[LINK] Bitcoin .. zero merchant fees?
stephen at melbpc.org.au
stephen at melbpc.org.au
Thu Oct 31 19:38:14 AEDT 2013
Bitcoin Pursues the Mainstream
By NICK WINGFIELD Published: October 30, 2013
<http://www.nytimes.com/2013/10/31/technology/bitcoin-pursues-the-
mainstream.html>
The currency known as bitcoin a much-hyped and much-doubted type of
digital cash that can be bought with traditional money has mostly
attracted attention for its popularity in the black market, and for its
wildly gyrating valuation.
But some entrepreneurs, investors and even merchants are eyeing a far more
mainstream use for it. They are convinced that bitcoin, though not widely
understood, offers a path to lower payment processing and more secure
transactions. Instead of using bitcoin to buy illegal guns in the recesses
of the web, they say, ordinary consumers will use it to buy legal goods
from legal retailers and as easily as they now swipe their credit cards
or exchange paper bills.
Im confident you will see major worldwide retailers adopting systems
built on bitcoin, said Jim Breyer, the Silicon Valley venture capitalist
and early Facebook investor who also served on the board of Walmart Stores
for more than a decade.
Mr. Breyer is an investor in Circle Internet Financial, one of the host of
start-ups trying to find a way to make bitcoin a widely adopted currency
for retail payments. The company was started by Jeremy Allaire, a serial
entrepreneur, and it aims to be a payment processing system for online and
physical merchants, similar to the service PayPal offers online. Along with
his venture firm, Accel Partners, and another called General Catalyst
Partners, Mr. Breyer has invested $9 million in the company.
One potential obstacle to mainstream acceptance of bitcoin is the sometimes
wild fluctuations in its value, which makes it alluring to currency
speculators but could scare off ordinary consumers. One bitcoin was worth
just over $200 Wednesday afternoon. Someone who bought a bitcoin in early
April paid as much as $266 for it.
Only a small and motley assortment of merchants now accept bitcoin as
payment, and in many cases they do it largely as a marketing strategy. The
list includes a winery in British Columbia, the popular online dating site
OkCupid and a Seattle lunch truck that specializes in grilled cheese
sandwiches. A start-up called Gyft lets people buy electronic gift cards
for major retailers with bitcoin.
This week an A.T.M. in Vancouver, Canada, began issuing bitcoin to people
in exchange for cash.
We pride ourselves on being the nerdiest online dating site, said Sam
Yagan, co-founder of OkCupid, which is owned by IAC/InterActiveCorp, a
media and Internet company. We were like, This is cool and we should do
it.
Since bitcoin emerged in 2009, many of those who flocked to the currency
celebrated it for being beyond the clutches of governments and other
institutions. Until recently, the currency lubricated transactions on Silk
Road, one of the Webs biggest bazaars for drugs, forged documents and
other contraband. The site was shut down in early October by federal
authorities.
New bitcoin is created on computers connected through a peer-to-peer
network. An algorithm controls the production of new bitcoin, which is
meant to mitigate the risk of inflation.
Already, though, businesses transferring and exchanging bitcoin find
themselves in regulators cross hairs.
In March, the Financial Crimes Enforcement Network, part of the Treasury
Department, issued guidelines telling businesses involved in the exchange
of digital currencies that they needed to register as money services
businesses and comply with a variety of rules to prevent money laundering.
New Yorks Department of Financial services began an inquiry in August to
determine guidelines for digital currency businesses, issuing nearly two
dozen subpoenas to start-ups, investors and others involved in the emerging
field.
Patrick M. Byrne, chief executive of the online retailer Overstock.com,
said his company was talking about accepting bitcoin, but it decided to
pause its plans until legal matters around the currency were clarified.
Fred Ehrsam, co-founder of Coinbase, a start-up that helps merchants accept
bitcoin and helps consumers obtain it by exchanging traditional currencies,
said he thought the demise of Silk Road gave entrepreneurs and investors
more confidence in bitcoin.
The bad guys basically lost, said Mr. Ehrsam, whose start-up has raised
over $6 million from Union Square Ventures and others. It took the single
most illegitimate player in the space and wiped them off the map.
Bitcoin advocates, and especially merchants, say one of the currencys most
enticing promises is that it could significantly lower payment processing
costs.
Retailers typically pay 2 to 3 percent of the value of a customer sale when
a credit card is used. Retailers have long complained about these fees and
have sought other options, but without much luck.
PayPal, the online payment system, typically charges merchants a fee
between 2.2 percent and 2.9 percent, as well as a per-transaction fee of 30
cents.
There have been a number of alternative currencies talked about over
time, said Chris Monteiro, a spokesman for MasterCard. The bottom line is
consumers want a payment solution that is safe, simple to use and
universally accepted.
Fees for a merchant accepting bitcoin payments often range from nothing to
less than 2 percent because of the open nature of the technology.
Coinbase, for example, said it did not charge its merchants for the first
$1 million in sales, imposing a 1 percent fee after that on the conversion
of bitcoin into local currency. Circle said it had not settled on pricing
for merchants, but that it would charge them a fee to use its system that
would be well below credit card transaction costs.
Mr. Allaire and others predict that merchants will encourage customers to
spend bitcoin by passing some of the savings on to them in the form of
lower prices or other rewards.
Bitcoin definitely addresses a need, said Simon Johnson, a professor at
the M.I.T. Sloan School of Management. The payments industry is ready to
be disrupted.
The fluctuating value of bitcoin has not stopped some investors. Tyler and
Cameron Winklevoss, the twin brothers who tangled with Mark Zuckerberg over
the founding of Facebook, have said they are big holders of bitcoin and
have filed a proposal with securities regulators that would let investors
trade bitcoin as if it were stocks.
Other challenges face Circle and other start-ups building new payment
systems. For example, it can take several business days to link someones
bank account to their bitcoin. Mr. Allaire of Circle said one of his goals
was to make that initial setup much faster.
Mr. Allaire also said his company, which is based in Boston, will protect
its customers bitcoin by creating offline reserves batches of the
digital currency on physical storage devices, like a hard drive, not
connected to the Internet. The offline bitcoin reserves will be protected
by armed guards, he said.
George Peabody, senior director at Glenbrook Partners, a consultancy in the
payments industry, said Circle was a sign of the maturation of
entrepreneurs entering the bitcoin market.
Mr. Allaire was an early web entrepreneur, founding a web application
development company, Allaire Corporation, that went public in 1999 and was
sold to Macromedia. An Internet video company he created, Brightcove, went
public last year. Mr. Allaire said he was convinced that bitcoin
represented another major technological development.
Its similar to me in import as the web browser, he said. Its as
exciting and significant as that.
--
Cheers,
Stephen
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