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I am trying to get the answer for the following example:

Assume I have some bitcoin and want to buy a product from a merchant. Why would the merchant sell that product to me for bitcoin when he bought it from the supplier for dollars?

  • How do you know the supplier doesn't accept bitcoin as well? – chytrik Dec 4 '18 at 2:35
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Because he can sell the bitcoin for dollars. And in many cases, his alternative would be to accept a credit card payment which costs him around 2%. Converting bitcoins to dollars costs around 0.2% -- one tenth as much. Also, if he accepts a credit card payment, he has to worry about a chargeback (where you claim the payment was unauthorized and the bank reverses the payment). Bitcoin has no chargebacks.

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Many businesses pay suppliers in one currency, and then accept a different currency for payments from customers, this is not a rare situation to be in.

For example, a Canadian business may pay a Chinese supplier in USD, but then accept CAD from their customers in-store. Or an American importer may pay their Japanese supplier in JPY, and then accept payment from their customers in USD. In both cases, a currency conversion will need to happen at some point, and so the business would do well to find an efficient way to make that conversion. Bitcoin is no different, the merchant can accept it, and then convert to dollars in order to pay bills, etc.

Of course, the merchant does not have to convert the BTC to dollars, they could decide to keep some (or all) of BTC payments in BTC.

As for reasons why a merchant would want to accept BTC in the first place:

  • As David mentioned, the finality of Bitcoin transactions means chargebacks are not possible (protecting the merchant from fraud).
  • Accepting Bitcoin allows a merchant to accept payments from any willing customer, allowing unrestricted access to the worldwide market. This may be especially important for merchants from countries with strict capital controls.
  • Accepting Bitcoin could allow a merchant to remain anonymous, whereas traditional payment gateways will require some KYC to satisfy local regulations.
  • The merchant may believe that BTC will increase in value, for personal/ideological reasons, and thus want to be paid in it.
  • The merchant may save a lot in transaction costs (compare to a few % for each credit card or PayPal payment, ten's of dollars for each wire transfer, etc). This could be especially true if the merchant's vendors accepted BTC for payment as well.
  • Bitcoin allows permissionless innovation, meaning a merchant could code up a customized payment gateway/solution to suit their exact needs. This may enable new forms of payment/funding/etc, that are not easily possible with existing payment gateway providers. For example, a Lightning Network integration could allow a merchant to collect micro-transaction amounts that are not possible through other payment gateways.
  • Thanks for being so patient and answering to my question. I consider myself dumb in blockchain technology so i request you to kindly bear with me for my follow up question as below. During the time when the blockchain for Bitcoin was created, when a merchant wants to sell a product, Initially since Bitcoin is not guaranteed by the government and does not carry any value in the market, why would anyone exchange a service or a product for a Bitcoin. – SeethaRaam Devulapalli Dec 4 '18 at 17:24
  • @SeethaRaamDevulapalli happy to help, asking questions is a good way to learn. Many of the earliest adopters of bitcoin liked it because it was not ‘guaranteed by a government’. They could see the potential of Bitcoin to do all the things I mentioned above, so they joined the network. Eventually, bitcoins gained value, thanks to the actions of these ideologues, and slowly the network grew (including merchants accepting it as payment). – chytrik Dec 4 '18 at 21:13

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