Pros and Cons of accepting Bitcoin payments in your online store

Bitcoin is the most popular and the first-ever introduced decentralized digital currency. It was created in 2009 as an open source software by an unknown person using the pseudonym Satoshi Nakamoto.

Bitcoin is a peer-to-peer version of electronic cash that allows online payments to be sent directly from one party to another without the need for intermediaries (such as financial institutions).

Although there are plenty of other cryptocurrencies in use today, Bitcoin is by far the most widely adopted. It is used as a replacement of traditional state-minted currencies (so called fiat currencies).

Bitcoin has an infamous history for being the  prefered payment preference of people offering illegal services (in particular within the very first period of adoption).   However recent studies find less than 1% Bitcoin transactions are involved in illegal acivities. [1] It’s still a legitimate way to take payments for your goods.
If you're considering Bitcoin payments for your customers, here are some hints along with pros and cons of this approach.

Choosing a method of receiving payments
There are two methods of accepting Bitcoin payments:
1. Directly in Bitcoin cryptocurrency (BTC).
2. In Bitcoin which is converted on the fly into traditional (fiat) currency.
The first method is the one according to which Bitcoin was designed. Although it’s almost impossible to be used in traditional retail business due to high Bitcoin price volatility.

Price changes of 10% or more in a single day are not unusual. This is something unacceptable for the store owners who need to define stable prices for their products.

The solution to this problem is the second method. It involves additional intermediary – the payment procesor provider.
The payment procesor:
•    provides easy-to-integrate tools for accepting Bitcoin (usually it’s enough to embed the script in the page code);
•    reduces the time and effort needed to add and maintain the new payment method;
•    takes the risk of changing the Bitcoin price when completing the order;
•    converts Bitcoin into the fiat currency and sends it directly to the bank account of the store owner;

In practice, all prices on the shop are displayed in a fiat currency (for example in EUR). After selecting the product, the payment looks as follows:
1.    The customer selects the payment method in BTC.
2.   The payment processor dynamically recalculates the price in EUR into BTC and presents it to the customer.
3.   The customer sends BTC into displayed Bitcoin wallet address.
4.   The payment processor waits until the Bitcoin transaction is confirmed in the blockchain network.
5.   The payment processor sends the amount in EUR (minus the commission) to the store owner's account.

At the end, the store owner does not even touch cryptocurrencies. The price volatility of BTC does not affect him at all. He receives the EUR currency in the amount equal to the price defined in his store.
It is well known that among e-commerce industry only the second method (via payment processor) is is in use.

The first method (direct BTC payments) is mainly used in transactions carried out outside of online stores, for example on internet forums.
So we already know how to enable Bitcoin payments in the online store. Let's look at the benefits and drawbacks of such feature for sellers.
+ Low transaction fees – currently the biggest providers of Bitcoin payment processors (BitPay, CoinBase or CoinGate) charge a commission of 1% where such giants as VISA or PayPal even up to 4% (for transactions in fiat currencies). This is particularly important for the sale of low-margin products.
+ No chargebacks – chargebacks are a frequent source of fraud affecting online retailers. An impostor pays by credit card and applies for chargeback a few days later. At this moment the product is already sent. This type of fraud can be eliminated entirely. Bitcoin transactions cannot be revered by the sender, which means that chargeback fraud is impossible.
+ Free advertising in the media – adding Bitcoin payment is often widely reported in the media. For example, when (online food ordering company from Poland) added this payment option, many portals have published this information.

-  Regulations
– in most of the countries cryptocurrencies are barely regulated or not regulated at all. Therefore, their legal and tax status can be interpreted in an ambiguous way by the authorities. It may happen that Bitcoin will be banned from one day to the next. For example, this occurred in China several times and was applied to various activities related to cryptocurrencies. Hence, retailers who accept Bitcoin will also need to follow any potential regulatory changes to ensure they stay compliant with the law.

[1] Bitcoin Laundering: An Analysis of Illicit Flows into Digital Currency Services

  • Łukasz Zbińkowski

    Senior Consultant

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