Bitcoin Quickly Becoming the Western Union for Virtual Wealth

A quick apology to my readers: my day job has been a little nuts and will continue to be so for the foreseeable future, but I will nonetheless take the occasional break to work on the blog. My enthusiasm and interest in Bitcoin has not waned in the least, and I'm still extremely excited about its prospects.

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If you haven't already read my article on Ogrr.com from October of last year, I encourage you to have a read. At the time, I felt Payward Inc. was tapping into the most logical and relevant market for Bitcoin; four months later and I dare say they've proven me right.

Since they opened their doors to the public, Ogrr's user base has expanded rapidly, with nearly 1300 members signed up as of today, and 800 registrations in the last month alone. More importantly, Payward's Jesse Powell reports that a large chunk of the new membership are gamers first and Bitcoin users second, meaning the site is doing a fantastic job as an ambassador for Bitcoin.

Ogrr's growth can be attributed to the fact that Bitcoin is hands-down the most efficient and inexpensive means for gamers to move their online wealth from one virtual world into another (or to the real world). Other sites, like BitMit, Bitcoin's most successful auction site, are also being used by gamers in a similar fashion.

In December, when Ars Technica touted Bitcoin as a potential competitor to currency-moving companies like Western Union, the article failed to touch on the potential for Bitcoin to impact the way virtual currencies are traded, which is a far more natural application for Bitcoin.

For the moment, there's merely a crack in a massive dam holding back a multi-billion dollar virtual goods industry from spilling into the Bitcoin economy. This crack will quickly widen in the coming months. Even today, I could conceivably slay a bunch of monsters in World of Warcraft and buy my very real dinner with the proceeds.

Thanks to the archaic banking system, Bitcoin isn't (yet) the easiest means of transferring wealth between the United States, Europe, or Japan, but it is definitely the easiest way to transfer wealth between Britannia, Norrath, and Azeroth. Based on Ogrr's performance to date, we're going to see Bitcoin catch on pretty quickly amongst the "citizens" of these worlds.

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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.

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Ogrr.com Launches Massive Bitcoin-Enabled Virtual Goods Marketplace

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Edit: Ogrr.com is currently in beta and invite only. It will be opening to the public in the very near future.
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When you first visit Ogrr.com, your initial impression is that you've stumbled across your average Internet discussion forum. After a few seconds, however, you begin to realize that you're looking at something bigger - much bigger.

Image from simonmainwaring.com

There are two things about the site that catch your eye, one being a little more obvious than the other. As you scroll down, you are presented with the massive scope of the community that Jesse Powell and his team at Payward, Inc. have put together. Scrolling back up to the top, assuming you are logged in, a much subtler feature greets the astute eye. In tiny writing you see the acronym "mBTC," and a number. This number, which tells you how many milliBitcoins you are holding on the site, sets the community apart from the competition and is what Ogrr hopes will win it a substantial portion of the global virtual goods market. Incredibly, sales of virtual goods generated $7.3 billion in global revenue in 2010 and, according to Powell, the market could be worth as much as $16 billion in 2012. He explains how his site is different and why users will prefer Ogrr over existing sites:

"There are a few other sites like this one that are well-known in the gaming world. The idea for a marketplace forum with a built-in currency isn't anything new. What's new about this forum is that we're using Bitcoin as the forum currency and we allow our members to cash out their holdings at any time. Other forums have operated on closed forum gold systems that do not allow cashing out, which is great for the forum owner but not so great for the users. Some even go so far as to ban users for merely mentioning the existence of trades with external currencies."

The demographic that Ogrr is targeting is male and generally between 18 and 30, though players have been known to be as young as eight and as old as eighty. "It's kind of a hard figure to determine," says Powell, "because the kids aren't usually the ones doing the purchasing, but maybe that will change with Bitcoin."

"Tons of people still have never heard of Bitcoin or only have a vague idea of what it is. We need to change that."
- Jesse Powell, Ogrr.com

Competition is steep, with the likes of d2jsp.org, a forum with 650,000 members and an Alexa ranking of 17,931 in the United States, holding a huge share of the market that Ogrr is trying to tap into. d2jsp operates with a currency called "Forum Gold," which, unlike Bitcoin, can never leave the site.

To take a stab at the competition and win over users that have a lot invested in other sites, Ogrr is prepared to pull out the big guns. By offering one free Bitcoin to each of its first 1000 users and an additional Bitcoin to the first 1000 users who can sign up ten friends, Ogrr hopes to grow its membership quickly. This strategy, Powell emphasizes, is an attempt to realize the site's primary goal of expanding Bitcoin's userbase, something he says is desperately needed. "Tons of people still have never heard of Bitcoin or only have a vague idea of what it is. We need to change that."

For those of you who are not familiar with the concept of virtual goods, Jesse Powell runs us through some of the possibilities:

"Some examples of virtual goods are platinum in Everquest, mounts in World of Warcraft, and runes in Diablo 2. The most I've ever seen anyone pay for one item was about 10 years ago in Diablo 2: $2000 for a v1.08 Arkaine's Valor (then out of print). In games like Second Life, Project Entropia, and EVE online, virtual real estate sells for much more than that; tens of thousands of dollars and more. Some people spend more of their free time in the virtual world than they do in the real one so you can understand why they'd be willing to expend what may be a small amount of real world capital for a large amount of virtual world power and status."

Powell's justification for bringing Bitcoin to the virtual goods community is hard to argue against:

"[The market] is huge and it's growing fast. Bitcoin allows us to take payments and not have to worry about chargebacks which have plagued virtual goods sales since the very beginning. Historically, to take a (generally) irreversible payment such as Western Union or a bank wire transfer, it meant exorbitant fees that made small transactions cost-prohibitive.

As you know, when you deliver a virtual item, you're left with no verifiable evidence that you've done so and it's very simple for the buyer to claim that they've never received it, or that their card was stolen, or that their child made the purchase without their permission. It's this not having to worry about chargebacks that allows us to store Bitcoin on behalf of our users and allow them to trade and cash out at any time. If we had to worry about deposits being reversed, there'd be no way we could allow users to make withdrawals. Bitcoin solves this problem."

Ogrr has certainly pulled out all the stops to create a service that, by leveraging the advantages of Bitcoin, will definitely make the competition nervous. Whether Jesse Powell and his team of five at Payward can take a bite out of the multi-billion dollar market and grow Bitcoin's userbase remains to be seen. This is a project, however, that will certainly excite the Bitcoin community.

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Jesse Powell resides in San Francisco, California, and joined us from Shanghai, China.

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