A Dollar Store Merchant and the The Miner's Fee - Fixed vs Percentage?

[mynameismonkey]

So I'm in the middle of setting up shop online, I have one store running and gearing up to begin marketing, two more on the way. I'm not doing it to become rich, for me it's an experiment. How hard or easy is it to be in business using only BTC? And what problems would I encounter on the path to setting up shop? I'm having a great deal of fun working through the process, and here's my thought for the night:

There are a lot of intangible goods on the market for 99 cents US. Give or take, let's talk about one dollar or one Euro spends. eBooks and MP3s are the two I'm focussing on, but it could be mobile apps or DLC or anything low cost. Lots of things are being sold, right now, for a dollar or less. Now, I'm drawn to BTC as a "fee-less" transaction, but in truth if I'm going to be in business I will probably need a payment gateway, and they are going to take fees from me. Fair enough. So I offer a direct method as well, it takes a little longer to get your files but it's completely free.

Except it isn't. For a Good Time (TM), please add a miner's fee.

At some point, 0.0005 BTC was an insignificant amount of money. Now? It's 7% of a 99 cent sale. Seven percent.

It turns a 99 cent buy into a $1.07 buy.

Let's say BTC gets to $250. 0.0005 BTC is now over 10% added on to the price.

Let's say BTC gets to $1,000. I think it will. 0.0005 is now 50 cents. On a dollar spend, the customer would have to kick in another 50 cents.

So, I'm interested to hear from folks on exactly how this is supposed to be sustained as a reasonable fee? There may be a part of the spec I'm missing, but to my mind, a fixed fee amount (as opposed to a percentage) is going to be unsustainable except for larger purchases. None of this is going to stop me from doing what I'm doing - I'm having too much fun - but if I were seriously in business to make money, I would be getting very scared about offering virtual goods for under 0.05 right about now.

has anyone else thought about this, or do I have some part of the math wrong? I'm curious to hear from the community as to the impact of this fee over the next two or three years on the price of intangibles, or, for that matter, cup cakes.

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[firefop]

A couple of things you may have overlooked.

This fee is only incurred when a transaction is over some length (someone toss out the numbers?). As I understand it the fee only occurs when you're combining multiple balances to make a larger payment into another address.

So if your customer is using multiple addresses to make up that 0.007 btc then he would be forced to pay this fee. Otherwise the fee is optional.

so I suppose in some situations the customer might be unable to send the btc to you without paying that fee... but I imagine that it would be rather rare because of the amount involved and most people are going to purchase $10 or $20 (or a couple hundred) worth of btc at a time... and miners are going to cash out of their pools in much larger amounts (imo) so likely won't be affected by this at all.

It could become a real problem at some point - but not within the next couple of years I suspect.

[mynameismonkey]

I am under the impression that all transactions less than 0.01 require the fee.

And to your point, the smaller transaction amounts are the very essence of the problem. Even though I want to continue to sell things for a dollar, that fee is only going to go up. Right now it's seven cents. by year's end it will probably be more like 10 or 15 cents. On a decent sized transaction it is negligible. but at $150/BTC and rising, it's real money down in the dollar store section.

[matthewh3]

On Blockchain.info/Wallet the fee has been dropped to BTC0.0001 if you choose the frugal setting for transaction fees at least.

[firefop]

I am under the impression that all transactions less than 0.01 require the fee.

And to your point, the smaller transaction amounts are the very essence of the problem. Even though I want to continue to sell things for a dollar, that fee is only going to go up. Right now it's seven cents. by year's end it will probably be more like 10 or 15 cents. On a decent sized transaction it is negligible. but at $150/BTC and rising, it's real money down in the dollar store section.

Yes. You're correct all outputs must be greater than 0.01 to and under 10k (or 1k?) to be zero fee.

So the best possible solution I see for you in this scenario is not doing a typical checkout where they fill a cart and then pay you. Instead I would suggest doing something along the lines of them funding their store account with "item packs" these item packs can be nicely sized in normal denominations ($5,$10,$20, etc). You can have the 'frugal' option be the lowest dollar amount that would get them up over 0.01 btc (right now 2 dollars).

So maybe a user is 'forced' to get a couple of extra items on your site (or save those credits for later). . . I doubt it will deter people from shopping there...

[matthewh3]

I am under the impression that all transactions less than 0.01 require the fee.

And to your point, the smaller transaction amounts are the very essence of the problem. Even though I want to continue to sell things for a dollar, that fee is only going to go up. Right now it's seven cents. by year's end it will probably be more like 10 or 15 cents. On a decent sized transaction it is negligible. but at $150/BTC and rising, it's real money down in the dollar store section.

Yes. You're correct all outputs must be greater than 0.01 to and under 10k (or 1k?) to be zero fee.

So the best possible solution I see for you in this scenario is not doing a typical checkout where they fill a cart and then pay you. Instead I would suggest doing something along the lines of them funding their store account with "item packs" these item packs can be nicely sized in normal denominations ($5,$10,$20, etc). You can have the 'frugal' option be the lowest dollar amount that would get them up over 0.01 btc (right now 2 dollars).

So maybe a user is 'forced' to get a couple of extra items on your site (or save those credits for later). . . I doubt it will deter people from shopping there...

Yeah have people load up a $10 into there account and then making $1 purchases seems a good idea.  Although the current transaction fee with Blockchain.info/Wallet on frugal setting for transactions is only $0.01.  Which is a lot better than PayPal or Visa.

[johnyj]

So I'm in the middle of setting up shop online, I have one store running and gearing up to begin marketing, two more on the way. I'm not doing it to become rich, for me it's an experiment. How hard or easy is it to be in business using only BTC? And what problems would I encounter on the path to setting up shop? I'm having a great deal of fun working through the process, and here's my thought for the night:

There are a lot of intangible goods on the market for 99 cents US. Give or take, let's talk about one dollar or one Euro spends. eBooks and MP3s are the two I'm focussing on, but it could be mobile apps or DLC or anything low cost. Lots of things are being sold, right now, for a dollar or less. Now, I'm drawn to BTC as a "fee-less" transaction, but in truth if I'm going to be in business I will probably need a payment gateway, and they are going to take fees from me. Fair enough. So I offer a direct method as well, it takes a little longer to get your files but it's completely free.

Except it isn't. For a Good Time (TM), please add a miner's fee.

At some point, 0.0005 BTC was an insignificant amount of money. Now? It's 7% of a 99 cent sale. Seven percent.

It turns a 99 cent buy into a $1.07 buy.

Let's say BTC gets to $250. 0.0005 BTC is now over 10% added on to the price.

Let's say BTC gets to $1,000. I think it will. 0.0005 is now 50 cents. On a dollar spend, the customer would have to kick in another 50 cents.

So, I'm interested to hear from folks on exactly how this is supposed to be sustained as a reasonable fee? There may be a part of the spec I'm missing, but to my mind, a fixed fee amount (as opposed to a percentage) is going to be unsustainable except for larger purchases. None of this is going to stop me from doing what I'm doing - I'm having too much fun - but if I were seriously in business to make money, I would be getting very scared about offering virtual goods for under 0.05 right about now.

has anyone else thought about this, or do I have some part of the math wrong? I'm curious to hear from the community as to the impact of this fee over the next two or three years on the price of intangibles, or, for that matter, cup cakes.

Yes, I think the fixed fee will benefit large transactions and discourage small transactions, but maybe this is by design to discourage spam transactions, you better post this topic in the "Development & Technical Discussion" board

[mynameismonkey]

Yeah have people load up a $10 into there account and then making $1 purchases seems a good idea.  Although the current transaction fee with Blockchain.info/Wallet on frugal setting for transactions is only $0.01.  Which is a lot better than PayPal or Visa.

The difference being that as a merchant, _I_ pay the processing fee. With Bitcoin, the customer pays a fee in addition to me (I pay BitPay as well). I'm curious to see how this goes, I'm trying to experiment being a BTC-only merchant, and it's quite a difference to offer something for sale and then expect the customer to pay a transaction processing fee. Normally this would be rolled into the price, but I cannot pay this on their behalf.

[firefop]

Yeah have people load up a $10 into there account and then making $1 purchases seems a good idea.  Although the current transaction fee with Blockchain.info/Wallet on frugal setting for transactions is only $0.01.  Which is a lot better than PayPal or Visa.

The difference being that as a merchant, _I_ pay the processing fee. With Bitcoin, the customer pays a fee in addition to me (I pay BitPay as well). I'm curious to see how this goes, I'm trying to experiment being a BTC-only merchant, and it's quite a difference to offer something for sale and then expect the customer to pay a transaction processing fee. Normally this would be rolled into the price, but I cannot pay this on their behalf.

Interesting point, I hadn't considered this.

I would propose that in this scenario the fault is more with you using bitpay than anything else. Sounds like their service doesn't exactly fit your needs. Given the current state of services (bitpay, mtgox) - I think the most forward thinking thing here would be designing your own payment processing software to accept bitcoin as you would then have control over how it works and what features you need / want. Assuming that you could find a decent programmer to design this for you...

...the upside is, if you could manage to develop this, I bet you could resell on some basis to other people wanting to accept micro payments and thus fill a void in the market relative to what bitpay is providing (aka a vpos system where traditional merchants, rather than micro tx merchants can simply sign up and accept bitcoin). Maybe you will become the defacto 'pay with bitcoin' for micro transactions and customers could fund their accounts with you in large amount while you dole out micro payments through more traditional means to other merchants.

~

The other option would be simply using the pre-paid in higher dollar amounts, cutting bitpay out of it entirely and using your wallet software to manually cash out your bitcoins regularly. Not as attractive as it does expose you to some market risks re:exchange rate, but probably only needs minimal software design. Just a couple of scripts: 1 to generate a unique payment address for users to send btc to which is then pushed to your wallet, and another to verify that the address has been funded with correct number of btc.

Then your only issue is holding bitcoins for some period of time before selling them on an exchange somewhere.

If all that is too much trouble to setup/manage then you're back to a turnkey solution like bitpay.

Personally, I'd start with the web side accepting 5 and 10 dollar loads (or however much) and announce that you're working on an easier/better alternative... then go ahead and develop the backend software you need to do it right for your business model. Then work work work to make yourself into 'the micro payment enabling service'

~ (edited to add the following section)

The other option is to see if there's anything the dev's are willing to do relative to enabling micro-payments. This may coincide nicely with some other things that imo need to happen soon for bitcoin. The first is we need to drastically increase the amount of transactions the network is able to process per second in order to remain stable if mainstream adoption does ever occur. Having the tx rate the bankwire system is all well and good (and this is where we are now) but bitcoin is becoming more than that. Ideally I'd like to see us able to process thousands of transactions per second (visa for example does ~2000 per sec) so that growth doesn't make bitcoin unattractive.

It seems to me that one possible solution would be quite simple on the dev side of things. Just change the tx fee option to require only the data size be under a certian limit (we have this already) and that one rather than all of the output addresses receive more than 0.01 - this would allow small micro payments as long as the original address help more then whatever micro tx was being sent + 0.01btc, with the larger amount going to change address.

[mynameismonkey]

Really well thought out post, thanks!

I have had the same ideas, but my experiment - such as it is - is confined to operating with Bitcoin in place of local currency. I'm testing the ability to do something as simple as set up a shop selling intangible goods using the same software, same packages, same open source whatever as I normally would. I wanted to examine what happens when I do something I've done 100 times before, but now with Bitcoin. _Only_ Bitcoin. Micropayments of under a dollar/euro/pound already exist, as do bulk prepurchases to stock up a local wallet. I'm not interested in that. The minute Paypal accepts BTC then everyone can simply stock up their Paypal account and go shopping in BTC. I want to see how real BTC transactions work in a real world day to day environment.

(An aside: there seems to be lots of talk recently of BTC being a base for a secondary day-to-day currency to allow transactions to occur off the blockchain and get settled only in secondary bulk transactions between exchanges. This to me completely misses the point of BTC.)

Right now I have two checkout methods, one is BitPay, one is a direct payment option. Honestly, I don't think BitPay is the right way to go but it's part of the experiment. It's the Bitcoin Paypal, I need to test it with customers. The main difference is not the BitPay issue, it's the transaction fee. As a vendor, i would normally total up all the costs of doing business, get a base price, mark it up, derive a profit and repeat. In the BTC universe, there is one cost I cannot take ownership of. As soon as you agree to pay me, you also agree to pay the miners.

That leaves me with either discounting my price and publicising the markdown (in other words 95 cents instead of 99 cents, or pretending it isn't happening and let the customer decide to pay the fee or not, potentially slowing down their access to their downloadables. It's not so much a problem as it is an observation, coupled with the reminder that Bitcoin is not fee-less. Less fees than many other forms of payment, but not without fees.

In other news, I now need to write a SQL query and jam it into cron to sweep through a BTC price database and correct each price by *.66 - I decided I would only change pricing if value moved under 100 or over 200 USD. Luckily I am nowhere near started getting all products in and priced, but this will be an issue going forward. Yes, I know I could price in USD/Euro/GBP and have the BTC conversion at checkout, but that would also fail my experiment.

[firefop]

That leaves me with either discounting my price and publicising the markdown (in other words 95 cents instead of 99 cents, or pretending it isn't happening and let the customer decide to pay the fee or not, potentially slowing down their access to their downloadables. It's not so much a problem as it is an observation, coupled with the reminder that Bitcoin is not fee-less. Less fees than many other forms of payment, but not without fees.

In other news, I now need to write a SQL query and jam it into cron to sweep through a BTC price database and correct each price by *.66 - I decided I would only change pricing if value moved under 100 or over 200 USD. Luckily I am nowhere near started getting all products in and priced, but this will be an issue going forward. Yes, I know I could price in USD/Euro/GBP and have the BTC conversion at checkout, but that would also fail my experiment.

I have a few thoughts re:pricing.

What you've written above implies that you have different prices for each product / type of product. If incorrect please let me know.

In that scenario it really is in your best interests to have the price float relative to USD rate --- I'd hate to see you 'lose your shirt' during a market price crash.

That being said, you might attack the entire bitcoin fee issue as an upselling point. "If you're purchase at checkout is greater than X dollars you probably won't have to pay a bitcoin transaction fee!"

But I think the entire discussion might be moot... I assume you know that it will take some period of time to actually see any incoming tx on the block chain. (as long as 10 mins, and it would be really smart to wait longer for additional confirmations). I just don't see it working very well in an 'instant purchase' type of scenario... and that leads me directly back to keeping an account for the cx with a fiat amount and letting them fund it in whatever amounts they want to.

[mynameismonkey]

I have a few thoughts re:pricing.

What you've written above implies that you have different prices for each product / type of product. If incorrect please let me know.

No, this is correct. (http://bitbooks.co is the example right now)

In that scenario it really is in your best interests to have the price float relative to USD rate --- I'd hate to see you 'lose your shirt' during a market price crash.

Yeh, I know it's in my best interests Luckily I don't have those interests at heart. I guess my point here is to run this experiment from a purely vendor point of view and pass on the little bumps I come across to the community. My first thought was to store the prices in USD and have a currency converter onsite to update as needed. but that felt like cheating. If I'm to simulate running a BTC business, i need to put my money where my mouth is and price in BTC. If I actually wanted to turn a profit here, i would be doing things very differently.

That being said, you might attack the entire bitcoin fee issue as an upselling point. "If you're purchase at checkout is greater than X dollars you probably won't have to pay a bitcoin transaction fee!"

I like it! "Only four more eBooks until your transaction is free!" Still, this presupposes that BTC buyers know there's a transaction coming. Many don't, especially first time buyers.

But I think the entire discussion might be moot... I assume you know that it will take some period of time to actually see any incoming tx on the block chain. (as long as 10 mins, and it would be really smart to wait longer for additional confirmations). I just don't see it working very well in an 'instant purchase' type of scenario... and that leads me directly back to keeping an account for the cx with a fiat amount and letting them fund it in whatever amounts they want to.

Well, I've already come to the conclusion that for small purchases I'm simply giving it up instantly, and knowing I might lose some transactions. I've run several tests and amazingly had a few actual customers, and so far it's worked pretty flawlessly. BitPay has much more of an instant feel. One customer who used the direct method said they waited 20 minutes or so, but hey also said they were fine with that.

[halfawake]

I would propose that in this scenario the fault is more with you using bitpay than anything else. Sounds like their service doesn't exactly fit your needs. Given the current state of services (bitpay, mtgox) - I think the most forward thinking thing here would be designing your own payment processing software to accept bitcoin as you would then have control over how it works and what features you need / want. Assuming that you could find a decent programmer to design this for you...

...the upside is, if you could manage to develop this, I bet you could resell on some basis to other people wanting to accept micro payments and thus fill a void in the market relative to what bitpay is providing (aka a vpos system where traditional merchants, rather than micro tx merchants can simply sign up and accept bitcoin). Maybe you will become the defacto 'pay with bitcoin' for micro transactions and customers could fund their accounts with you in large amount while you dole out micro payments through more traditional means to other merchants.

I don't normally resurrect old threads like this, but I wanted to comment on an easier alternative to firefop's suggestion to roll your own solution as an alternate method than bitpay: Coinbase.  In addition to their buying and selling bitcoin options where they act like an exchange, Coinbase also offers merchant tools.  My experience with them is only with buying (sadly not as many as I should have back when bitcoins were cheaper, but oh well, live and learn), but their UI is super clean and I personally have no complaints with them.

The reason I mention Coinbase is that the one time I sent bitcoins with Coinbase, I didn't have to pay the miner's fee.  Coinbase paid it.  And I'm sure it's a lot worse than 7% for a $1 transaction now since the price of a bitcoin has gone up significantly since you originally posted this thread.  So if you're still hurting because of this, I recommend switching to Coinbase, as it would effectively eliminate this problem entirely.  Bitcoin to bitcoin transfers are all free in Coinbase, the only time they charge you is when you take money out of Coinbase and transfer it into fiat currency, US Dollars for me.  (And they waive even that amount for the first $1 million on transactions, which ought to last a while.)

If you do decide to do this, I'd appreciate a signup through my referral URL, though no worries if you decide not do this.

[mynameismonkey]

I would propose that in this scenario the fault is more with you using bitpay than anything else. Sounds like their service doesn't exactly fit your needs. Given the current state of services (bitpay, mtgox) - I think the most forward thinking thing here would be designing your own payment processing software to accept bitcoin as you would then have control over how it works and what features you need / want. Assuming that you could find a decent programmer to design this for you...

...the upside is, if you could manage to develop this, I bet you could resell on some basis to other people wanting to accept micro payments and thus fill a void in the market relative to what bitpay is providing (aka a vpos system where traditional merchants, rather than micro tx merchants can simply sign up and accept bitcoin). Maybe you will become the defacto 'pay with bitcoin' for micro transactions and customers could fund their accounts with you in large amount while you dole out micro payments through more traditional means to other merchants.

I don't normally resurrect old threads like this, but I wanted to comment on an easier alternative to firefop's suggestion to roll your own solution as an alternate method than bitpay: Coinbase.  In addition to their buying and selling bitcoin options where they act like an exchange, Coinbase also offers merchant tools.  My experience with them is only with buying (sadly not as many as I should have back when bitcoins were cheaper, but oh well, live and learn), but their UI is super clean and I personally have no complaints with them.

The reason I mention Coinbase is that the one time I sent bitcoins with Coinbase, I didn't have to pay the miner's fee.  Coinbase paid it.  And I'm sure it's a lot worse than 7% for a $1 transaction now since the price of a bitcoin has gone up significantly since you originally posted this thread.  So if you're still hurting because of this, I recommend switching to Coinbase, as it would effectively eliminate this problem entirely.  Bitcoin to bitcoin transfers are all free in Coinbase, the only time they charge you is when you take money out of Coinbase and transfer it into fiat currency, US Dollars for me.  (And they waive even that amount for the first $1 million on transactions, which ought to last a while.)

If you do decide to do this, I'd appreciate a signup through my referral URL, though no worries if you decide not do this.

I already have a coinbase account, but I clicked the referral link for good measure. I had not kept up to date on this microtransaction option, so thank you for resurrecting the thread with useful information. However, I'm reading through and as far as I can figure the customer would have to be a Coinbase user to get the fee-free transaction. Makes sense of course, but I need to walk through the check out process and see what happens for a non-coinbase user.

For now I'm going to add Coinbase as a third option, and I'll run it through and see how it feels.

[ryanmnercer]

Bitcoin only, depending on the product(s) probably difficult...  I'll give you a real world example

I've been operating a company about 8 months, www.gencopeptide.com , I started accepting bitcoin March 7th 2014. I've had 2 orders pay via bitcoin in that time out of about 70. Those were both driven via /bitcoin/ . I'd love more to come in but for now it's just not happening. I did however make & order up some of these http://www.ryanmercer.com/blog/2014/3/15/an-idea-for-business-owners-introducing-bitcoin-to-customers.html to start including  in all shipments to inform customers about Bitcoin and potentially for those that order via bitcoin to distrubte to friends that might be interested in bitcoin.

[halfawake]

I already have a coinbase account, but I clicked the referral link for good measure. I had not kept up to date on this microtransaction option, so thank you for resurrecting the thread with useful information. However, I'm reading through and as far as I can figure the customer would have to be a Coinbase user to get the fee-free transaction. Makes sense of course, but I need to walk through the check out process and see what happens for a non-coinbase user.

For now I'm going to add Coinbase as a third option, and I'll run it through and see how it feels.

Thanks for the referral.  You may be right about the customer having to be a Coinbase user to get the fee-free transaction, it would make sense.  There are, however, about a little over a million users, if you're willing to believe what they say on their website.  They don't, obviously, say how many of them are people like me who have only bought bitcoins once and never really touched it since then.  I wished I had bought some more back in August, but oh well.

[ShakyhandsBTCer]

So I'm in the middle of setting up shop online, I have one store running and gearing up to begin marketing, two more on the way. I'm not doing it to become rich, for me it's an experiment. How hard or easy is it to be in business using only BTC? And what problems would I encounter on the path to setting up shop? I'm having a great deal of fun working through the process, and here's my thought for the night:

There are a lot of intangible goods on the market for 99 cents US. Give or take, let's talk about one dollar or one Euro spends. eBooks and MP3s are the two I'm focussing on, but it could be mobile apps or DLC or anything low cost. Lots of things are being sold, right now, for a dollar or less. Now, I'm drawn to BTC as a "fee-less" transaction, but in truth if I'm going to be in business I will probably need a payment gateway, and they are going to take fees from me. Fair enough. So I offer a direct method as well, it takes a little longer to get your files but it's completely free.

Except it isn't. For a Good Time (TM), please add a miner's fee.

At some point, 0.0005 BTC was an insignificant amount of money. Now? It's 7% of a 99 cent sale. Seven percent.

It turns a 99 cent buy into a $1.07 buy.

Let's say BTC gets to $250. 0.0005 BTC is now over 10% added on to the price.

Let's say BTC gets to $1,000. I think it will. 0.0005 is now 50 cents. On a dollar spend, the customer would have to kick in another 50 cents.

So, I'm interested to hear from folks on exactly how this is supposed to be sustained as a reasonable fee? There may be a part of the spec I'm missing, but to my mind, a fixed fee amount (as opposed to a percentage) is going to be unsustainable except for larger purchases. None of this is going to stop me from doing what I'm doing - I'm having too much fun - but if I were seriously in business to make money, I would be getting very scared about offering virtual goods for under 0.05 right about now.

has anyone else thought about this, or do I have some part of the math wrong? I'm curious to hear from the community as to the impact of this fee over the next two or three years on the price of intangibles, or, for that matter, cup cakes.

What you could do is allow buyers to pay you $5 or $10 at a time and then give them as much credit, people could buy 5 songs at a time buy only have to pay one TX fee.

Another solution would be to use coinbase and encourage people to work with them. I know that many people are against coinbase as they somewhat centralize bitcoin but you can send money without miners fee (they pay the miners fees) to you.