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Crypto Craze: Carnal Cash or Confusing Currency?

Crypto Craze: Carnal Cash or Confusing Currency?

The fast-evolving world of cryptocurrencies is a rollercoaster ride for those with skin in the game, bringing wild fluctuations in value and questions over whether or not their true value lies in their use as digital currency, or as an investment vehicle.

Offering a perception of anonymity, no chargebacks and no rules, crypto has long been eyed by the adult entertainment industry as the “perfect” payment mechanism, but issues of adoption and usage by consumers and merchants alike have hindered the potential that many have hoped for — yet that hope remains and is being stoked in 2018 as Bitcoin’s meteoric rise renewed interest — even as its equally swift fall induced fears in fans.

The sponsoring banks, the bank we issue merchant accounts through, do not allow what they call ‘quasi-money,’ as a business model they accept or allow [the use of] credits for the purchase of cryptocurrencies.

As a result, XBIZ wanted to take a fresh look at using cryptocurrency for adult content, product, service and site billing in 2018, and so sought out the insights of billing companies, crypto service providers and paysite operators for their expertise.

Here’s what we learned:

Caution Among the Old Guard

First, XBIZ asked a group of the industry’s foremost online billing service providers — the traditional heavyweights in this arena — long entrenched in the ways of credit, debit, check, phone and other billing means, as to their opinion of the ascension of financial upstarts from the digital realm.

I’ll note at this juncture that I have moderated many billing seminars at various XBIZ trade events, and over the years, have repeatedly asked these same companies for their opinions on this matter, as audience members have shown great interest in the topic. These expert panelists have at best advised a “wait and see” outlook, with a fair degree of scoffing being more typical — to the point where I stopped asking; but the renewed interest is forcing the subject into the spotlight. Against this backdrop, it was no surprise that some companies had “no comment,” while others wished to clarify their current position in 2018’s more mature marketplace.

“It is not that we are not a fan of cryptocurrencies,” OrbitalPay VP Karen Campbell told XBIZ, pointing her finger further up the banking food chain. “The sponsoring banks, the bank we issue merchant accounts through, do not allow what they call ‘quasi-money,’ as a business model they accept or allow [the use of] credits for the purchase of cryptocurrencies.”

Campbell explains that “quasi-money” or “near money” is an economic term for “highly liquid assets that can easily be converted into cash,” and underscores the crackdown on the card purchasing side, where major banks such as JPMorgan Chase, Bank of America, Citigroup and more, have recently stopped approving purchases for their customers attempting to use a credit card to purchase cryptocurrencies.

The nuances of this move are highly interesting, as only credit card usage is banned — debit cards can still be used. The big banks don’t mind if you spend your own money on crypto, but they sure aren’t lending you any of theirs for such a risky endeavor — or as a recent Bloomberg report put it, “A growing number of big U.S. credit-card issuers are deciding they don’t want to finance a falling knife.” This reality needs to serve as a backdrop for the entire discussion.

Gary Jackson, CCBill’s VP of sales and marketing, told XBIZ the company has been watching the cryptocurrency evolution diligently.

“We are always looking for viable options for the needs of our markets,” Jackson says, “[with] ease of checkout, stable revenue and of course, consumers who will use the payment option.

“What was so attractive and intriguing about cryptocurrency when BitPay first reached out to our industry a few years back, was the added value of anonymity at checkout,” Jackson explains. “For a while, we actually partnered with BitPay, given the importance and opportunity we saw in Bitcoin for our merchants — especially as part of a smart checkout flow.”

Jackson says CCBill is always looking at sustainable options that will serve its merchants and consumers alike — including the new resurgence of cryptocurrencies in the market.

“The question we have at this point is based on the suspicion that this renewed interest is being driven by speculation, rather than by the need of the consumer,” Jackson reveals, explaining that any payment option needs to provide the main value components of ease, stability and adoption, noting, “some of these new options are addressing these points.”

“We believe that once there is a market of consumers backing these exciting new options we will we see a potential broad adoption and success,” Jackson concludes. “In the meantime, CCBill is watching closely. Very closely.”

Mia, MobiusPay’s CEO, says cryptocurrencies are hot, and there’s no doubt about it.

“It’s also more of a collector’s item now rather than a currency, so I don’t see many people spending Bitcoin or Litecoin, but maybe someone in adult can still get paid by Dogecoin,” Mia told XBIZ, underscoring some of the challenges. “The regulatory concerns keep us out of cryptocurrencies as these types of transactions will bring a microscope from government agencies.”

This enhanced scrutiny should come as no surprise against a backdrop of increased monitoring of the global banking system.

“Cryptocurrencies have significantly grown in value in the past year, and the total market capitalization is over $400 billion,” MobiusPay VP of Compliance Jonathan Corona explains. “This is a significant amount of money, yet we still don’t view crypto as part of the mainstream investment market mainly because it is so volatile, unregulated and full of risk.”

Corona says that despite all of the flaws, the crypto market on the whole really is evolving. For example, established exchanges have recently launched cash-settled Bitcoin futures, although he notes the reception has been somewhat rocky up until now, citing reasons such as high margin requirements and the global regulatory framework.

“The reason why banks have steadily distanced themselves from cryptocurrencies is the inherent risks of transactions that take place for products and services that are illegal, such as prostitution and drugs,” Corona told XBIZ. “Until the crypto-currency community can work with government agencies and adhere to regulatory concerns, they will not be considered ‘money’ in the eyes of governments.”

Among these regulatory concerns, Corona says, are anti-money laundering and counter-terrorism programs such as the Patriot ACT, along with Know Your Customer (KYC) requirements, and ongoing customer due diligence. Despite these hurdles, Corona believes crypto can be beneficial to consumers if certain changes can take place, such as preventing the use of cryptocurrency for nefarious purposes; increasing the speed at which crypto can be converted to cash; creating the ability for offline transactions to be validated; and some measure of oversight for Bitcoin, which he calls “the peoples’ currency.”

Finally, Corona cites the widespread appeal of the constantly evolving blockchain technology that underpins cryptocurrency, noting that it first and foremost enables secure peer-to-peer transactions, but at the price of having no trusted centralized authority.

“Many industries are looking to incorporate blockchain technology into their business but are also concerned about the disruptive potential that comes with it,” Corona concludes. “Using the financial sector as an example, a financial database that is based on blockchain technology could potentially eliminate inefficiencies and human error, but in order to adopt this to scale, it would require a huge shift in software development, along with a well-constructed maintenance model with banks and regulators playing a huge role.”

Crypto Companies Cruise Ahead

In addition to traditional online billing companies, XBIZ also asked a number of crypto-centric service providers about their current appeal, in an effort to learn what makes 2018 a viable time for adult crypto (and especially for new ICOs and offers), and what other benefits beyond the perception of anonymity crypto billing brings to adult.

Saying adult cryptocurrencies open up new revenue opportunities for adult platforms, intimate.io Director of Operations Nathan Smale told XBIZ that banking bias imparts a huge amount of payment friction, and that crypto has the ability to help consumers. Smale also notes that from a blockchain perspective, the company hopes to see new technological advances such as “atomic swaps” to create more dynamic markets allowing customers to switch between cryptos without exchanges.

“We are at a tipping point similar to 2003 for music,” Smale says. “I’m sure I would have thought at the time ‘Why would I pay for content like music or TV series given I can download them for free?’ Then, Apple made the process of purchasing music frictionless and bite size. Then, people started paying. Now, I pay more for various streaming content services than ever before — specialist adult cryptos like intimate.io can unlock all of that untouched revenue for those adult companies that choose to move early.”

SpankChain founder Ameen also points to 2018 as being a tipping point of cryptocurrency awareness within the adult community and the greater consumer market.

“For the first time blockchains are powerful enough to represent complex business logic, and so it is finally economical to build blockchain-based payment systems and community owned and operated ecosystems,” Ameen explains. “There is also a generational change happening, where new performers and directors are creating careers and establishing themselves as serious players by innovating and taking advantage of tech the generation before them didn’t.”

“Pornography is an industry with the most powerful potential for change and innovation — we just have to take advantage,” Ameen adds. “The time for this — including the integration of blockchain technology into adult — is now.”

This movement is being seen across the marketspace as a growing number of companies float initial coin offers (ICOs) as a way of gaining a foothold in the crypto economy.

“2017 saw a huge increase in attention for crypto, especially Bitcoin. That interest has seen the proliferation of new tokens and their platforms etc., and these new platforms and services are working hard on increasing the customer experience which is great,” Smale explains. “2018 will see a rise in crypto uptake in the vicetech industries (cannabis, gambling and adult) because each currently suffers institutional bias from banks despite being legal, and consumers in each typically like some degree of privacy. This is the perfect use case for cryptocurrencies.”

Other innovations will follow, but the leading industries in this movement will be those that have current institutional issues to overcome. “Why should ultraconservative organizations such as banks stand in their way for legal goods and services?” Smale muses.

Bane Katic, Head of ClickDirectPay Europe, told XBIZ that while much of 2017 revolved around hyped ICOs, cryptocurrencies have been fighting to find a place in the real world for years, living mostly in the cyber realm of speculation.

“This year kicked off with a substantial correction in the cryptocurrency world, built up by all the hype and trading. With such exposure and meteoric rise, many big brands have adopted cryptocurrencies (mostly Bitcoin) as a means of payment. Some of these big names include Microsoft, Overstock, Tesla, Zynga and Shopify,” Katic explains. “We believe 2018 will be focused on the utility of these coins with payments being the most valued use case. The advantages for businesses, such as adult, are that cryptocurrencies do not involve banks, a central entity, clearing houses or middlemen when validating a transaction, making the speed of transactions quick, low cost and globally accessible by design.”

Katic cites an August 2017 Goldman Sachs estimate that over one billion dollars had been raised through Initial Coin Offering (ICO) based on cryptocurrencies exceeding traditional seed and angel funding in 2017.

“In short, 2017 really put the spotlight on Bitcoin (and altcoins) into the media and the entire space exploded rapidly,” Katic adds. “2018 will shine as the start of those businesses looking to leverage that exposure into real-world use cases and will propel the utility of these coins.”

Part of the utility of crypto for adult is the denial of chargebacks, a problem that has long plagued paysites victimized by “friendly fraud,” but there are other benefits as well.

“Adult business can offer their service/product to global customers and accept a currency that is truly borderless, with the ability to offer multiple coins as payment options so they can cater to various customers,” Katic says. “There are no chargebacks since every transaction is recorded on the blockchain and immutable, making accepting payments much like accepting digital cash, which lowers overall risk and fraud.”

Katic also notes crypto typically offers lower transaction fees, saving money for merchants and customers, making it attractive for adult businesses to pay their affiliates and partners using crypto, making the entire process more seamless and affordable.

Intimate.io’s Smale told XBIZ the new revenue coming into the market from people currently dropping out of the purchase funnel because of reputation concerns or laziness will be the biggest benefit for adult platforms moving to crypto.

“The new entrants, like intimate facilitating micropayments, will facilitate the growth of new high revenue users for platforms — people who weren’t ready or comfortable with subscriptions, but are happy to support great content. This will be huge for the industry,” Smale says. “As transaction numbers increase substantially, lower fees on the transactions themselves will start to make a solid difference to the bottom line. We will be locking in a one percent transaction fee and in the case of our launch partners, we will actually rebate their fees for a period of time. What other payment facility can offer that?”

Smale says the beauty of the decentralized world of blockchain is that no central organization can change their terms of service at the drop of a hat as has happened with banks and other payment options in the past.

“The adult industry is a global industry. Crypto removes any additional costs associated with the transfer of funds internationally to performers or suppliers, so I would not be surprised if intimate.io becomes a de-facto standard for B2B payments in adult — why should others keep clipping the tickets as we pay for each other’s hard work?” Smale asks. “The total cost of ownership will be far less. Initially, you may deal with some questions about crypto, but with zero chargebacks also comes less staffing overheads for managing those inquiries or any events such as dealing with frozen bank accounts, etc.

“Honestly, anyone who models out the full cost of dealing with banking bias, from the initial conversion drop off due to excess information being required, to employee hours dealing with chargebacks and inquiries to the headaches of frozen accounts,” Smale adds, “will not only look to implement an adult crypto solution like intimate.io as soon as possible, but they will look to make crypto their preferred payment option.”

As in every market, there are specific advantages that differentiate one crypto company from another.

Smale told XBIZ that in addition to payments, intimate.io has a built-in trust and reputation platform which is specially designed to increase the safety of any two (or more) person interaction for any real-life interactions such as BDSM, swinging and sugar daddy sites, etc.

“One of our biggest advantages for the industry is that we are not only decentralizing away from the banks, we are partnering with the amazing adult platforms that currently exist and the new ones coming to market. Since we partner with the industry, we invest heavily in the co-marketing of our partners and the incentivization of their consumers, [unlike] many traditional cryptocurrencies that aim to disrupt the industry and so do not invest in the industry,” Smale explains. “Ultimately intimate is an outsourced IT risk play for some platforms who want the benefits of crypto but can’t justify investing in building out a team of cryptographers. Using the intimate SDK, we manage the changes in crypto — new technologies, changes in fees or transaction times or hard forks, so the platforms won’t have to. We have had a crypto dev team for five years now. They are passionate about cryptography so that you can reap the benefits of it without having to build your own team.”

“Intimate.io has a mission to partner with the adult industry and ensure it is given the same respect (and banking opportunities) that other industries take for granted,” Smale concludes. “Our partnership with the industry, rather than decentralizing the industry, allows us to invest heavily in growing it.”

Katic tells XBIZ that ClickDirectPay offers its online merchants a perfect and easy one-stop solution for accepting cryptocurrencies.

“There’s no need to constantly keep up and maintain multiple wallets and development channels to continue expanding acceptance of coins, as we take care of all that with one simple integration. As we expand the range of coins we accept, our merchants automatically take advantage of these upgrades,” Katic explains. “Within the adult industry, credit card acquirers can charge incredibly high fees of fifteen percent or even higher on every transaction along with various additional fees. Accepting cryptocurrency with ClickDirectPay, it’s a simple, flat 1.9 percent and there are no monthly, set-up registration, or hidden fees.”

Katic says merchants can use CDP’s cryptocurrency gateway without involving third parties such as payment service providers or acquiring banks.

“This landscape is growing and changing every day and our goal is to create utility and real-life uses for these coins,” Katic concludes. “As this space matures, we want to make sure we are also adapting to provide quicker, cheaper and accessible options for both our merchants and customers.”

SpankChain’s Janice Griffith told XBIZ we have to fight to make sure we are all taken care of and seen as equals, noting that “decentralized platforms have the ability to address discrimination in general, whether it be race, gender, or appearance.”

“The benefits of crypto to the adult industry and world in general are essentially limitless [because] the structure of payment processing is due for an upheaval — the fees are too high, the discrimination is abundant and even though these processors work with us, they don’t respect us or represent us,” Griffith explains. “Blockchain technology can address many of the issues that we face in payment, one of the most important of them being confirmations on the blockchain and how we can prevent chargebacks to performers and reduce theft and fraud from ‘customers’ who seek only to swindle free content.”

Underscoring its commitment to the adult industry, Griffith says SpankChain has a significant “insider” advantage over its crypto competitors.

“Typically, many of the companies that work adjacent to adult don’t have sex workers as employees and contributors, and that is what’s different about SpankChain,” Griffith reveals. “We make a point to work closely with performers of all kinds to make sure their needs are appropriately addressed and met, and this collaboration is what other companies miss out on.”

“Our cam site will be resistant to censorship within the law and have the lowest fees in the business, at less than five percent,” Griffith concludes. “We launch in late Spring 2018.”

Merchants Cater to Consumers

It should come as no surprise that such a revolutionary payment mechanism should be put to revolutionary uses, with novel applications such as strippers using QR code tattoos allowing club patrons to tip them digitally; while the appeal is becoming increasingly widespread for payment needs such as paysite membership subscriptions.

For these merchants, choices about which cryptocurrencies to accept and billing services to use, as well as cash-out strategies, are all concerns, with this latter factor being a particular issue for operators on thin margins, where holding coins as a long-term investment can be problematic when affiliates, models and service providers need to be paid.

For his part, SNR Productions’ Steve Ranieri told XBIZ he is happy to accept an alphabet soup of cryptocurrencies, including BTC, LTC, BCH, DASH, DOGE, ETC, ETH, LSK, NEO, QTUM, STEEM, XMR, ZEC and XRP, through CoinPayments.net — a processing service that now accepts more than 250 types of crypto.

As for whether or not he is cashing out the crypto as he receives payment or keeping it digital, Ranieri says he is staying in the digital realm “until I absolutely have to liquidate or think it’s a good time.”

This is an enviable position, as several other cam companies report having to convert crypto to cash as soon as possible in order to maintain their affiliate and model payouts in the face of slim margins.

Ranieri is a long time crypto advocate who is extremely happy to be in the game, advising others to jump on board.

“I’ve been accepting Bitcoin on our site since January 2013, and although a fraction of users uses the feature, it attracts a totally new audience and creates a secondary income source by just hanging on to the coins. Not to mention the extremely low fees and no chargebacks,” Ranieri says. “It’s definitely something I would recommend (and have recommended) to others.”

For her part, Amelia G from Blue Blood’s SpookyCash says she accepts “about a zillion” cryptocurrencies, but notes Bitcoin “is really the only one members tend to want to use.”

“SpookyCash’s BlueBlood.com was the first adult site to accept Bitcoin and use BitPay. It was cool for promo, as we ended up getting written up in a lot of business publications, Huffington, etc.,” Amelia told XBIZ. “Now we use GoCoin, CoinPayments or just a wallet, depending on the project.”

Amelia says she loves the idea of cryptocurrency as currency, so she initially kept everything received in its original currency.

“This worked out well with Bitcoin’s wild increases, from around $60 when BlueBlood.com started accepting it, to over $10,000 on the day I’m answering your questions, and we occasionally cash out some,” Amelia reveals. “On the downside, I set prices in crypto, rather than pegging prices to the dollar, because I felt that was in keeping with the philosophy. That worked out less awesome, as, after a while, it meant memberships and such were too expensive in dollars.”

As for what she would change with the process, Amelia says having some free, open source, donation-supported payment processing widgets, with no middlemen, would be a plus — and she thinks that they are coming.

“I’d also just like to see major cryptocurrencies become less volatile,” Amelia concludes, “because, although they have been a fabulous investment to date, they won’t be wholly functional as currencies until the values stabilize.”

The wide range of comments and use cases outlined in this report reveal a future where cryptocurrencies and their underlying blockchain technology will grow greatly in importance, making 2018 the tip of the iceberg for crypto in adult, where opportunities remains for early adopters, and where many options for increased revenues and new business are presented to merchants seeking a competitive edge.

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