Bitcoins: perfect for micro-transactions?

[signupdamnit]

So I'm finally figuring out this bitcoin thing and considering what can be done with it. Not as an investment but rather for online commerce. After thinking it seems to me that bticoins are almost perfect for accepting micro-transactions in a profitable way.

Let's say you have a site which does 100,000 unique visitors a month. If you could get 10% of those visitors to pay you a mere 50 cents a month that would be $5000. If you could get away with $1 it would be $10,000. That isn't bad. Especially considering the times.

The advantage of bitcoins as I understand it is that in the rawest form there is no middleman. So 50 cent or $1 transactions are entirely feasible. There is an optional fee you can pay to speed up the transactions but it's entirely optional and up to the sender if they wish to pay.

There does exist the transaction delay as a disadvantage. The delay is typically about 10-15 minutes. But this isn't a show stopper. You can build around it such as allowing an IP address 1-3 hours a month for free and making it clear that to see more they need to send BTC to a special unique address.

It seems to me then that the biggest thing holding it back right now for this is a lack of proliferation of bitcoins among surfers. But that could change. I sincerely hope it does. Affiliates with high traffic sites in particular could benefit greatly from this.

[L-Pink]

Unless you are a US citizen that doesn't want to commit tax fraud ….

To be IRS compliant with a bitcoin transaction you would have to state the value of the bitcoin when acquired, the value when sold, pay tax on the appreciation.

In a bitcoin transaction almost every transaction will be for a different amount value wise than the bitcoin was acquired for. This variance on a first in/first out value basis will need to be accounted for to be IRS compliant.

For a US citizen to comply with bookkeeping requirements on a small transaction would be a major waste of time.

I'm not saying bitcoins are a bad investment, some have made a killing, I'm saying using them for minor everyday transactions isn't the same as spending a dollar bill.


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[kane]

Bookkeeping issues aside I would wonder if there are enough people using and understanding Bitcoins to make it worth your while.

It seem like they are kind of a bitch to get and use, but maybe I haven't looked into it enough and they are far from mainstream. If they continue to grow and more and more people use them it could become an option though.

[livexxx]

or selling something without any physical trace

[signupdamnit]

Originally Posted by L-Pink

Unless you are a US citizen that doesn't want to commit tax fraud ?.

To be IRS compliant with a bitcoin transaction you would have to state the value of the bitcoin when acquired, the value when sold, pay tax on the appreciation.

In a bitcoin transaction almost every transaction will be for a different amount value wise than the bitcoin was acquired for. This variance on a first in/first out value basis will need to be accounted for to be IRS compliant.

For a US citizen to comply with bookkeeping requirements on a small transaction would be a major waste of time.

I'm not saying bitcoins are a bad investment, some have made a killing, I'm saying using them for minor everyday transactions isn't the same as spending a dollar bill.


.

I'm not talking about using it for investments or tax fraud. Only as a means of collecting micro-payments. I would think that simply using a monthly accounting period would be enough. At the end of the month you total the amount collected in BTC and convert it to a USD amount and then pay taxes normally on it just as if you would if it were normal USD. I'm not an accountant but this seems to be reasonable to me.

[pornmasta]

hitler 8 char

[signupdamnit]

Originally Posted by livexxx

or selling something without any physical trace

Just like cash. But that isn't what this is about. It's about collecting micro-payments which are low enough to where users are willing to "pay for porn". The model is difficult now primarily because of processing fees and other regulations. Bitcoins in some ways are almost perfect for it.

[fendlestick]

careful, they could be worth far less when you cash them out to when you acquired them (devaluing all your earnings), they are not in anyway stable in value, if you are from the EU bitcoin central will do a EUR transfer SEPA for only 99c!!!!!

As for micros they are technically infinitely divisible so that's a big win right there.

[L-Pink]

Originally Posted by signupdamnit

I'm not talking about using it for investments or tax fraud. Only as a means of collecting micro-payments. I would think that simply using a monthly accounting period would be enough. At the end of the month you total the amount collected in BTC and convert it to a USD amount and then pay taxes normally on it just as if you would if it were normal USD. I'm not an accountant but this seems to be reasonable to me.

As a merchant you would need to sell the bitcoins as you receive them hopefully for the same value as received. To acquire them and sell once a month would require you to track the profit or loss between receiving them and redeeming them. They are after all an investment tool not fixed rate currency.

A thousand dollars in dollars is worth a thousand dollars regardless of when I deposit them in the bank. A thousand dollars worth of bitcoin changes hourly and you are required to pay tax on any increase in their value after you acquire them.

As a purchaser you would need to track them as I previously stated. Unless you aren't a US citizen then I have no idea what the tax codes are.

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[signupdamnit]

Originally Posted by fendlestick

careful, they could be worth far less when you cash them out to when you acquired them (devaluing all your earnings), they are not in anyway stable in value, if you are from the EU bitcoin central will do a EUR transfer SEPA for only 99c!!!!!

As for micros they are technically infinitely divisible so that's a big win right there.

Unfortunately I don't think this model is fully viable yet at the moment. I believe less than 1% of the population owns bitcoins. However should this number increase through increased awareness it could be great.

I think it might work as an extra payment method or a way to collect "donations" right now but that is about it.

It would be great if we could see 50% of the people with credit cards also have bitcoins. Hell I would take 10% at this point.

[signupdamnit]

Originally Posted by L-Pink

As a merchant you would need to sell the bitcoins as you receive them hopefully for the same value as received. To acquire them and sell once a month would require you to track the profit or loss between receiving them and redeeming them. They are after all an investment tool not fixed rate currency.

As a purchaser you would need to track them as I previously stated. Unless you aren't a US citizen then I have no idea what the tax codes are.

.

I'm skeptical that this is required if you are converting it say every 30 days. It reminds me of a story I heard from a friend many years ago. He used to let his minor son help out with his business from time to time. Not wanting to do things incorrectly he went to great measures to keep track of his son's hours, earnings and to keep on top of all the regulations to the point where every little thing was documented. To his surprise he received a letter from the IRS basically telling him "don't waste our time and we won't waste yours".

[L-Pink]

Originally Posted by signupdamnit

I'm skeptical that this is required if you are converting it say every 30 days. It's reminds me of a story I heard from a friend many years ago. He used to let his minor son help out with his business from time to time. Not wanting to do things incorrectly he went to great measures to keep track of his son's hours, earnings and to keep on top of all the regulations to the point where every little thing was documented. To his surprise he received a letter from the IRS basically telling him "don't waste our time and we won't waste yours".

Bitcoins are viewed as an investment since they fluctuate in value. Just like apple stock. If I pay a $428. bill with a share of todays apple stock that you in turn sell later this month for $628. you owe taxes on the $200 profit.

The same is true of any "asset" used as currency. Appreciation is profit, tax is owed on profit.


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[rowan]

This may help visualise the potential for bitcoins:

http://www.listentobitcoin.com/

There can be several seconds between transactions so I'm not sure it's showing EVERY one, may just be ones at the major exchanges?

Just saw a 100BTC ($USD10,500) trans float past...

[DWB]

Originally Posted by rowan

Just saw a 100BTC ($USD10,500) trans float past...

I saw yesterday on Thai TV that they (mafia / pimps) are using bitcoins for human trafficking now. Buying children and kidnapped women sold into sexual slavery. It's possible you just witnessed a few kids being sold to a brothel. Creepy.

Three cheers for The Silk Road and bitcoin I guess.

[woj]

Originally Posted by L-Pink

As a merchant you would need to sell the bitcoins as you receive them hopefully for the same value as received. To acquire them and sell once a month would require you to track the profit or loss between receiving them and redeeming them. They are after all an investment tool not fixed rate currency.

A thousand dollars in dollars is worth a thousand dollars regardless of when I deposit them in the bank. A thousand dollars worth of bitcoin changes hourly and you are required to pay tax on any increase in their value after you acquire them.

As a purchaser you would need to track them as I previously stated. Unless you aren't a US citizen then I have no idea what the tax codes are.

.

IF bitcoins ever take off, it would be relatively easy to setup software to track everything correctly.... so site owner would just buy some $199 software, then just once a month (or year or whatever) export all the transactions, all correctly tracked with exchange rates, all correctly calculated, etc...

[L-Pink]

Originally Posted by woj

IF bitcoins ever take off, it would be relatively easy to setup software to track everything correctly.... so site owner would just buy some $199 software, then just once a month (or year or whatever) export all the transactions, all correctly tracked with exchange rates, all correctly calculated, etc...

Correct … I'm sure someone will eventually develop something. I'm just pointing out the pitfalls of not paying attention to current IRS regulations and the fact buying/selling/using bitcoins can't be viewed as simple transactions like paying with dollar bills.

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[lyno]

Originally Posted by DWB

I saw yesterday on Thai TV that they (mafia / pimps) are using bitcoins for human trafficking now. Buying children and kidnapped women sold into sexual slavery. It's possible you just witnessed a few kids being sold to a brothel. Creepy.

Three cheers for The Silk Road and bitcoin I guess.

Somehow I doubt the credibility of those news. I have no idea how much it would cost to get a container of slaves to the USA but I don't think a 100 BC would cut it. And to get your hands on thousands of BC should be kind of troublesome. BC simply lack availability. I am sure when it comes to serious crime $ still is number 1 and will stay there for a long time. When it comes to local deals I am sure cash is still the way to go, even leaves less trails then BC.

I do agree that BC might become interesting for more than petty crime in future but: So what? Even then I don't think it would have serious impact on the extent of human trafficking or other crimes. It's not like drug cartels are eagerly waiting for BC so they finally can make some profit.

So: Three cheers for international banks and dollars I guess

[Zeiss]

Originally Posted by DWB

I saw yesterday on Thai TV that they (mafia / pimps) are using bitcoins for human trafficking now. Buying children and kidnapped women sold into sexual slavery. It's possible you just witnessed a few kids being sold to a brothel. Creepy.

Three cheers for The Silk Road and bitcoin I guess.

Seriously... Doesn't that happen in any currency? Get the idea?

[mineistaken]

Originally Posted by signupdamnit

Let's say you have a site which does 100,000 unique visitors a month. If you could get 10% of those visitors to pay you a mere 50 cents a month that would be $5000. If you could get away with $1 it would be $10,000. That isn't bad. Especially considering the times.

Sounds perfect. Except that you forgot to consider that way less than 1% of your visitors would even have bitcoin account.

[2012]

Originally Posted by DWB

I saw yesterday on Thai TV that they (mafia / pimps) are using bitcoins for human trafficking now. Buying children and kidnapped women sold into sexual slavery. It's possible you just witnessed a few kids being sold to a brothel. Creepy.

Three cheers for The Silk Road and bitcoin I guess.

I can sell dog meat to your neighbors and get the same thing. Are dog meats bad ?

[ilnjscb]

Originally Posted by L-Pink

Unless you are a US citizen that doesn't want to commit tax fraud ?.

To be IRS compliant with a bitcoin transaction you would have to state the value of the bitcoin when acquired, the value when sold, pay tax on the appreciation.

In a bitcoin transaction almost every transaction will be for a different amount value wise than the bitcoin was acquired for. This variance on a first in/first out value basis will need to be accounted for to be IRS compliant.

For a US citizen to comply with bookkeeping requirements on a small transaction would be a major waste of time.

I'm not saying bitcoins are a bad investment, some have made a killing, I'm saying using them for minor everyday transactions isn't the same as spending a dollar bill.


.

FIFO/LIFO?!!? This guy has double entry skillz!

Not to support bitcoins, but is that really true? I think you can roll up trades in non-real currencies to when you cash them, which I would do nightly if it was me. In other words, like options, they have no intrinsic value until they are cash. One could, theoretically, hold them for a period of time if one wished.

[dyna mo]

Originally Posted by Zealotry

Seriously... Doesn't that happen in any currency? Get the idea?

exactly.

if they know how to use btc, they know how to do the deal in any # of currencies.


hell, drug deals go down in laundry soap as currency, dwb, should we do away with that too?

Suds for Drugs
Tide detergent: Works on tough stains. Can now also be traded for crack. http://nymag.com/news/features/tide-...-drugs-2013-1/

[L-Pink]

Originally Posted by ilnjscb

FIFO/LIFO?!!? This guy has double entry skillz!

Not to support bitcoins, but is that really true? I think you can roll up trades in non-real currencies to when you cash them, which I would do nightly if it was me. In other words, like options, they have no intrinsic value until they are cash. One could, theoretically, hold them for a period of time if one wished.

Hold as long or short as you like but taxes are still owed on any gain.

[ilnjscb]

Originally Posted by signupdamnit

I'm skeptical that this is required if you are converting it say every 30 days. It reminds me of a story I heard from a friend many years ago. He used to let his minor son help out with his business from time to time. Not wanting to do things incorrectly he went to great measures to keep track of his son's hours, earnings and to keep on top of all the regulations to the point where every little thing was documented. To his surprise he received a letter from the IRS basically telling him "don't waste our time and we won't waste yours".

I didn't read your post and inadvertently echoed it. Stocks have an intrinsic value, in that they represent ownership of a company. Bitcoins are more like options, they have no accepted strike since they are, like options, and unlike stocks, infinite.

I believe they become value when they are converted and only then. GAAP says that cash is "in hand or in the bank" and bitcoins are neither.

They are not a foreign currency since this implies FFF by a foreign state. They have value only in that they are valued, so that if you hold them, you may have to account for them on book at spot, but only by quarter.

[mineistaken]

Why would you want to pay taxes on bitcoins, they are supposed to be anonymous. Benefit from that. Unless you just WANT to donate your taxes.

[ilnjscb]

Originally Posted by mineistaken

Why would you want to pay taxes on bitcoins, they are supposed to be anonymous. Benefit from that. Unless you just WANT to donate your taxes.

Because if you get audited you will have your ass handed to you.

[- Jesus Christ -]

The taxation/government argument agasint bitcoin is nothing more than apes threatening violence.

You've already lost.

[MikeRoth]

Link me to these tax laws on bitcoins you speak of. Why would you pay tax on bitcoin when it's still in bitcoin form? If you buy AAPL stock you don't pay taxes on the stock until you sell it.

There is no difference in how you pay taxes currently and how you would pay taxes with bitcoins. Currently you receive USD and you pay taxes on the USD. If you receive bitcoins, you convert it to USD and you pay taxes on the USD. One extra step to convert it but it's still the same end result. You'd have the same transaction logs and book keeping on the incoming USD.

[dyna mo]

the only questionable area of btc tax concern i can uncover is the actual mining.

How are Bitcoins that I have mined treated for tax purposes?
This is a tricky question, in that bitcoins are really the first digital currency that was created in this manner and actually have a significant value in relation to other currencies. Essentially it is somewhat uncharted territory. Literally bitcoins, and even digital currencies are so new, that there is little to no precedent for some aspects of bitcoin mining, from a tax perspective.
Since Bitcoins are currently traded in various online marketplaces, when someone receives a Bitcoin, they can reasonably calculate it?s value in the local currency. Because of this, it is possible that the taxing authority will treat the receipt of a Bitcoin through a mining pool, or from an individual mining operation, as a taxable event. At that time, the taxpayer would be required to estimate the value of the Bitcoins in dollars and record that amount. This would have to be done either daily or weekly depending on the value of the Bitcoins if their value keeps fluctuating as much as it has the past few weeks. These amounts would be recorded as revenue from bitcoin mining operations and would be taxable less allowed expenses.
When selling mined Bitcoins, however, you would also be taxed on the increase between the value you recorded them at when you first received them, and the value you sold them for.
Another possibility is that the government will consider mined Bitcoins ?intangible personal property?. As a rule, however, financial instruments are excluded from this particular category. The question is, are bitcoins a financial instrument, or rather, will the taxing authority consider them a financial instrument? We will have to wait and see if bitcoins become popular enough for a position to be taken on that.

[bigluv]

Originally Posted by L-Pink

Bitcoins are viewed as an investment since they fluctuate in value. Just like apple stock. If I pay a $428. bill with a share of todays apple stock that you in turn sell later this month for $628. you owe taxes on the $200 profit.

The same is true of any "asset" used as currency. Appreciation is profit, tax is owed on profit.


.

I can't speak for how things work in the US, however in Canada I deal with this all the time taking in USD. It's permissible to use a monthly average exchange. I think you are blowing this out of proportion a bit. I appreciate the viewpoint though.

Also, I suppose if you took a trip to canada and exchanged $200 US for canadian money, came home with some remainder, and then the exchange became more favorable, you would be tracking and reporting that?

I'm sure there will be a sane way of acceptably accounting for this worked out at some point.

[Bman]

Originally Posted by L-Pink

Unless you are a US citizen that doesn't want to commit tax fraud ….

To be IRS compliant with a bitcoin transaction you would have to state the value of the bitcoin when acquired, the value when sold, pay tax on the appreciation.

In a bitcoin transaction almost every transaction will be for a different amount value wise than the bitcoin was acquired for. This variance on a first in/first out value basis will need to be accounted for to be IRS compliant.

For a US citizen to comply with bookkeeping requirements on a small transaction would be a major waste of time.

I'm not saying bitcoins are a bad investment, some have made a killing, I'm saying using them for minor everyday transactions isn't the same as spending a dollar bill.


.

I dont know if it is every transaction....it should be like a stock or any other investment, you pay only on the capital gains once it is cashed out...

sorry yes value when aquired would be needed. although there are value averages that are put out throughout the year.

[ilnjscb]

Originally Posted by MikeRoth

Link me to these tax laws on bitcoins you speak of. Why would you pay tax on bitcoin when it's still in bitcoin form? If you buy AAPL stock you don't pay taxes on the stock until you sell it.

There is no difference in how you pay taxes currently and how you would pay taxes with bitcoins. Currently you receive USD and you pay taxes on the USD. If you receive bitcoins, you convert it to USD and you pay taxes on the USD. One extra step to convert it but it's still the same end result. You'd have the same transaction logs and book keeping on the incoming USD.

This - remember only a few years ago you could hold huge options positions off book, and options are way less cuckoo than bitcoins.

[MikeRoth]

Originally Posted by ilnjscb

This - remember only a few years ago you could hold huge options positions off book, and options are way less cuckoo than bitcoins.

Options trading is still off the books as far as I know. I didn't receive a 1099 for my options trades last year. I had heard they would start tracking them and issuing 1099's in the future though.