The Value of Settlement Finality

It’s tough being an online supplement vendor. Here you are, an honest American, selling faith and hope to customers in search of salvation by way of penis enlargement pills. Or weight loss drugs. Or Schedule II narcotics. The stuff dreams are made of.

For whatever unjust reason, credit card processors deem you a high-risk merchant.

In order to accept online payments, you turn to a less-discriminate payment processor. Your transaction fees are a few percentage points higher, but that’s not the problem.

See Also: The Complete Guide to Credit Card Processing Rates & Fees

Fraud and chargebacks are the problem. Inferior payment processors validate card details, but neglect to authorize with the issuing bank. Maybe the customer used a stolen card, or changed their mind, or realized that your penis pills are actually Flintstones chewables with the name scratched off. Up to 120 days later, the cardholder can initiate a dispute.

The disputes are taken up with the issuing bank, which has to deal with the resolution process. The costs are passed on to your payment processor, which passes them on to you. With added fees along the way.

The entire cost of dealing with a chargeback is several times higher than the transaction amount itself. If your merchant revenue is insufficient to cover the chargeback fees, the card processor may drop you completely. There’s a reason your business is considered high-risk.

You turn to Bitcoin for faster settlement finality.

Technically, a Bitcoin transaction is never truly “finalized”, because there is always a possibility that some miners could create a longer chain without your transaction. Though after 6 block confirmations, that probability is pretty close to zero.

How much is this worth to a merchant?

Online pharmacies (the ones that somehow don’t require a prescription) routinely offer a 20% discount for Bitcoin payments. “Health supplement” sites average 25%. The highest discount I found was 33% off at a nootropic shop. I limited my survey to first-page search results. Discounts might be higher at less-reputable sites, but I didn’t want to go bottom trawling in malware-infested waters. sells oxycodone without a prescription. I assume that’s “legal” in the sense of “code is law”, not “legal” in the sense of “this is probably a federal crime.” 25% off if you pay with bitcoin!

The merchants aren’t actually offering a discount; they’re charging a premium to customers who lack the ability to guarantee settlement. It’s like how people with bad credit have to pay higher interest rates to get a loan. The borrower with bad credit is paying the lender to assume a risk. The credit card user is paying the merchant to assume the risk of non-settlement. probably sees a lot of fraud.

We like to think that a bitcoin-accepting vendor is looking out for the customer. How nice, they’re thinking about the unbanked. Or, they want to protect our privacy with an anonymous payment option.

Merchants aren’t looking out for their customers. They’re peddling penis pills, remember? You just gave this vendor your name and mailing address. Expect that info to appear on a darknet market selling databases of people who are easily separated from their money. (You are using a P.O. Box and, aren’t you?)

If Bitcoin’s primary use case was the protection of privacy, it would be offered as a payment option on porn sites.

Historically, adult entertainment has been the killer app for any new technology. Virtual reality. The internet. VCR. Gutenberg’s printing press.

I Modi, brought to you by Gutenberg.

But few adult sites take bitcoin. Adult entertainment is not a high-risk industry, by payment-processing standards. Chargebacks are rare. I mean, prospective buyers already know what they’re gonna get. Customers rarely call up a porn site and complain that the paid content wasn’t scatological enough, or the actress didn’t seem all that into it, or… look, it’s difficult for pornography to end in disappointment.

Digital camera’s killer app: Homemade porn

A Bitcoin user’s threat model is their counterparty.

Bitcoin is for transacting with sketchy people on the internet. By “sketchy”, I mean “people you don’t trust.” And you should never trust anyone on the internet.

If you thought penis pill customers were questionable, darknet markets take it to a whole nother level. Sometimes a borrower has such bad credit that they can’t get a loan at all. And sometimes a counterparty is so high-risk that they can’t be afforded a reversible payment option.

To quote Thomas Schelling: The right to be sued is the power to accept a commitment. We have to expose a vulnerability before the counterparty will accept a risk. How badly do you want that oxycodone? An irreversible payment is the power to make a purchase on a darknet market.

Settlement finality arguably moves the risk to the consumer. But that’s why darknet sellers have reputations and ratings. Even the no-prescription pharmacies have review sites. This is how real-life used to work. We patronize establishments that our friends recommend, and if it turns out to be a bad establishment, we complain loudly on Yelp. Consumer fraud protection is a fairly recent concept, yet how quickly it has spoiled us.

Bitcoin’s Killer App

Why do people keep complaining that they can’t use bitcoin to buy coffee? Starbucks doesn’t want your stupid bitcoin. Fraudulent coffee transactions are not a pain point. The card is physically present, so the barista knows you didn’t just go on Alphabay and buy a list of stolen numbers. Plus she’s watching you consume the coffee right there. If you have a problem with said coffee, you ask for a new one. There’s not gonna be a chargeback.

Restaurants and coffee shops have the lowest risk-profile in the payment processing industry. As a result, total processing fees are generally below 3%, depending on the card used by customers and size of business. Retail establishments have to weigh this against the transaction cost of converting bitcoin to dollars, which they need for payroll and rent.


Bitcoin’s killer app is settlement finality. It’s tempting to shoehorn it into applications already well-served by the credit card industry, but Bitcoin is the opposite of credit. Credit is the allocation of settlement risk; Bitcoin removes that risk.

(Ethereum would be a great platform for building a credit card service, except that it declared a debt jubilee last week.)

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Note: I do not endorse the use of any of the sites mentioned in this post. Please consult a medical professional before purchasing drugs on darknet markets.

*Once again, we have to trust the miners, but not each other. Many darknet markets have an escrow service, but then you have to trust the market operators instead of each other. Evolution was a darknet market that shut down in an exit scam with $12M in Bitcoin escrow accounts.

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