Bitcoin and Conventional Business do not Mix

It's time to be truly honest about what we're up against in terms of motivating the adoption of Bitcoin.

Imagine the best-case scenario where Bitcoin exchanges accept credit cards, directly. There is absolutely no way they will be able to drop a credit card deposit fee below a very generous 2%, and that's assuming that chargebacks won't happen, which they will.

Add the additional 0.5%, or so, that you would have to pay for actually buying the Bitcoins on the exchange, and you're looking at a minimum of 2.5% in fees from the get-go. That 2.5% already negates any savings that a merchant could offer for someone willing to pay with Bitcoin. Right there, we know it makes absolutely no sense to offer a product or service for Bitcoin when the same thing can already be acquired with credit cards or PayPal. Now you understand why Cheaper-in-Bitcoins made almost no sales whatsoever, and why you'll never see Amazon adopt Bitcoin.

We also talk a lot around here about charities or non-profits that accept Bitcoin donations. Again, no one is going to go out of their way to acquire Bitcoins in order to make a donation; it just adds an unnecessary extra step. Nor are people going to acquire Bitcoins to be able to buy indy-music, make micro-donations to blogs (too bad!), or pay for shareware. Independent artists, writers, and software developers should accept Bitcoin as a secondary source of income, but it will never make up more than a small percentage of their revenue. Bitcoins will eventually trickle into their pockets, but they won't spur the actual adoption of Bitcoin.

So, if conventional online businesses and charities are out the window as motivators for Bitcoin adoption, then what will actually do the trick?

1) Illegal markets. Where there is a desire to maintain as much anonymity as possible, Bitcoin will thrive. Silk Road is what put Bitcoin on the map, and it continues to operate successfully to this day. There is no denying that Bitcoin will become the preferred method of transacting in illegal markets, because it gives an obvious advantage to both clients and merchants.

2) Virtual markets. Virtual currencies could always be purchased with credit cards, but then the user was constrained to one platform. With Bitcoin, users can move their money between different virtual worlds, assuming they eventually support Bitcoin. This is a multi-billion dollar market that can be exploited.

3) International markets. There's never been an easier way to move money across borders. Any business that can take advantage of the agility of Bitcoin will do so.

4) Online gambling. The reason why online gambling and Bitcoin make a great match is because of the ability to easily withdraw Bitcoins from a casino. Until now, it's usually been a pain in the ass to retrieve your winnings. Being able to get your money out of a casino as quickly as you got it in is sufficient motivation to go out to the bank and wire some money to an exchange.

5) Investing. If 1, 2, 3, and 4 begin to catch on, then Bitcoin will continue to be a viable investment for those looking to move their money out of fiat currencies and maybe diversify their precious metal portfolios. Given the ever-worsening sovereign debt crises, Bitcoin will become an even more attractive investment.

Between these five motivators, we're still looking at the possibility of a multi-billion dollar Bitcoin economy. Therefore, at the end of the day, we shouldn't get too worked up about whether or not Amazon or Wikipedia will eventually accept Bitcoin. Bitcoin's strength is not in the conventional.

Posted in: bitcoin value,charity,cross-border transactions,economy,gambling,investing,virtual goods