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cloud9
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June 29, 2011, 07:18:05 AM
 #1

Countering Payment Reversal Risk for Merchants:  How long before online downloadable digital content / services merchants will proclaim that they only take Bitcoin due to the reversability of other payment methods, and the irreversable nature of Bitcoin payments?

Countering Bitcoin price fluctuation Risk for Merchants:  The merchant of the downloadable content / service can also protect themselves against fluctuating bitcoin prices by exchanging the received bitcoins immediately (programmatically) after receival.  

Countering Bitcoin liquidity Risk for Merchants:  Pricing of goods/services can take cognisance of the depth of market liquidity on major exchanges.  If your product is worth $50 dollars for example - and 100 customers are expected to order it per hour - it gives you $5000 - if the depth at MtGox of bitcoins wanted is $5000 at an average price of US$16.45 for example - you can convert your US$ into bitcoin (programmatically) by this conversion rate.  So depending on your product price and product volume you can offer a bitcoin rate on the fly if your site is linked to Bitcoin exchange data.

Simple Merchant shopping cart bitcoin transfer button script (should just be able to replace paypal/credit card payment link in shopping cart software with bitcoin enabled transfer link):  https://en.bitcoin.it/wiki/BitWillet

Disclaimer:  Postings of Cloud9 are only individual views of opinion and/or musings and/or hypothesisses.  On a non-authoritative, peer-to-peer public forum, you do not need permission from Cloud9 to derive your own conclusions or opinions, so please do.  Calculations and assumptions to be verified.
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killer2021
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June 29, 2011, 07:51:45 AM
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Could happen.

More likely what will happen is that people who pay with bitcoin will pay a lower price. It'll be a two-tiered system.

Anonymous Cash-By-Mail Exchange: https://www.bitcoin2cash.com
1H6mqgB6UcqKt2SrCmhjxUp9np1Xrbkdj7
cloud9
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June 29, 2011, 08:04:00 AM
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Could happen.

More likely what will happen is that people who pay with bitcoin will pay a lower price. It'll be a two-tiered system.

Sales of Digital goods ( / services) are against Paypal policy - so strictly speaking, Paypal can not be used for digital goods internet commerce.  That leaves credit cards, charging merchants up ~5% to cover risks of fraud.  That gives bitcoin a competitive edge over credit cards of ~5%.  

It also gives the purchaser the option of transferring with bitcoins as payment in kind at a reduced price of ~5% ( equivalent to traditional discount for payment in cash, unfortunately difficult over the internet or a mobile phone ) or the consumer can opt to pay with a credit card at a premium of ~5%.  It would be needless to say which option would have the competitive edge attracting more customers.  The equivalent price in fiat currency can be displayed for both options (at current major bitcoin rates) to enable the customer to vote between options with his valued resources.

Who will win such a customer voting election:  Bitcoin digital goods transfers, or credit card store of value transfers?

Disclaimer:  Postings of Cloud9 are only individual views of opinion and/or musings and/or hypothesisses.  On a non-authoritative, peer-to-peer public forum, you do not need permission from Cloud9 to derive your own conclusions or opinions, so please do.  Calculations and assumptions to be verified.
mouse
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June 29, 2011, 08:32:18 AM
 #4

Remember though Bitcoin isn't free.

depending on the state of the users wallet, they may have to pay a btc fee to transfer to the merchant.
If the merchant is moving a lot of payments to the exchange each day they will probably also have to pay a BTC transfer fee.
The merchant will have to pay a fee to trade the btc on an exchange.
They will have to pay another fee to move their USD off the exchange into their account. If they aren't in the US, this fee will be quite big if it has to go through, say, LR.
The merchant will also need to either accept the risk of exchange fluctuation, or add an additional fee on the service to 'insure' against this.

Its not a very clean process right at this stage.

Any intelligent fool can make things bigger, more complex and more violent. It takes a touch of genius and a lot of courage to move in the opposite direction.
Tasty Champa
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June 29, 2011, 08:36:23 AM
 #5

deal with reputable businesses, or use escrow for businesses you know nothing about.
Pretty simple idea.
cloud9
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June 29, 2011, 09:28:08 AM
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Remember though Bitcoin isn't free.

It is with minimal cost, equivalent to opening a bank account or buying tickets at your country fair or buying corn to barter for cows, use Bitomat once for buying or selling your bitcoins in bulk with international wire tranfer (cost ~$20 more or less once off for any amount transferred?, small in comparison with monthly bank account / annual credit card maintenance costs).  Bitomat is a free Polish bitcoin market place, charging no commissions on bitcoin buy/sell transactions.  The Polish version is at https://bitomat.pl/ , english translation script for Bitomat at http://userscripts.org/scripts/show/105566

depending on the state of the users wallet, they may have to pay a btc fee to transfer to the merchant.

btc transfer fees are not a requirement to be included in the blockchain at this stage.  Miners get rewarded with 50btc / 10 min at present and this will exponentially be reduced over a period - after which very small transfer allocations per transfer will reimburse miners.  At the moment an average of 212,495.68 BTC / hour ( http://bitcoinwatch.com/ ) was sent through the bitcoin network.  This is 35,415.95 BTC / 10 min on average at the moment.  50 BTC / 10 min are rewarded on average to the aggregate of all miners as secure transfer handling reward with only optional user transfer penalty in place.  This constitutes 50 / 35,415.95 = 0.1412 % in transfer penalty that was paid for bitcoin transfers on average.

From here http://blockexplorer.com/block/00000000000008e5a1eb1b3c036f40dcd8fb480771220708b86249a30d9d0410 you can see that not a lot of users are opting to pay the user transfer penalty for example (because it is not required, it is optional, the miners gets rewarded with 50btc/10min on average at present without optional transfer penalties in place).  You can see from the above example that for 89 transactions a total of 0.018 btc fees were paid for a total of 2,496.42 btc transferred.  This is an additional 0.00072% cost of transfer in addition to the 0.1412% calculated above.  So the total transfer cost were 0.1419%, compared to credit cards' ~5%.  And please note that this 0.1419% is already accounted for in the bitcoin supply expansion (penalty to all bitcoin users) - the individual tranferrer does not get this penalty subtracted from his btc's.  The cost to all bitcoin holders would have been 0.1412% on aggregate for this block example, and 0.00072% for the individual transferrer on average in this block example.  The individual transferrer were totally in control by selecting the level of optional transfer penalty.

If the merchant is moving a lot of payments to the exchange each day hey will probably also have to pay a BTC transfer fee.
If he wants to - it's now optional at any amount of btc.

The merchant will have to pay a fee to trade the btc on an exchange.
Not if he trades at bitomat or other free bitcoin market places.

They will have to pay another fee to move their USD off the exchange into their account. If they aren't in the US, this fee will be quite big if it has to go through, say, LR.
There are international bitcoin market places allowing local or more costly international wire transfers to the cost of ~US$20.  

The merchant will also need to either accept the risk of exchange fluctuation, or add an additional fee on the service to 'insure' against this.
You however are not exposed to the bitcoin price if you have a credit in anything other than bitcoin where you bought/sold your bitcoin.

Its not a very clean process right at this stage.
Some might say that waiting 180 days for a credit card transaction to clear is not a very clean process.  Some might say that waiting 5 days for an international wire transfer is not a very clean process.  Most of bitcoin's transfer steps can be programmatically automated, even bitcoin buy/sell risk aversion - the interface where bitcoins themselves are bought/sold with/for credit card / bank transferred money however is not a clean process as are all other digital goods transactions involving credit card / bank transferred money.  So once you have bitcoin digital goods purchased - you are freed from the not so clean system of credit card / bank transferred money.

Disclaimer:  Postings of Cloud9 are only individual views of opinion and/or musings and/or hypothesisses.  On a non-authoritative, peer-to-peer public forum, you do not need permission from Cloud9 to derive your own conclusions or opinions, so please do.  Calculations and assumptions to be verified.
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June 29, 2011, 09:53:04 AM
 #7

btc transfer fees are not a requirement to be included in the blockchain at this stage.  


Maybe you should read through this thread to see what happens when someone tries to make a 'no transaction fee' client
http://forum.bitcoin.org/index.php?topic=22434.0

If a lot of transfers are going through, and or the amounts are small, they will be paying a lot more than they are now unless they wish to hold the payment in BTC for hours/days before cashing out. This basically rules out micropayment bitcoins, as well as instant cashing out, forcing an extra fee (passed onto thte customer) to insure against exchange movement, unless the exchange rate really anchors down (which I hope)

Any intelligent fool can make things bigger, more complex and more violent. It takes a touch of genius and a lot of courage to move in the opposite direction.
aral
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June 29, 2011, 09:59:02 AM
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Maybe you should read through this thread to see what happens when someone tries to make a 'no transaction fee' client


eh?  there is only a compulsory fee on transactions of under 0.01 BTC there to prevent DoS attacks

otherwise there is no such restriction!

how many times must this be repeated?

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June 29, 2011, 10:02:40 AM
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that's why i said it rules out micropayments

edit, let me ask, are you saying that transaction fees are not required if oyu want to cash out of BTC right after receiving a payment, and you wish to do this 100s of times a day?

I think you do.

Any intelligent fool can make things bigger, more complex and more violent. It takes a touch of genius and a lot of courage to move in the opposite direction.
aral
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June 29, 2011, 10:08:23 AM
 #10

that's why i said it rules out micropayments

well, not by the conventional definitions of micropayments (under $20)

some people take micropayments to mean payments of a couple of cents, say to read single news articles.  it's not useful for that.  the transaction cost is too high.  but for small payments it does beat visa!
cloud9
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June 29, 2011, 10:21:32 AM
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that's why i said it rules out micropayments

well, not by the conventional definitions of micropayments (under $20)

some people take micropayments to mean payments of a couple of cents, say to read single news articles.  it's not useful for that.  the transaction cost is too high.  but for small payments it does beat visa!

The bitcoin micropayment ( / nanopayment limit if you like that as a better term mouse) is 0.01btc - at current bitcoin prices that translates to US$0.169 - bitcoins transferred under this value at present will attract a compulsory transfer penalty.  It protects the bitcoin blockchain from transfer spam.

This limit however will be adjusted dynamically depending on future bitcoin prices and blockchain volume.

At a certain service provider holding your bitcoin in credit, you would be able to transfer any minute amount of bitcoin without any penalty if it is internally to the service provider, see mybitcoin.com for example where transfers of any minute amount is always free.

Disclaimer:  Postings of Cloud9 are only individual views of opinion and/or musings and/or hypothesisses.  On a non-authoritative, peer-to-peer public forum, you do not need permission from Cloud9 to derive your own conclusions or opinions, so please do.  Calculations and assumptions to be verified.
aral
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June 29, 2011, 10:39:48 AM
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edit, let me ask, are you saying that transaction fees are not required if oyu want to cash out of BTC right after receiving a payment, and you wish to do this 100s of times a day?

I think you do.

Ah, I see you're talking about external fees, on exchanges and so on?  Yes, of course these are variable.  Currently I pay 0% on britcoin, but it's a bit inconvenient.

As bitcoin matures these external fees would be another incentive for merchants to use bitcoins to purchase supplies.
cloud9
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June 29, 2011, 12:30:10 PM
 #13

that's why i said it rules out micropayments
At current bitcoin prices, the minimum value of bitcoin that can be transferred THROUGH THE BITCOIN CLIENT without attracting penalty transfer is 0.01BTC x 16.89US$ = 0.169US$.  I don't know what is the price of a printed newspaper in your parts of the world, but if I had to transfer 0.169US$ of bitcoins to a publishing provider and only the values of articles I read, get subtracted from the 0.169US$ worth of bitcoins in balance, I would be pleased.  Let's say I read two articles in today's edition, each subtracting 0.001btc (or maybe even less for some items) from my 0.01btc credit balance - I would still have 0.008btc left with the publishing provider without any transfer penalties incurred.  Tomorrow or in future I can use the remaining balance at this publishing provider without incurring any transfer penalties.

Also the same goes with any micro service/goods provider with an account on mybitcoin.com for example.  No transfer penalties for micro transfers between accounts of all mybitcoin.com users.



edit, let me ask, are you saying that transaction fees are not required if oyu want to cash out of BTC right after receiving a payment, and you wish to do this 100s of times a day?

I think you do.

That's right, if you transfer more than 0.01btc there is no compulsory fee through the bitcoin client, and if you sell/buy bitcoins through free market places like bitomat there are no commissions involved in selling/buying bitcoins.  If you keep your credit in your bitomat account there is also no fee, only a traditional bank transfer fee when you withdraw script/promissory note fiat currency, not when you transfer bitcoin digital goods (digital goods commodity used as currency) in / out.

Disclaimer:  Postings of Cloud9 are only individual views of opinion and/or musings and/or hypothesisses.  On a non-authoritative, peer-to-peer public forum, you do not need permission from Cloud9 to derive your own conclusions or opinions, so please do.  Calculations and assumptions to be verified.
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