[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.

“I’m 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 Web’s 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 York’s 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 currency’s 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 someone’s 
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.

“It’s similar to me in import as the web browser,” he said. “It’s as 
exciting and significant as that.”

--

Cheers,
Stephen



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