© Bitnet 2014

Bitcoin What is it?

Why do merchants want to accept it?

© Bitnet 2014

Speaker

Akif Khan

10 years experience at CyberSource and Visa Inc (sales engineering, professional services, operational fraud

management, product management, strategic projects, evangelism)

Previous roles at JPMorgan and PwC Consulting

Former Merchant Risk Council European Advisory Board member

Joined Bitnet in May 2014

© Bitnet 2014

Startup founded in Jan 2014 with seed capital of $2.5M based in Belfast and San Francisco

Team of 28 payments professionals - all ex-CyberSource and ex-Visa

Payments platform focussed on digital currencies, initially Bitcoin

Enable merchants to accept payments in Bitcoin with no risk

Proven experience of running a secure, reliable and scalable platform for enterprise merchants

Launching in Q4 2014

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Introducing Bitnet

© Bitnet 2014

Payments system introduced in 2008 by anonymous individual called Satoshi Nakamoto

Protocol for set of standards for communication - open source, so strength in transparency

Based on a decentralised, peer-to-peer network - no issuing authority, no central control or manipulation

Every Bitcoin transaction ever made is recorded and transparently available within the public ledger called the blockchain

Entities that validate transactions and add entries to the blockchain are rewarded by the creation of new Bitcoin via a process called mining

What is Bitcoin?

© Bitnet 2014

Miners No central authority issues bitcoins. They are instead created by

miners who carry out the work to validate transactions - this

provides an incentive to run nodes in the network.

A number of implementations : bitcoind, bitcoinj

Bitcoin ecosystem

Wallets Application and service providers that allow people to store,

access and transfer their coins between addresses on the

network.

Blockchain.info, Coinbase, Xapo, Hive, Circle

Exchanges Analogous to traditional forex exchanges, they provide market

liquidity, order books and a way for individuals or companies to

buy and sell coins in exchange for fiat currency.

Kraken, Bitstamp, BitFinex, itBit,

Payment Providers Service providers that connect merchants to the Bitcoin network

making it possible for them to transact with their customers.

Bitnet

© Bitnet 2014

Why would a merchant accept Bitcoin?Cost Savings

Take a typical merchant with100,000 transactions per month with average value of €50

< €0.50~€2.50

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Why would a merchant accept Bitcoin?Elimination of Risk

Consumer provides card number Merchant ‘pulls’ funds Consumer can dispute

Merchant provides wallet address Consumer ‘pushes’ funds Consumer cannot dispute

1 2014 Merchant Risk Council / CyberSource Global Fraud Benchmarking Study

0.5% - accepted card orders that turn out to be fraudulent1 20% - orders manually reviewed by merchants to assess for fraud1

2.3% - orders rejected due to the suspicion of fraud1

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Why would a merchant accept Bitcoin?Global Reach

Take a payment from anyone anywhere

Cross-border interchange Local acquirer relationships

Payment gateway connectivity Card penetration low in some markets

Accept Bitcoin from anyone globally with internet access

All transactions are equal

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Why would a merchant accept Bitcoin?Marketing, Innovation, Buzz

Pent up demand from Bitcoin holders wanting to spend !

High interest from media, technology and payments ecosystem !

Attract new customers

“It’s like a global marketing campaign, without having to pay for a global marketing campaign”

© Bitnet 2014

Who accepts Bitcoin today?

> 60,000 merchants globally across a range of industries

© Bitnet 2014

Case study - overstock.com (US retailer, annual revenue > $1.3B)

$1M in sales in first two months

Averaging $30k-$50k per day in Bitcoin sales

$15-20M in Bitcoin sales projected in first year

Bitcoin users spend 34% more on orders vs. credit card users

60% of Bitcoin users are first-time customers

Retaining 5-10% of Bitcoins received in reserve as hedging strategy

© Bitnet 2014

How big is Bitcoin?

On November 26, 2013 (Black Friday), total Bitcoin transaction volume exceeded $487 million, placing Bitcoin as the 5th largest

payment network on that day behind Visa, MC, Amex and China UnionPay, and ahead of Discover and PayPal.

Typical daily volume is in region of $50-75M

~5M Bitcoin wallets | 7x year-on-year increase ~8M forecast by end of 2014

© Bitnet 2014

Exchanges

(eg. Coinfloor, BitStamp, Kraken)

Trade EUR/GBP/USD for BTC

Typically accept and payout via SEPA bank transfers or international wire

transfers

Typical fees <0.5%

Conduct business in a regulated manner, customers go through KYC

process

Where do consumers get Bitcoin?

LocalBitcoins.com

Marketplace for buying/selling Bitcoins in your local area

Active in 6426 cities in 231 countries

Offer escrow services

Fees range from free to 1%

Emerging Markets

Examples of schemes in emerging markets to enable unbanked to purchase Bitcoin:

Indonesia • 10000 Indomaret convenience stores • Obtain code online from local Bitcoin exchange • Use code to pay with cash over the counter in

Indomaret stores !

Argentina • 8000 convenience stores • Partnership between local Bitcoin exchange

and local pre-paid mobile phone top-up provider

• Can buy Bitcoin with cash when topping up phone

Circle.com

Well funded US start-up

Aim to ‘demystify’ Bitcoin with consumer banking services

© Bitnet 2014

Merchant processing • US bank fees alone generate $250 billon a year • Global payment networks revenues exceed $300 billion

annually • Global credit, debit and pre-paid card fraud over $11 billion

Cost savings and disruption of existing scheme/acquirer/issuer ecosystem

Bitcoin has the potential to disrupt the payments ecosystem

Charitable donations • 1-2% of donation amount typically lost in

payments services fees Greater share of donated amounts retained by charity

+ new modes of interaction with donors

Emerging markets • 2.5 billion adults do not use formal financial

services Enable unbanked population in emerging markets to

access global ecommerce

Cross-border remittance • Over $500 billion in cross-border remittance annually • Average fees applied of 8-12%

Cost savings and disruption of existing money transmittance ecosystem

© Bitnet 2014

Typical merchant implementation

Use of third party processor to interface to Bitcoin network !

Merchant prices in local currency, consumer pays with Bitcoin, merchant is funded in local currency

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Majority of merchants do not get funded in Bitcoin so do not hold Bitcoin

© Bitnet 2014

Merchant transaction flow

Bitcoin Network Merchant’s Bank

Bitcoin Exchange Bitnet’s Bank

Bitnet

MerchantWallet

Consumer

Underwriter

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Merchants price goods & services in their local currency, but allow customers to pay with Bitcoin.

Checkout process

© Bitnet 2014

The consumer can see the Bitcoin price and has a time window within which to pay. !

They have multiple ways to launch their Bitcoin wallet.

Checkout process

© Bitnet 2014

Once the consumer has paid, the processor confirms the transaction with the merchant and they can begin fulfilment.

Checkout process

© Bitnet 2014

akif.khan@bitnet.io

@dr_akif_khan

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www.bitcoin.com Good reference site for Bitcoin-related information

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www.coindesk.com News site for the digital currency industry

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www.ukdca.org UK Digital Currency Organisation - information, advocacy, education

Further information