Bitcoin, the world’s first digital currency, has been making waves in the economic and e-commerce circles since it was first introduced in 2009. Due to its recent media exposure, you’ve probably heard about Bitcoin and are wondering if this currency offers any competitive advantage to give you and your store an edge.
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Bitcoin is fundamentally a currency, such as the US dollar, euro, or yen. Often incorrectly compared to the credit card networks, Bitcoin is actually cash — and should be compared to the banknotes in your wallet. What sets Bitcoin apart, however, is the fact that it’s a decentralized digital currency. Using cryptographic principles and a lot of heavy math, Bitcoin payments are sent and received over the internet, enforced and regulated using public/private key cryptography — the same industry standard encryption and verification mechanism used to secure SSL and SSH.
Due to its unique nature, Bitcoin has had a fair degree of success. As an economy, its market cap has exceeded $1 billion, with individual Bitcoins approaching the value of gold. The banking community has also recognized the advantages of the Bitcoin economy. Bank of America analyst Merrill Lynch states, “We believe Bitcoin can become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money transfer providers”.
Why accept Bitcoin currency as payment?
Bitcoin offers a number of advantages to an e-commerce store. In short, Bitcoin allows e-commerce stores to accept a form of cash as payment with all its advantages and simplicity while retaining the convenience of remote credit card payments which customers have come to expect.
Cash equivalent payments
Due to the fact that it is a cash equivalent, Bitcoins are not susceptible to chargebacks — all payments are final, just as if customers had paid you in physical banknotes.
The major credit card vendors, such as MasterCard, Visa, and American Express, have created a largely cohesive payment network, allowing e-commerce stores to accept payments from a wide audience of card-holding customers. The reliance on these central networks, however, introduces overhead for stores which support them, requiring store owners to pay fees on transactions and comply with sometimes seemingly arbitrary requirements. Due to its decentralized nature, Bitcoin requires no intrinsic fees or specific business practice requirements — you can run your business in the way you see as most efficient.
The most obvious convenience provide by Bitcoin payments is its digital nature — all the benefits of cash payments, but funds are instantly transmitted over the internet, ensuring that customers continue to receive the instant gratification of card-not-present transactions they’ve become accustomed to.
Going above and beyond the convenience of credit card purchases, Bitcoin reduces barriers to purchase. Specifically, due to its decentralized nature, Bitcoin purchases can be accepted internationally without any regulatory or infrastructure overhead. This means you can instantly accept payment from any country, regardless of the customer’s local currency or political climate — all without incurring any additional fees or overhead.
As a cryptographic currency, Bitcoin provides unrivaled security compared to either cash or credit card payments. As advantageous and simple as physical cash payments are, they are intrinsically at risk of theft, requiring additional overhead to secure and transport. Using the same public/private key cryptography concepts as credit card payments, Bitcoin eliminates transmission theft risk.
Bitcoin also significantly reduces the effort required to secure customer payment information. With a traditional credit card purchase, the same credit card number transmitted by the customer to pay for a legitimate transaction can be used maliciously for illegitimate transactions. This requires businesses to go to great lengths to secure this information. Bitcoin, however, uses public/private keys to authorize payments. This means that the public address your store receives during payment is not sensitive. Even in the event of complete store compromise, no Bitcoin paying customer is at risk of theft due to the unauthorized release of their public address.
Finally, Bitcoin offers reduced transaction fees, compared to current credit card networks. Traditional credit card networks have many required players (credit card network, gateway, etc), each contributing to transaction fees. As illustrated below, accepting Bitcoin payments typically requires only one service, resulting in significantly reduced transaction fees.
How to accept Bitcoins
As a decentralized cash-equivalent, there’s nothing stopping an e-commerce store owner from implementing their own Bitcoin payment interface, with no fees whatsoever. However, there are several services which already exist with drop-in Magento modules, allowing you to accept Bitcoin payments in minutes. These provide the user flow to actually accept Bitcoin payments, integration with Magento, automated exchange to your local currency, and automatic withdrawal to a checking account if desired. Of the many options, BitPay and Coinbase are two of the biggest and most widely used.
BitPay is one of the most widely used Bitcoin payment services, currently used by more than 12,000 businesses. While BitPay offers a free starter tier with 1% transaction fees, its flat rate plans really illustrate the savings potential of Bitcoin — ranging from $30 to $3000 per month. The cost varies by your accounting needs, not by transaction volume. BitPay’s Magento module provides direct checkout integration, allowing customers to seamlessly pay with Bitcoins. Payments can be withdrawn to an external Bitcoin wallet or automatically exchanged for your local currency and deposited in your checking account.
After creating an account with BitPay, install the free Magento module and flush the cache. From your BitPay dashboard, select My Account -> API Access Keys. Click Add New API Key, enter a meaningful memo and click Save Changes.
Now that you have the necessary API key, it’s time to configure Magento. In your Magento admin, open the BitPay configuration by visiting System -> Configuration -> Sales -> Payment Methods and expanding the Bitcoins section.
In order to activate the payment method, set Enabled to Yes, and enter the API key you generated above. Click Save Config to commit the changes.
Now that the BitPay module is configured with an API key and enabled, customers may pay with Bitcoins by simply selecting the new Bitcoins payment method.
After proceeding to the Order Review step of checkout, customers will be presented with the amount due in Bitcoins. A receiving Bitcoin address will be generated dynamically by BitPay, which is displayed along with a QR code for the customer’s convenience.
After paying the amount due using the Bitcoin software of their choice, the customer will see confirmation that their payment was accepted.
Now that the order is paid for, a final Place Order button click will take the customer to the order confirmation page.
Your store is now accepting Bitcoin payments! In the BitPay settlement settings, you can configure the currency you’d like to have your Bitcoin payment exchanged for, and configure a checking account for automatic withdrawal.
Similar to PayPal, Coinbase provides many Bitcoin related services to both customers and merchants, enabling easy integration with the Bitcoin economy. By allowing users to create accounts with preset funding methods, Coinbase can simplify the already short Bitcoin payment flow for users who opt to use an account. In addition, Coinbase supports Bitcoin recurring payments for account-holding customers. Coinbase charges no transaction or monthly fee for funds which are not exchanged to the merchant’s local currency; funds which are exchanged incur a 1% transaction fee after the first $1 million.
After registering for a Coinbase account, install the free Magento module and flush the cache. In your Magento admin, visit System -> Configuration -> Sales -> Payment Methods, and expand the Coinbase section. You’ll need to create an application on your Coinbase account, and the system configuration section has a handy link to launch this. Be sure and note the redirect URL — you’ll need this in the next step.
Once logged into your Coinbase account, enter the name of your store and the redirect URL from the system config page, then click Create Application.
Coinbase will associate your new application with your account and generate a client ID and client secret to authenticate the Magento module.
Enter the client ID and secret into the Coinbase section in your Magento system configuration, ensure the Enabled field is set to Yes, and click Save Config to commit the changes.
Once the client ID and secret are saved, you will need to authorize your new Magento application to accept payments. The system configuration changes to reflect this, and again provides a handy link.
Click the link to open the Coinbase authorization interface, and click Authorize.
After clicking Authorize, Coinbase will redirect back to your Magento system config, where you will see confirmation that the account is connected correctly.
As with BitPay, the Bitcoin payment method will be made available for customers. When a customer chooses the Bitcoin payment method and completes the order, they will be redirected to a PayPal Express-style payment screen hosted by Coinbase. Here they will have an opportunity to either log into their Coinbase account and pay or pay using an external Bitcoin wallet.
After sending Bitcoin funds, customers will see a confirmation that the payment was received successfully.
Clicking the Return to … Store button will send the customer back to your Magento store to see the standard order confirmation page.
Your store can now accept Bitcoin payments! In the Coinbase merchant settings page, you can configure Coinbase to exchange Bitcoins into your local currency and automatically deposit into your checking account.
Bitcoin payments offer many unique and unprecedented features which solve or eliminate many of the frustrations experienced by merchants when using traditional payment methods. These solutions improve efficiency, reduce overhead and expenses, and reduce reliance on centralized payment networks. Considering the efficient Magento store integration provided by Bitcoin payment services and associated modules, adding support for this payment method has never been easier.
Want to accept Bitcoin on your site or have a new site you’re looking to launch sometime soon? Drop us a line via our contact page.