Written by: Jashan Chittesh
2011-06-15T12:32:14 

For many games, in particular multiplayer games, one of the most customer-friendly approaches to monetizing those games is by implementing microtransactions. In recent years, free-to-play has become particularly popular: Playing the game is free but you can buy in-game items for a little money. While I personally don't like this model a lot, it's certainly an interesting model to work with. And there's other approaches which might involve microtransactions - like paying a tiny amount per session or time (think of the equivalent of an actual arcade); or a low monthly fee as will be the case for Traces of Illumination.

The issue is: When you have small transactions, with most payment services available for Internet based games, the fees will cut heavily into the profits. Besides, supporting services like PayPal or credit cards … or banks in general … may not really be what you want (personally, I consider most of these institutions rather questionable from an ethical point of view). Another issue is that pretty much all of these payment methods can be charged back - while your service can't be.

But there's a potential solution to all of these issues: An innovative decentralized cryptocurrency called Bitcoin.

It's based on a paper by Satoshi Nakamoto, titled Bitcoin: A Peer-to-Peer Electronic Cash System. The main issue that is solved in this paper is the issue of double-spending in cryptocurrencies. Without going too deep into the details: It's a peer-to-peer network that checks every transaction for validity and to trick the system someone would have to invest more computing power than the network of honest nodes has. There's an open source implementation of the client that can be downloaded from bitcoin.org. It's still beta and certainly can still be improved, especially regarding usability, but it works and is stable.

Bitcoin has gained tremendous momentum in the last few weeks, largely due to some of the established mass media reporting on it. The result is - among other things - more people providing computing power and seemingly a 51% attack (an attack where someone puts more than 50% of the computing power available to the network from honest nodes to the network to overrule the system), is extremely unlikely. At the time of this writing, the network has almost 8 Thash/s (see BitcoinCharts for current data).

So what are some of the benefits of providing Bitcoin as a payment method to your game?

• No third parties involved: No PayPal, no banks, no credit card enterprises - just you and your player. And there's no registration or authorization needed from the player: Just like with cash - he sends the Bitcoins over to you, and it's done.
• No mandatory fees: In general, payments via Bitcoin are without fees. The customer can opt to pay a tiny fee which might make the payment come through a little quicker but it's not mandatory. Plus, the fees people choose to pay go to the people providing the computing power that secures the system, so in any case it's a fair deal and not a centralized institution making profit from your service.
• No risk of chargebacks: Again, Bitcoin is like cash: once you have it, you have it - you can offer a refund if someone asks for one, but you can't be forced into that (unless, of course, there's a legal reason for why you have to offer the refund).
• Comparatively new market: This is obviously just a temporary benefit - and it's also listed in the risks, of course. Currently, the payment method is in "bootstrap mode". In other words: While there are already quite a few merchants accepting Bitcoin as payment method, it's still few compared to who accepts other methods. So when you come early, the Bitcoin community will be happy to spend their Bitcoins in your game (if it's a fun experience ;-) ).

Of course, there's also a few challenges and risks involved:

• Time required for payment confirmations: Payments usually take a few minutes and might take up to a few hours until they arrive and are confirmed. That's probably one of the most annoying issues for games because people want to play immediately when they have sent the payment.
• Integration hassles: Currently, integrating Bitcoin into your game / Web store isn't as straightforward as it should be. And in case Bitcoin doesn't take off, the time invested into the implementation might be wasted.
• Comparatively new market: When you accept only Bitcoins, there's quite a few players who won't be able to pay, yet. At the moment, the technology is not as easy to use as one might wish for.
• Exchange volatility: Currently, Bitcoins rise in value at a pretty intense rate. February 9, 2011 Bitcoin reached parity with the US dollar (see History on the Bitcoin Wiki). So that means $1 = 1BTC. May 10th it was already $6 = 1BTC. July 8th, it skyrocketed to $30 = 1BTC … but went all the way down to $11 = 1BTC a few days later and is currently more or less stabilizing around $20 = 1BTC. While this may be great for people trying to make quick bucks by speculating on Bitcoins as a commodity, it's quite annoying when you have to adjust prices all the time and run the risk of losing money when you miss the right time to exchange your hard earned Bitcoins into your currency of choice. The good news: When things go well, Bitcoins are likely to still increase in value for quite a little while, so you might want to keep the Bitcoins for a while … but … that's speculation with all its risks attached to it.
• Potential Legal Issues: Bitcoin has been connected to drug sales and it's not unlikely that there will be larger-scale smear campaigns against Bitcoins from the established system to which Bitcoin could be considered a severe threat. While no one complains that cash is used to do all kinds of illegal trades all the time, it seems that authorities might plan to crack down on this new payment method. One reason this might become an issue because it's decentralized and therefore not quite as easy to control as the established currencies. I won't get into conspiracy theories here - it's just important to be aware that Bitcoin is still not established, so that's a risk one has to be aware of. UPDATE: Gavin Andresen, one of the lead developers had a talk at the CIA today and it seems they're not going to try to attack Bitcoin - certainly a step in the right direction.

Some people claim that payments with Bitcoins are anonymous and it could be used to evade taxes. That's nonsense. While the identities involved in transactions are not automatically connected to people, all transactions are fully transparent and available on each client, and there's ways to connect Bitcoin addresses to identities if one is not extremely careful and using complicated techniques to hide … which are in the end equal to money laundering which is illegal by itself. So check with your tax accountant to make sure you that you handle taxes for your Bitcoin transactions lawfully. The obvious approach is to declare Bitcoin to currency conversions as income. In other words: Once you convert the Bitcoins that your players paid into EUR or USD, you have a taxable income. But the laws might be different where you live, so ask a professional.

So how to get started with Bitcoin?

First, you need the Bitcoin client which you can download from bitcoin.org. When you have first installed the client, you may have to be a little patient because it takes a while until the client has updated all the transactions from its peers. If you're behind NAT, you might want to set up port forwarding for port 8333 which makes it easier for other peers to connect to your client (which will result in more connections and quicker synchronization).

You can buy Bitcoins at TradeHill - using the referral code TH-R1180 will safe you 10% of the commission fees of your transactions. That's right - you save 10%. Of course, it also supports me. The more transactions you have, the better. But I'd rather earn less and have people really just buy the Bitcoins they need. The day-trading that went on recently doesn't really serve the Bitcoin economy - stable investments do. TradeHill is pretty new and might not work for you, yet (they currently only support a few currencies / areas), in that case you might have a look at Mt. Gox.

I'll probably add more articles on Bitcoin, especially how integrating Bitcoin with Traces of Illumination works - if you have questions, feel free to use the comments (they're moderated for anonymous users to prevent spam).

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