Using Bitcoin in Commerce

Using Bitcoin

 

Understanding what bitcoin is and how it works and acquiring a little bitcoin for fun or curiosity is all well and
good . . . but when it comes down to it, we’re sure you want to find out a little more about using bitcoin as (virtual) cold, hard currency.

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This post discusses the best ways to use bitcoin as a tool when selling, to substitute it for fiat currencies, and to accept and receive payments online.

Selling Your Goods for Bitcoin

When it comes to selling goods for bitcoin, you have several options to choose from. First and foremost, you can convince friends and family to embrace bitcoin and sell them goods in exchange for BTC.

But that’s not what we’re looking at in this chapter, as we’re talking about commerce, not money from friends and family. This section goes over the various platforms in existence to facilitate the sale of (digital) goods in exchange for bitcoin: auction sites, using your own online store and benefitting from online forums.

Selling on auction sites

Selling goods for bitcoin is nearly as old as the digital currency itself. However, it took a while before designated platforms started coming to life in the bitcoin world. The most obvious place to sell any product in exchange for bitcoin is an auction house or auction website, something like eBay.

Very few auction websites accept bitcoin payments at the time of writing. However, as more and more developers are exploring the option of creating decentralized auction sites and marketplaces, that number is expected to increase over the next few years.

Over the years, various marketplaces have offered bitcoin payments as part of their service, though not all of them have been positive.

Popular marketplaces such as Silk Road and Silk Road 2.0 — both of which have been notorious for illegal goods and highly questionable services — showed the bitcoin world that things needed to change if mainstream adoption is ever to be achieved.

Nearly two years ago, the first auction site started experimenting with bitcoin payments. Unlike eBay, this auction website is not just about connecting buyers and sellers from all over the world.

To discourage illegal activity, auction sites come with reputation and feedback systems, something the bitcoin world desperately needed at that time.

Rather than using a centralized payment system such as PayPal, as eBay does, bitcoin auction sites use BTC as a payment method.

But here is the twist: Bitcoin payments are non‐reversible, forcing bitcoin auction sites to offer a different type of protection for both buyers and sellers.

Holding funds in escrow (meaning a third party receives the funds for a transaction and holds them until the buyer verifies the funds can be sent to the seller) is a great way to protect both the buyer and seller during a transaction.

During a purchase, the buyer sends the BTC funds to an escrow address. This ensures that the seller has a chance to receive the full amount, rather than trusting the buyer to have the necessary money to pay for an item.

Buyers are protected under escrow rules as well, as the escrow address holds the funds until the buyer confirms they have received the item(s) purchased from the auction site.

Once everything has been verified and is deemed to be as agreed upon, the buyer notifies the escrow service to release the funds to the seller. After a transaction has been completed — successfully or not — both parties can leave feedback for each other.

Creating your own online store

Another way to use bitcoin in commerce is to set up your own online store where you offer products and/or services — physical or digital — in exchange for bitcoin.

Creating an online store and accepting bitcoin payments isn’t hard to do, because the most commonly used platforms have bitcoin payment plugins ready to be used.

One easy way to get your feet wet is to create a WordPress website (check out www.wordpress.org). WordPress lends itself perfectly to various purposes, ranging from blogs to online shops and everything in between.

For online commerce, plugins such as WooCommerce, WP E‐Commerce, and GoUrl MarketPress let you start accepting bitcoin payments within minutes. A list of bitcoin payment plugins for WordPress can be found at https://wordpress.org/plugins/tags/accept‐bitcoin.

Besides WordPress, other popular bitcoin payments processors, including Bitpay and Coinbase (described later in this chapter) have e‐commerce solutions integrated into their services, which can be linked to popular online shopping cart solutions, such as XCart and ZenCart, among others.

You’ll need to decide whether you want to keep every transaction in BTC or not. There is a certain risk associated with keeping funds in bitcoin because the bitcoin price remains quite volatile on a daily basis. Keeping funds in BTC can mean your sitting funds can either increase or decrease in value.

And depending on what type of goods you’re selling, and whether or not there are suppliers to pay, it might be a good idea to convert BTC funds immediately to your local fiat currency.

Selling on BitcoinTalk forums

This may be the easiest way of all: selling goods in exchange for bitcoin by posting your item for sale on the BitcoinTalk forums.

This site has a dedicated section for buying and selling items, both in physical and digital form. However, there are certain drawbacks to using the forum rather than an auction site or building your own store.

Selling an item for BTC on the BitcoinTalk forums is based on trust ratings earned by completing previous trades with other users.

Assuming your account has 0 (zero) trust, at first it can be difficult to find customers willing to buy your product in exchange for a non‐reversible payment method in the form of bitcoin.

Solving that issue is not as hard as it may seem, though, because there are plenty of people willing to escrow the transaction (see the earlier section “Selling on auction sites” for more about escrow).

The same escrow rules as the ones for bitcoin auction sites would apply: Buyer sends funds to the escrow, seller ships the item, and once the buyer verifies the delivery, funds are released to the seller.

In theory, it sounds like both parties are protected, but there is a catch. Pretty similar to how eBay works, the intermediary escrow party has to make a decision based on evidence provided whenever there is a dispute. Imagine a scenario in which you ship the item, and the buyer claims to have only received an empty box.

The buyer has photographic material of the box when it arrived, unopened, and then posts a picture of the box empty without the item inside.

Unless you, as a seller, took pictures when shipping the item that everything was packaged inside the box, there is a case for a dispute. Having a tracking number associated with the shipment helps, in that delivery of the package can be tracked by the escrow.

However, the final decision lies with the escrow, and as we all know, humans are fallible.

Using an auction site or building your own online store may be the best way to sell items for bitcoin. However, using the BitcoinTalk forums creates a peer‐to‐peer aspect to the transaction, as there are (usually) no third parties involved, except an escrow perhaps.

In the end, the main goal is to satisfy the customer and receive your money in bitcoin. Pick whichever method seems best to you, and see it through till the end.

Check out the BitcoinTalk Goods section: https://bitcointalk.org/index.php?board=51.0.

Looking at Bitcoin Payment Solutions

As we’ve mentioned, in contrast to credit card transactions, which are subject to much higher fees than BTC transactions, bitcoin is a non‐refundable payment method. That means that once a sender sends funds from their wallet to a recipient, that transaction can’t be reversed, and funds are gone for good.

Of course, the recipient could send money back to the original sender if need be. But a bitcoin payment cannot be canceled or charged back, unlike credit card transactions. The reason is simple: Credit cards are issued by a central financial institution, which can be called upon to request a refund.

With bitcoin, there is no central authority backing the digital currency, and users are solely responsible for storing and sending BTC funds.

There is no reason why bitcoin transactions should ever be made subject to chargebacks either. Every bitcoin transaction is broadcasted on the blockchain, a public ledger collecting all BTC transfers from the past, present, and future.

The blockchain makes it clear for everyone in the world to see where funds from “address A” are being sent to and for what amount.

Which brings us to another aspect of bitcoin and chargebacks that are important to keep in mind. Whenever a customer sells bitcoin to a customer, whether directly or through an exchange, it is key never to use a reversible payment method.

For example, if you’re selling BTC to Jonas, and he wants to pay for it in PayPal, the deal should never go through.

The reason for that is simple: Traditional payment methods such as PayPal (www.paypal.com), Skrill (www.skrill.com), and credit card transactions are subject to fraud and chargebacks.

PayPal is an especially annoying platform to use when selling bitcoin, for multiple reasons. First of all, PayPal doesn’t offer seller protection when dealing with “digital goods.” Secondly, at the time of writing, Bitcoin is still viewed as a “digital good” by PayPal’s Terms of Service.

Should the buyer request a refund through PayPal, even after receiving the bitcoins, they will get their money back, no questions asked. The same principle applies to Skrill payments, even though all payments there are supposed to be “final.” Opening a dispute by the buyer will, most likely, lead to a refund by Skrill.

In either scenario, the seller has lost their bitcoins, because bitcoin is a non‐refundable payment method and it can’t be charged back.

Dealing with bitcoin is the end-user’s personal responsibility — something that should not be taken lightly. Being in full control of personal finance at any given time is both a powerful feeling and a big responsibility.

Bitcoin merchants, on the other hand, see the benefit of accepting a payment method that is not subject to chargebacks. Fraud through online payment methods is one of the biggest worries for online retailers all around the world. Bitcoin can solve that problem in its entirety.

Additionally, accepting bitcoin can open the door to a new and larger customer base all around the world.

Accepting bitcoin payments in either online or offline fashion has become incredibly easy and user‐friendly these days. A variety of services are at your disposal to integrate bitcoin payments buttons on your website, or even provide a way to generate bitcoin QR codes for in‐store payments. This section looks at a few of the different options.

BitPay

Perhaps one of the most famous bitcoin payment processing companies is BitPay (www.bitpay.com). The company was one of the very first to embrace bitcoin payment processing and is one of the leading bitcoin payment processors in existence today.

BitPay provides a lot of benefits for both consumers and merchants willing to work with bitcoin payments.

For the consumer, there are several options to send a bitcoin transaction through BitPay: You can either scan the generated QR code, copy the destination address manually or click the in‐browser link to pay directly from the bitcoin software installed on your computer.

Merchants, on the other hand, don’t have much to worry about in terms of setting up BitPay integration. For website owners, a few lines of code need to be added into preexisting shopping cart systems — and that’s about it.

Converting the prices from local fiat currency to bitcoin is taken care of by BitPay, creating a very smooth setup experience for merchants.

As an added benefit, BitPay — as well as all other payment processors mentioned in this chapter — offer merchants the option of converting every bitcoin transaction to fiat currency on‐the‐fly.

For most merchants, this is an important step, as their suppliers will need to be paid in fiat currency as well. Keeping in mind that bitcoin value can be quite volatile, it is a good business idea to convert the funds as soon as possible.

Unlike credit card transactions, which take up to a week to clear in the merchant’s bank account, bitcoin payment earnings are received the next business day. This is a great way for merchants to stay on top of costs and earnings as well as remove any unnecessary friction between themselves and their supplies due to outstanding payments.

BitPay provides this conversion system as part of its starter package, and everything already mentioned above comes free. Once again, bitcoin is a far cheaper payment solution compared to any and all other payment methods in existence today.

Plus, with no additional infrastructure to set up, no investments have to be made in order to integrate BitPay into the checkout system.

But there is more. BitPay allows merchants to accept bitcoin payments through mobile devices as well. Invoices can be generated through BitPay’s mobile application, which usually results in the generation of a QR code. These QR codes include the payment address as well as the total amount to be paid.

All a customer has to do is scan the QR code with their own bitcoin application, click or tap Send, and the transaction is complete. A frictionless experience for both merchants and customers alike, at no cost!

Should the need arise to upgrade the BitPay plan — for QuickBooks POS integration or VPN access, for example — there are two paid plans available as well. Both the Business and Enterprise plan offers additional functionality and features for existing BitPay customers.

In the early days, the free plan will be more than sufficient for most retailers though. For more information on BitPay price plans, see https://bitpay.com/pricing.

Coinbase

Coinbase is another popular bitcoin payment‐processing solution. Similar to BitPay (see the previous section), Coinbase offers most of the same functionalities for merchants who want to start exploring the world of bitcoin payments.

Plus, Coinbase is available both in the United States and internationally, following the same path BitPay has taken over the years.

Regarding the free structure, Coinbase does things a bit differently compared to its competitors. The first $1 million worth of bitcoin transactions comes at 0 percent fee, after which a 1 percent fee will apply.

Granted, for most merchants, it will take quite some time until they reach that sales figure, so there may be no reason not to choose Coinbase because of that 1 percent fee after the million‐dollar mark.

Converting bitcoin to fiat currency with Coinbase takes between one and three business days to complete, depending on the merchant’s location. Payments are initiated every day, however, which is still much faster than traditional payment methods such as credit cards and bank transfers.

What makes Coinbase interesting is the fact that its API offers merchants the chance to issue bitcoin refunds to the customer.

In their original state, bitcoin payments are non‐refundable, as already mentioned, though the recipient can manually send the money back. That same principle applies here, but in a business‐ esque setting. With a few clicks, merchants can refund customer transactions if they deem it necessary to do so.

More information on Coinbase for merchants can be found at
www.coinbase.com/merchants?locale=en.

Accepting Bitcoin Payments for Your Store

Accepting bitcoin payments as a merchant or retailer takes up very little time and comes at no additional costs in terms of infrastructure.

Unlike traditional payment methods, bitcoin payments are far more user‐friendly for both merchant and consumer and involve far lower transaction fees. Plus, there is no worry about having a large influx of cash payments, as bitcoin is not a physical payment option.

Online stores

Online retailers have an easy job of integrating bitcoin payments into their web stores. All it takes is a few lines of code, which are provided by the company that will process bitcoin transactions for you and which need to be added to a certain page.

Once that part is complete, you can start accepting bitcoin payments without a hitch and expand your customer base on a global scale.

Most bitcoin payment processors offer e‐commerce solutions for their customers and will even help in setting up bitcoin integration if needed.

Additionally, most of the popular e‐commerce solutions already support bitcoin integration. The reason for this
is simple: no additional costs to work with bitcoin while having every chance to attract customers from all over the world. What merchant would refuse that offer?

If an online retailer already owns a website and a domain, as most do, no additional infrastructure needs to be invested in. Bitcoin payments integrate with most major e‐commerce solutions, and there are customized solutions available as well through various bitcoin payment processors (see the previous section).

Speaking of working with bitcoin payment processors, the beautiful part about accepting bitcoin transactions is that most of them will not even charge a fee for converting payments to fiat currency.

Every bitcoin payment processor offers its customers the option to have (part of) every bitcoin transaction converted to fiat currency on‐the‐fly in order to avoid bitcoin price volatility. The converted funds are then deposited into the customer’s bank account within 48 hours (two business days).

Once you have integrated bitcoin payments into your existing e‐commerce solution, there is one major step left. Putting up the famous “Bitcoin Accepted Here” logo (see Figure below) on your web page will alert potential customers about the payment method.

Not only does this help increase bitcoin awareness on a global level, but it may also inspire others to start exploring the option of bitcoin payments as well.

using bitcoin - Using Bitcoin in Commerce

The bitcoin checkout process for online stores is very straightforward. All store prices — denominated in fiat currency — are converted to their respective bitcoin value during checkout by the bitcoin payment processor.

On the payment page, customers see a QR code they can scan with mobile devices and a bitcoin address to which they can manually send funds from their bitcoin software.

Once the transaction has been broadcasted to the bitcoin network, the checkout process is complete.

Brick‐and‐mortar stores

Similar to accepting bitcoin payments online, brick‐and‐mortar locations do not need to invest in additional hardware if they want to accept bitcoin payments. Using a computer, smartphone, or tablet is all that is required, plus an Internet connection.

Most locations have a combination of devices and Internet connectivity at their disposal, which means they can start accepting bitcoin payments within minutes.

Just sign up with the bitcoin payment processor of your choice, which usually provides customers with a mobile application or a web interface to start accepting bitcoin payments. Installing the mobile application or setting up this web interface takes a few minutes, after which the merchant is ready for incoming payments.

Just like online payments, in‐store bitcoin payment occurs through the generation of QR codes. Bitcoin payment processors allow merchants to generate a QR code with their designated BTC address and payment amount through the app or web interface.

Once the customer scans this QR code with their own bitcoin wallet — usually on a mobile device — the payment is completed within seconds.

As you may have guessed by now, accepting bitcoin through online or in‐store means is very simple once the merchant gets the hang of it. In the initial stages, in‐store payments require a bit of tapping on the screen before a QR code is generated.

This minor learning curve is only normal when new technology arrives, and nearly all bitcoin customers will gladly lend a helping hand if needed.

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