Use of Bitcoins in Online Trading : Part II

This is the second part of the series of articles on Bitcoins in Online Trading. The first part can be read from here. To better understand use of Bitcoin in online commerce, we first have to understand the online trade as a business concept.

The term e-commerce consists of the two terms electronic and commerce. Thus, an online trade is understood as a business concept by generating the sales on the Internet. Accordingly, this includes the classic course of a transaction, eg money against goods, as well as the automation of business processes. It does not matter whether you are on the business-to-business level, ie, a trade between two companies or on the business-to-customer level, ie the trade between a company and a private end user. This category mainly includes the Internet shops, as well as accompanying activities in the sales of goods on the World Wide Web. Internet shops are also categorized under the term channel. This means various distribution and communication channels, such as the online shop. But also social media services, e-mails, apps, push messages, etc. are part of sales and communication channels.
It can be stated that an online shop focuses on the buying and selling process, mostly in the B2C area, via the Internet. One can categorize the online trade into 3 sub-items and say that this consists of three components. The information page, the online catalog and the online shop. The information page is about providing the customer with detailed information about the company, the products, the services, etc. It therefore serves primarily as an information and advertising tool. The online catalog is used to present the products to be sold on the Internet. Not every product needs to appear in the online catalog. One speaks of a section of the entire product range. Usually one finds graphics or illustrations to the product and text information. The online shop requires the two components information page and online catalog and supplements these with transaction elements. Thus, in an online shop information about the company and its products and services offered can be viewed, detailed information on individual products/services and can then order and pay for this via a transaction process. In order to acquire a product or service via an online trade, it is necessary for the company to provide the customer with a suitable payment system. These payment systems are: purchase on account, online payment systems, direct debit, credit card and prepayment. In purchase on invoice payment procedure the goods or the service are paid only when the goods have arrived or the service has been used. As a result, the customer is at low risk of being cheated. For this reason, this payment method has become a standard and has a share of 80%. For the merchant, however, this payment system has a high risk of default. It may be that the goods are delayed or not paid. For the dealer thus arises through duchies or dunning procedures effort.

One of the most popular online payment systems is PayPal. When paying with PayPal, the customer first needs a PayPal account. He links this with a conventional bank account or a credit card. In the payment process itself, this only has to be verified by entering his PayPal user name and password. This makes the PayPal account feel like a bank account to the customer. The merchant also receives the money transferred to his PayPal account. However, Paypal also requires a certain fee. From the PayPal account, the merchant can now transfer the money to the correct bank account. An advantage of PayPal is that it is very convenient for the buyer. He only has to register with a purchase with his e-mail address and password and does not need to remember an IBAN or BIC. Due to the high acceptance by the end customer and the high distribution in other online shops, PayPal is becoming more and more popular.

When processing payments with a credit card, the customer must provide his credit card details when ordering. These include the cardholder details, card number, expiration date and security code. After the data has been sent, they are sent to a Payment Service Provider, which carries out plausibility checks in real time and carries out security checks. One advantage of credit cards is that they have little manual effort from both the merchant and customer point of view. Because both the payment and refunds are handled by automated system in the online store.

When paying in advance, the purchaser must transfer the appropriate amount to the shop owner after placing an order in the online shop. For this purpose, the operator usually sends an e-mail where the account details are already included. The goods will not be sent until the amount has been checked by the merchant and entered into the account. Since the goods are shipped only after the transfer of the amount, a risk of default is hardly available. The risk that the customer does not pay, however, still exists. In general, the effort is not worth pursuing the unpaid bill, because the goods are still in the hands of the dealer.

 

Use of bitcoins in online trading

 

Legal challenges

The legal nature of a Bitcoin under the laws of most government can not qualify Bitcoin as a thing, claim, intellectual property or money. Bitcoins are to qualify as other property rights or objects. There are still many legal issues, especially since there is no state control over the bitcoins. The exchange of Bitcoins for goods is difficult to classify by contract.

Purchase law

The buyer of a product, service, etc. after the execution of a purchase contract by law has the obligation to pay the purchase price. In this case, must always be accepted as a means of payment. A purchase contract and the associated rights and obligations does not come about when exchanging a good for Bitcoin, since Bitcoins are not money within the meaning of existing laws.

Exchange right

Since it is not required to make a cash payment in exchange contracts, in contrast to the purchase contracts, it could also be an exchange when exchanging goods or services etc for the Bitcoin. In general, only things and rights can be exchanged in an exchange contract. Due to the legal situation, it is therefore difficult to incorporate Bitcoin. However, bitcoins can be financially equivalent when traded as data. From this point of view, bitcoin can now also be described as an intangible asset whose value is individual. Thus, this could also be a right and can be classified from this perspective. The principles of sales law would then be applicable again by law.

Return Policy

With the right of return arise again further open questions and missing legal conditions. It must first be clarified, what happens if the buyer wants to take his right to return and reclaim his money after 2 weeks. In this case, the question arises, if he then gets paid the then purchase price in Bitcoin or Euro.

Liability

Due to the complicated and difficult classification of the contractual framework, there are numerous other problems. The question arises as to what the liability distribution looks like when buying or exchanging bitcoins. It is unclear who assumes liability for any damage or costs in case of data loss or data manipulation by third parties. These regulations are important for both customer and retailer. The Civil Code could help in a number of cases, but it is very difficult and problematic, as there are too many legislative gaps with regard to bitcoin.

Procedure of a transaction

A bitcoin transaction from A to B contains the following information:

Input : The sender address, which previously sent bitcoin to user A, is stored as information in the input.

Quantity : The second information describes the amount of bitcoins sent from A to B.

Output : In the information output, the recipient address, for example, the bitcoin address of user B is stored.

When sending bitcoins, a Bitcoin address and a private key are needed. The Bitcoin address consists of randomly arranged letters and numbers. The private key is kept secret, but like the Bitcoin address, it is a sequence of letters and numbers. It is important that the private key is not disclosed, otherwise transactions can be manipulated. So if user A wants to send a certain amount of bitcoins to user B, he must first sign the message containing the three above-mentioned input, quantity and output information with his private key. Only after the message is signed will the bitcoins from user A’s wallet be sent to the Bitcoin network. The mining generates the bitcoins and processes and verifies the transaction of bitcoins into blocks. If the transaction succeeds, these blocks are added to a public transaction log. This transaction log is called Block Chain. The process of mining is very extensive and has to rely on large computing power and increased power consumption.

In the next and final part, we have discussed the Opportunities & Risks and drawn conclusion.

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