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Poll
Question: How much BTC would you spend on something that's normally $100
90 BTC - 4 (13.8%)
95 BC - 5 (17.2%)
100 BTC - 6 (20.7%)
105 BTC - 6 (20.7%)
110 BTC - 5 (17.2%)
More - 1 (3.4%)
I don't have bitcoins - 1 (3.4%)
Bastard - 1 (3.4%)
Total Voters: 29

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Author Topic: Buying from a BitCoin Merchant  (Read 3809 times)
tomcollins
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April 14, 2011, 04:09:57 PM
 #1

Suppose you are buying something online.  A merchant accepts BitCoins.  They have something for sale that you want to buy for $100.  It's not embarrassing or illegal.

The merchant presents two options:

$100
or
X BTC

What's the most BTC you'd pay, assuming the mtgox trade rate is $1/BTC at the time of purchase?  Also, assume you have a decent reserve of Bitcoins and would not need to convert USD for BTC.  If you are from a different country than the US, assume your local currency instead and a similar exchange rate (it cost 100 SEK or GBP or EUR, mtgox is 1SEK/BTC, 1GBP/BTC, 1EUR/BTC)).
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Garrett Burgwardt
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April 14, 2011, 04:13:52 PM
 #2

95 because I'm avoiding fees for the seller and it is also a more convenient form of payment.
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April 14, 2011, 05:14:02 PM
 #3

95 because I'm avoiding fees for the seller and it is also a more convenient form of payment.
Don’t forget there’s no chargeback. Still, this rate would be inappropriate at the moment because of the volatile exchange rate, setting up Bitcoin and not being able to pay bills and employees with Bitcoin.

"Bitcoin had been transformed from an anarachistic challenge to the financial status quo, to the crypto spawn of Satan, fuelled by cut-throat greed and delusions of avarice." - MatTheCat
"these people don't seem to want to stop till Bitcoin is completely destroyed and left like an old cum rag in the corner of the room." - ShroomsKit
ffe
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April 14, 2011, 05:25:58 PM
 #4

Remember  95 -> $1.05 to the bitcoin
                105 -> $0.95 to the bitcoin

The way the survey is worded could be confusing.
tomcollins
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April 14, 2011, 05:39:01 PM
 #5

95 because I'm avoiding fees for the seller and it is also a more convenient form of payment.

Would you pay 100?  Or is it that you think 95 is the "fair" price?
AbeSkray
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April 15, 2011, 04:21:11 PM
 #6

I'd pay 95 BTC, too. Bitcoin is a new currency, so I think the onus is on the merchant to encourage buyers to use it over traditional currencies. This model is being used by Blue Canary Night Light who offer a 10% discount for buyers that pay BTC rather than USD.

At this stage, I think it's safe to assume that merchants accept bitcoins for at least one of the two following reasons:
  • Bitcoins are more convenient for merchants than other payment methods (credit cards, PayPal, etc)
  • They see long-term potential in the future of Bitcoins

Would you sacrifice some of your profit margin if it meant you didn't have to deal with credit card service fees and PayPal chargebacks? I would. I also think that 1 BTC will be worth more than 1 USD in the long-term, so I'd be willing to lose a little short-term profit now for long-term gain later.

Buyers won't catch on to new innovations unless sellers offer some sort of promotion or incentive for them to move out of their comfort zone.
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April 15, 2011, 04:49:28 PM
 #7

I'd pay 95 BTC, too. Bitcoin is a new currency, so I think the onus is on the merchant to encourage buyers to use it over traditional currencies. This model is being used by Blue Canary Night Light who offer a 10% discount for buyers that pay BTC rather than USD.

At this stage, I think it's safe to assume that merchants accept bitcoins for at least one of the two following reasons:
  • Bitcoins are more convenient for merchants than other payment methods (credit cards, PayPal, etc)
  • They see long-term potential in the future of Bitcoins

Would you sacrifice some of your profit margin if it meant you didn't have to deal with credit card service fees and PayPal chargebacks? I would. I also think that 1 BTC will be worth more than 1 USD in the long-term, so I'd be willing to lose a little short-term profit now for long-term gain later.

Buyers won't catch on to new innovations unless sellers offer some sort of promotion or incentive for them to move out of their comfort zone.

I don't think it's safe to assume it's cheaper at all.  They need to convert them back to USD.  This is currently expensive.  Until a merchant pays his bills in BTC, it needs to happen.  Or the costs need to go down for them to actualize any savings.

Seeing the long term potential?  What does that mean?

Would I sacrifice my profit margin to avoid fees?  No.  Fees are a cost of business.  If I can reduce costs, I'll be happy about it.  Cutting out one fee to end up making less money doesn't make any sense for a business.

If you are a merchant who believe that the price will be up, just buy BTC instead of selling stuff in them.  Unless you don't have any capital and want some (people selling services for BTC for example).

Again, I'm not asking about what's fair or what you expect.  I'm asking about what YOU are willing to pay.  If you believe the value is going up, so you don't want to spend unless you are getting a steep discount, I'm curious.  If you are willing to pay a bit more to have the ease of using it or to avoid converting to USD first, then that might be ok.

As of now, I don't see any reason for a merchant to want to accept BTC, other than being an evangelist or true believer in BTC.  I was hoping I was wrong.
Jered Kenna (TradeHill)
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April 15, 2011, 05:04:22 PM
 #8

I'm willing to pay more because I'd like it to grow. I'm also willing to sell at a discount.
I think the seller should offer a discount because of lack of chargeback / processing fees though.

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tomcollins
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April 15, 2011, 05:38:31 PM
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I'm willing to pay more because I'd like it to grow. I'm also willing to sell at a discount.
I think the seller should offer a discount because of lack of chargeback / processing fees though.

I know some restaurants that offer discounts if you pay in cash.  It would be similar to this (if it were cheaper).

Perhaps an opportunity exists to be a payment processor for merchants in bitcoin.  In my example, they charge 100 BTC or $100.  If you buy in BTC, you get directed to the payment processor and you pay them.  The processor then sends the merchant $100 (or credits their account, and pays at the end of the month).  The merchant gets the benefit of knowing the cash is coming without chargebacks.  They could even get away with maybe 97 or 98 BTC and make the same profit.  The processor may charge a monthly fee or some percentage of sales (but less than a credit card).  That way there is no risk for the merchant, and they could see easy benefits.

The question then becomes "is it profitable to be the processor"?  The processor could be a bitcoin advocate and would prefer to have bitcoins over cash.  He could get a small fee of the transactions and make profit.  Since he's trading BTC for USD in bulk, he should have a good trust network of people willing to buy and sell from him.  Or because he's doing it in bulk, the transaction costs are a lot smaller overall.

Perhaps down the road, when more merchants actually *want* bitcoins, the middlemen disappear.  But we are a ways from there.  I'm looking to bridge the gap.  Getting more merchants to *want* to accept bitcoins is the key to expanding the currency from a speculative one to becoming more valuable.
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April 20, 2011, 03:15:04 AM
 #10

Again, I'm not asking about what's fair or what you expect.  I'm asking about what YOU are willing to pay.
Fair enough! I'd be willing to pay no more than 100 BTC, but 6 times out of 10 I'd pay via USD over BTC if given the option. Why? Because my income is in USD. Every bitcoin I own was converted from USDm -- which is a non-trivial process at the moment.

If you are willing to pay a bit more to have the ease of using it or to avoid converting to USD first, then that might be ok.
I found this statement interesting. I didn't understand why anyone would elect to pay more than 100 BTC. Then I realized that this makes sense for bitcoin earners -- consumers who gain bitcoins as income (ie miners). Bitcoin earners may be willing to pay a premium for the privilege of using BTC because it saves them from converting to USD or other currencies.

If you believe the value is going up, so you don't want to spend unless you are getting a steep discount, I'm curious.
Not exactly. I'm looking for a discount (is 5% considered "steep"?) because I'm the flipside of a bitcoin earner; I'm a bitcoin buyer. If bitcoin earners are willing to pay more for convenience, then bitcoin buyers are willing to pay less for inconvenience. The earner can avoid exchanging currency by paying in BTC, but the buyer has already jumped through a few hoops to pay with BTC.

So as a merchant, you might ask yourself, "Are my target consumers predominantly bitcoin eaners (miners and other bitcoin merchants) or bitcoin buyers (everyone else)?"

I don't think it's safe to assume it's cheaper at all.  They need to convert them back to USD.  This is currently expensive.
Really? I agree that converting bitcoins to USD is non-trivial, but is it really expensive? CoinCard will buy BTC at market price for a transaction fee of 1.5% plus $1. One of the cool things about bitcoins is that there are very few barriers to entry. You don't have to be a Wall Street firm to set up an account on Mt Gox and convert bitcoins into USD at market price (0.65% transaction fee). There is a standing order on bitcoin-otc to buy MTGOX USD for 0.99 in return for Dwolla (1% fee). With a little effort, a merchant could convert BTC to USD at market price and pay 1.65% in conversion fees to get it into his bank account whilst building a good reputation on the web-of-trust.

I've also seen many users on this forum advocate the importance of setting up local bitcoin exchanges. A particularly motivated entrepreneur could elect to sell bitcoins face-to-face in his local community and convert BTC to USD at higher than market price. Bitcoin.local was set up for this very reason. Not only can a merchant convert bitcoins to USD cheaply (essentially a negative exchange fee), but he's also helping bitcoins get into the hands of more potential buyers.

Would I sacrifice my profit margin to avoid fees?  No.  Fees are a cost of business.  If I can reduce costs, I'll be happy about it.  Cutting out one fee to end up making less money doesn't make any sense for a business.
You're right! It doesn't make any sense to sacrifice profits to avoid fees. What I meant to say was, "Would you sacrifice a higher cost (credit card fees) to pay a lower cost (conversion fees)?" My assumption is that converting bitcoins to USD is cheaper than paying Mastercard and Visa. If that assumption is right, wouldn't it make sense for merchants to pass on some of their savings to their customers? If that assumption is wrong, then bitcoins are not a viable alternative for merchants to do business (this seems to be your forgone conclusion).

Seeing the long term potential?  What does that mean?
"Bastard" is a poll choice? What does that mean?  Tongue

What I failed to convey was that merchants who accept bitcoins believe that BTC are a viable alternative to other payment methods. At any given point, a certain amount of their capital is locked up in bitcoins. Like you said, some of their bitcoins will have to be converted quickly to pay expenses, but if they're making a profit they can afford not to convert everything into USD. Bitcoins are undervalued at 1 BTC per 1 USD exchange rate. As a merchant builds up profits in bitcoins they should be expected to gradually gain value in relation to traditional currencies like the dollar. This is long-term potential.

If you are a merchant who believe that the price will be up, just buy BTC instead of selling stuff in them.
Didn't you just say it's expensive to convert between USD and BTC? If bitcoins are a better way of doing business, then they will gain strength over USD over time. In that case, it's better to be a bitcoin earner rather than a bitcoin buyer.

As of now, I don't see any reason for a merchant to want to accept BTC, other than being an evangelist or true believer in BTC.  I was hoping I was wrong.
I hope you're wrong, too! Merchants who accept bitcoins right now are "true believers" in some sense, but I don't think any of them would take bitcoins if they weren't in some way better than other payment methods (by better I don't mean in the "screw the Fed" sense or the "open source is cool" sense, but in the "I can avoid some PayPal hassle" sense). Your fear seems to be that it's expensive to convert bitcoins into traditional currency. I think I've outlined some good counter-arguments to that. But I think what we really need is for some actual Bitcoin merchants to weigh in on this thread and explain why they chose to accept bitcoins and explain how that's worked out for them so far.
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