Virtual money vs real money

[caspar]

I'm about to launch a new website. There is just one detail I am not sure about, as I've seen that my competitors do it 2 different ways and I don't know which is the best.

What are the benefits of using "coins" to pay for a service? Basically, you can buy x amount of coins and with those coins you pay for a service.
Are there any legal issues with this? Is it easier than having every payment on site go through PayPal?
Any comments would be appreciated as I'd love to understand this.

Thanks.

[LifeinAsia]

Hi caspar and Welcome to WebmasterWorld!

As for the legal issues- this is not a legal forum and any answer would depend on your location and the whims of your local politicians.

On the business side, the main problem I see with BitCoins is the value fluctuations inherent with them. If you sell a $50 item for 2 coins when the value is $25/coin, then trade the coins for cash when the rate is $30/coin- that's a good deal for you (an extra $10 profit). But if you need to sell the coins when they're only $20/coin, that's $10 less than you'd have if you'd taken a cash payment instead.

It's the same sort of issue that companies/sites have that take payments in multiple currencies (although national currencies *tend* to have less voltility than virtual money).

Of course, most people think that they just won't cash in the coins while the rate is low. But what happens if the value never recovers (and just continues to decline)? This can create a cash flow issue.

To me, running a business can be enough of a gamble- I don't have enough time or energy to play the virtual money arbitrage game. It's not for everyone, and (for now) it's not for me.

[caspar]

Hi and thanks for your reply. I didn't mean bitcoins. I meant a structure like istockphoto have for example, where you have to purchase credits before buying anything. Sorry if I wasn't clear before!

[LifeinAsia]

Ah, that's completely different! :)

For the business, it's great- get all the cash upfront and wait for the customers to use the credits, with the possibility that they never uses all the credits.

There's a bit more infrastructure involved as you have to track credits, have a secure membership system, etc.

On the legal side, I give the same answer as previously.

[piatkow]

I would suggest having a lawyer look at your proposed terms and conditions to make sure that they are valid within your jurisdiction. You also need to advise the applicable jurisdiction to prospective clients (your lawyer will advise wording).

with the possibility that they never uses all the credits.

A good deal for you if local laws permit you to time expire the credits - see my comment above!