Merchant Adoption

Full Speed Ahead!

By Trace Mayer, J.D. / October 26th, 2015

Almost every Introduction to Computer Networking course once taught that the “Byzantine Generals’ Problem” was impossible to solve. In simplified terms, the “problem” is how multiple generals are able to arrive at consensus on when to attack when they are able to communicate only through messengers, with the possibility that some of the generals are malicious or the messengers are compromised. Then Satoshi Nakamoto released Bitcoin. Thus was born the innovative solution to a previously impossible computing problem, one that created the world’s first practical implementation of triple-entry bookkeeping.

Bitcoin users now range from individuals to large publicly traded companies

Assuming the same gross revenue percentages for Bitcoin transactions, a $3,000 per month merchant processor fee on $5 million or more of volume with 2 percent average credit card processing costs, handled via Bitcoin, would result in annual savings for Target of about $75 million, Walmart of about $150 million and Amazon of $60 million with no downside risks. When any business can now implement Bitcoin and save proportionately, why cede cost advantages and profitable market demographics to competitors without a fight?

Bitcoin users now range from individuals to large publicly traded companies. Here is why increasing numbers of people and businesses are adopting its advantages:

• Transactions are instantly verifiable and irreversibly settled within a day (usually an hour). • There can be no fraud by way of chargebacks. • Counter-party risk is nonexistent in contrast to a bank operating with fractional reserves, foreign currency settlement risk or credit card processing problems. • Identity protection is built in to keep users safe from identity thieves. • Fees are extremely low or non-existent.

A prominent example: On July 18, 2014 Michael Dell tweeted, “Received PowerEdge order @ dell.com for more than 85 #bitcoin (~$50K USD).” One can assume Dell did so in order to announce his ability to receive payment from anyone anywhere in the world, thus expanding his market from a mere 50-60 countries where credit cards or PayPal currently function. If Dell used a feeless Bitcoin processor, this would result in a savings of about $1,000 when compared to credit cards.

The merchant processor does its part by processing Bitcoin transactions, converting them into the fiat currency of choice, and making a direct deposit to a merchant’s bank account the same day.

Another advantage: Everyone has heard of the massive data breach of customers’ personal information at Target stores. With Bitcoin transactions there is no personal customer information. There is even a YouTube video of someone making a Zynga Bitcoin payment in two clicks. No more hassle using obsolete technology for which you have to input your name, address, zip code and all the other information an identity thief would need to go on a shopping spree under your name. Bitcoin has identity protection built in.

In December 2014, Microsoft began accepting Bitcoin so it is reasonable to suppose that eventually Target, Amazon, Walmart, etc. will all be forced to accept Bitcoin. Why? Because publicly traded Overstock along with major electronic retailers TigerDirect and Newegg began accepting Bitcoin in 2014. At Overstock, Bitcoin transactions accounted for 4.7 percent of gross revenues for the month, and the average order amount was about 30 percent higher than transactions using other payment methods. The most popular item ordered? Sheets!

Which leads us to the next major point. Target, Amazon et al. will want to know they are on solid legal ground when being innovative and accepting Bitcoin. Lawmakers and regulators around the world, from Germany to Singapore to the U.K. and U.S., have all started to weigh in. April 1, 2015 the Proceeds of Crime Act took effect in the Isle of Man which specifically legalizes Bitcoin use by financial institutions.

Companies need a Bitcoin strategy just as in the mid-1990s they needed an Internet strategy.

The highest profile cryptocurrency lawmaking event was the United States Senate hearings in November 2013, which included testimony from major Bitcoin service providers, venture capitalists, investors and law enforcement on how regulation of this nascent industry should move forward. Edward Lowery of the U.S. Secret Service said: “Digital currencies provide an efficient means for moving large sums of money globally for both legitimate and criminal purposes.”

It appears that lawmakers and regulators are cognizant of the tremendous benefits to be gained from digital currencies such as Bitcoin but are also aware that like any technology, it can be used for nefarious purposes. Jennifer Shasky Calvery, director of the Financial Crimes Enforcement Network at the United States Department of the Treasury, told the Senate: “The meetings are designed to hear feedback on the implications of recent regulator responsibilities imposed on this industry, and to receive industry’s input on where additional guidance would be helpful to facilitate compliance. … We are very encouraged by the progress we have made thus far. We are dedicated to continuing to build on these accomplishments by remaining focused on future trends in the virtual currency industry and how they may inform potential changes to our regulatory framework for the future.”

So: where does Bitcoin go in the remainder of 2015 and into 2016? Well, my cautious prediction is we will at least see more merchant acceptance. Companies need a Bitcoin strategy just as in the mid-1990s they needed an Internet strategy. Meanwhile, lawmakers and regulators seem to recognize the possibilities and, at least in word, appear willing to encourage this new flower to grow and bloom. Consequently, while the financial world at large continues to experience commotion, the Bitcoin industry appears to be in forward motion like never before!


By Trace Mayer, J.D.

The author hosts the podcast Bitcoin Knowledge (www.bitcoin.kn); is an early Bitcoin thought leader, entrepreneur, and investor with companies such as Armory, BitPay, Kraken, and Netagio; journalist, monetary scientist and ardent defender of the freedom of speech. He holds accounting and law degrees, and has studied Austrian economics.