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BitPay Processes $5 Million in March, Eclipses Silk Road

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A week ago, BitPay CEO Tony Gallippi announced that his payment processing service had set a new record: a transaction volume of $2 million in the first twenty five days of March. Now, however, Gallippi has revealed that the popular Bitcoin payment processor has eclipsed that figure yet again, and in a third of the time – leading to a new record high transaction volume of 5.2 million dollars for the month of March.

BitPay’s growth in the past month has been very rapid; in February, Gallippi reports, the company only processed a total of $687,000 from 2,300 completed invoices. In March, the transaction volume of $5.2 million comes from 5,100 completed invoices, and the company also added 1,300 new merchants, raising their total to 4,500 as of the end of the month. Although it cannot be said for certain, the figure also likely places the total aggregate of BitPay merchant sales above those processed by the Silk Road, the notorious online black market for illegal drugs that uses Tor and Bitcoin, combined with a proprietary mixing service, to ensure that both the internet connections and the payments of its users remain anonymous. The site was last estimated to have a volume of $2 million by a researcher at Carnegie Mellon University in August 2012, and since then the one public statistic released by Silk Road – the number of users and posts on its forum, has increased by about 50-100%, suggesting a current volume of around $3 million to $5 million. From a public relations standpoint, this is a positive sign for Bitcoin: the legal Bitcoin economy is now almost certainly larger than the illegal one, especially when one takes other merchant services like WalletBit/BIPS and Coinbase into consideration, and is growing at a much faster rate.

Gallippi suggests several reasons that may be the driving factors behind BitPay’s sudden surge in volume. First of all, on March 25 the company lowered transaction fees for merchants receiving their revenue as bank deposits from 2.69% to 0.99%, making the round-trip process of buying Bitcoin (1.00% flat fee at Coinbase), sending it to a merchant and having the merchant convert the bitcoins back into fiat even cheaper than the 2.90% fee charged by Visa and MasterCard. And some merchants are even passing on the savings; “with our recent reduction in fees, our merchants are using our all-inclusive 0.99% fee to offer discounts to their customers for paying in bitcoin,” Gallippi writes.

The other major factor is two specific businesses; the Bitcoin Store and Avalon. The Bitcoin Store first opened in November with a simple proposition: hundreds of thousands of electronics products for sale, all cheaper than anywhere else on the internet – major retailers like Amazon and NewEgg included. The company would use the advantages of chargeback-free and cheap payment processing offered by Bitcoin and BitPay, together with a contract with the wholesaler Ingram negotiated by Roger Ver, to lower their costs as much as possible, and pass on the savings to consumers. At the end of February, seeking to reach the volume threshold needed to retain its high-discount contract with Ingram the Bitcoin Store launched a promotion: 0% markup on all purchases. The promotion was hugely successful; the site processed nearly $500,000 in sales in March, much of which was in the last week, and although this is below the original volume threshold of $850,000 Bitcoin Store’s Jon Holmquist writes that “even if we don’t get to renew our current contract with Ingram we’ll just get a slightly worse contract.” The deadline has now passed, so the Bitcoin Store will be giving an update on the fate of the contract very soon.

Avalon is the first seller of application-specific integrated circuit (ASIC)-based Bitcoin mining hardware to release a functional product. Because Avalon’s major competitor, Butterfly Labs, has been delayed by several months with a working prototype confirmed only yesterday, and because of the recent meteoric rise in the Bitcoin price Avalon’s hardware has been hugely profitable for those lucky enough to have bought it; Bitcoin developer Jeff Garzik’s Avalon device paid for itself in nine days, and given the current Bitcoin price and network statistics it is producing an even higher USD-denominated revenue today. As a result, Yifu Guo has increased the price on the third batch from $1500 to 75 BTC – over $6500 throughout the last week of March, and yet people are continuing to buy them.

Of course, the Bitcoin economy as a whole, and even “just” the legal Bitcoin economy, is larger than just BitPay, and BitPay’s alternatives are all growing at the same time. Reddit uses Coinbase to process payments, Mega uses Zipbit, Avalon rotates between the various payment processors for its batches and many other businesses use custom platforms developed in-house. Furthermore, sales are not the only economic activity that takes place; an small but increasing number of businesses is now paying its employees in BTC. Thus, the Bitcoin economy as a whole, even not taking into account Silk Road, is likely considerably larger than $5 million per month – yet more evidence that Bitcoin’s recent rise in media attention and popularity is more than just speculation.

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