bitcoin network. In fact even companies themselves can be outsourced to the protocol.



Bitcoin gets rid of the middleman, and I'm not sure that eBay is ready to fully embrace this concept.



In "Anatomy of an eBay Scam," I discussed how some sellers were trying to game the eBay system by pulling the old "switcheroo." With Bitcoin it is possible to prove or certify the existence of something in digital form (www.proofofexistence.com).



Where I see eBay headed in the future is the ability to prove that a physical item has been transferred and is genuine. We started to see the beginning of this with the Collector's Universe deal discussed in "eBay to Use Third Party Grading Service to Power Coin Catalog."



In this regards I will also speculate as I did in "eBay Flexes Muscle with Flexible Shipping Delivery" that eBay will attempt to acquire a major shipper such as FedEx... because aren't they just eBay's middle man? An old concept that is disintegrating.



About the Author

Brian Cohen has been an active member of the eBay community since May 1998, and he currently trades under the member name Bidofthis.com. His first AuctionBytes article was published in May 2002. Brian's reporting on Bitcoin in 2013 has been referenced in numerous publications including The Register, Tech Week Europe, TechCrunch and PC World. Brian can be contacted through his website at BidofThis.com where he always has a "little Bid of This and little Bid of That."

