When a merchant accepts bitcoin payment (for example 10 btc for the purchase), the buyer send the payment of 10 btc and it is settled.

However, the 10 btc value will fluctuate every minute (up to 20% or more sometimes on a daily basis). Let's say 1 btc = $2000 at the time of the payment and 1 btc = $1900 at the time when the merchant exchanged it for US dollars. The merchant lost $100 in this case and the opposite could happen.

How does a merchant ensure that the btc payment satisfies the cost of the product?

Please help me understand how this works. Otherwise, it does not make sense to me why Merchants need to accept btc payments.

There is no way for the merchant to ensure that he receives full value. This is the nature of digital currencies and why many merchants decide to not accept bitcoin as a payment; it is volatile. However, there is also the chance that the value will increase, thus netting a profit for the merchant. All in all, any merchant who accepts bitcoin not only is hoping for an increase in the price of bitcoin but is also looking to appeal to more customers.

  • I see it the other way around. Bitcoin is stable, but that darn $ keeps fluctuating... – Mr.Nobody Jul 18 '17 at 0:05

Merchants can automatically convert the Bitcoin they receive into fiat currency. This way they can minimize the risk of price fluctuation.

Although, the price can still change while it's in the blockchain waiting for confirmations (usually 10-30 minutes).

The same rules apply as for merchants who accept US dollars in many countries instead of their national currency as a form of payment, even though their expenses may be in national currency. Typically they'd need to monitor the exchange rate and adjust prices if there is a significant change; in the case of high volatility currency such as BTC, the practical way to address the volatility is add a significant premium to the price if paying with BTC.

You are correct to identify volatility of BTC/USD exchange rate as a deterrent for merchants to accept it as payment. Ultimately, the merchant needs to have confidence in bitcoin as a store of value if they're going to accept it as a form of payment. The same is true for any other currency or asset accepted as a form of payment. To date, bitcoin has proven long-term to be a very good store of value, appreciating significantly in US dollar terms over the past few years. Any merchant that has accepted BTC for years and kept it is better off now than they otherwise would have been.

Should the value of bitcoin stabilize and appreciate relative to USD in a slow gradual manner, as opposed to appreciating chaotically as it is now, I think it would be much easier for more people to trust it as a means of payment without worry of a significant loss in value.

It also helps to think of USD as a commodity in and of itself that fluctuates in value just like everything else. All stores of value have risk associated wtih them whether its holding assets, cash, equities, real estate, gold, other precious metals, cryptocurrency, or anything else. If you've been around long enough to compare prices of goods in USD terms from the 1970's to now, you'd know that cash itself has not been the best way to store value long term...

Normally it depends on your payment processor and the contract. Transaction is been given some time (mostly defined in a contract) where it is reserved as the value. Here the payment processor has to provide it regardless of the fluctation. For that reason payment processor does use fees and insurance/reinsurance is also a must for the payment processor.

We had similar scenario with an ATM machine in one european country, it was very similar. I would strongly suggest you to contact some payment processors like bitpay or similar to ask them how do they secure those transactions. I would also say that there are some speculating projects where in cooperation with another payment processor, the variety of what can be done is huge.

I could write here more, but I think it would be offtopic, hope the info I wrote helps.

Your Answer

 

By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service, privacy policy and cookie policy, and that your continued use of the website is subject to these policies.

Not the answer you're looking for? Browse other questions tagged or ask your own question.