Month: July 2014

I had a discussion a few weeks back with one of the team working on SexCoin, one of the myriad of alt-coins flooding the market. They definitely have name branding right but still miss the boat in the overall justification section.

Litecoin recently tanked after one holder dump his/her holdings.

DogeCoin took a similar dive, recently.

The problem with the alt-coins is there is no reason to use them or have them, other than speculation. When that is the only value, you end up with another tulip bubble. Currency (or money) gets its value from its useability in commerce, but the level of commence for the alt-coins, let alone Bitcoin, is negligible. Unless an altcoin can be used in a very closed loop, closed community, with internal circulation, participants are just as well off using Bitcoin. In other words, A pays B in sexcoin, who pays C in sexcoin, who pays D in sexcoin, which eventually gets back to A. The circulation might not be exact and some in and out exchanges can occur but it won’t work if A pays B in sexcoin who sells it for Bitcoin to pay her rent. (Use of her pronoun is ONLY coincidental, right?). Seriously, though the same problem plagues Bitcoin because right now, people are buying Bitcoin to purchase stuff and then Merchants are cashing right out. This is unsustainable and will eventually make Bitcoin useless as a currency. The transaction costs are just too high to make this viable.

However, my post today is not about the viability of alt-coins or Bitcoin even, but about the notion of recurring billing. You see, in discussions with the sexcoin promoter, he admitted that most adult oriented websites wouldn’t touch it (or Bitcoin) with a 10 foot pole. Why? Well because they can’t do recurring billing. A typical adult website pays about $30-40 per signup in acquisition costs (advertising, promotions, etc). The average consumer who signs up ends up paying $29.95 per month for THREE months (before they realize they are still being billed). Some cancel after a month, some longer but the average is 3 months. [The actual numbers may vary but they are made up here for illustrative purposes]. The point is, the cost shift the costs of providing the service to those to unaware to cancel the recurring billing on the credit card.

Unfortunately, Bitcoin doesn’t have this capability. It’s more akin to cash, you pay it, can’t get it back, but also the merchant can’t get more of it than you authorize. And it isn’t just porn companies doing this. Many mainstream services do recurring billing onto people’s credit cards. I recently had a case of Blizzard Entertainment (the producers of WOW) doing the same to my credit card on an annual basis. I notice a charge fro $74.74 from Blizzard on this month’s CC statement. I called to cancel but this was actually a 2 year old service I signed up for my then girlfriend. She no longer used the service but I was still getting billed. How many people are blissfully ignorant of Blizzard’s billing practices as they fail to notice the charge on their CC long past their active uses of Blizzard’s services?

This is the dirty little secret of Industry, they often do cost shifting with low usage users footing the bill for high usage users. Can Bitcoin help stall that? Some companies like Coinbase are trying to replicate recurring billing, but for that to work they actually have to have a coinbase account, which is tied to a bank account or credit card.