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Paying and Getting Paid Online

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Link-Up Digital

Conveniently and inexpensively transferring money, whether as payment for goods or services or as a gift to family members or friends, is one important use for the Internet today.

Bitcoin (, the largest decentralized electronic payment system currently in operation, made headlines recently.

In testimony before a US Senate committee in November 2013, the general counsel for the nonprofit Bitcoin Foundation admitted that Bitcoin is "a high-risk environment, and potentially it's not quite ready for mass consumer adoption."

Bitcoin is "virtual currency." Anybody can buy Bitcoins using traditional currency such as dollars, euros, and yen, use them to buy goods and services, and exchange them for traditional currency. Their value, however, fluctuates wildly. When Bitcoin emerged in 2009, Bitcoins sold for less than a dollar, while recently the value of a single Bitcoin exceeded $650, and six weeks before that it was valued at only $110.

Because the use of Bitcoin is anonymous and because Bitcoin isn't regulated by any governmental authority in the US or elsewhere, Bitcoins are also used on the "Darknet" for the purchase of illegal drugs and weapons, forged documents, hacking services, child pornography, and hit men as well as for money laundering and other illicit activities.

In October 2013 the FBI shut down Silk Road, one Darknet market where Bitcoin was used heavily. One of Silk Road's nicknames was the "eBay for drugs." The Treasury Department is calling for regulation of virtual currency such as Bitcoin.

Finally, and this is what was behind the testimony of Bitcoin lawyer Patrick Murck before the Senate Homeland Security Committee, if you don't know what you're doing, Bitcoin can be a way for you to be parted from your money, cheated by a scammer.

On the positive side, the use of Bitcoin comes with lower merchant fees than are charged by credit card companies as well as low currency exchange fees, and it can be especially beneficial to consumers in developing countries who have little access to banks and other financial services.

The biggest name in the online payment market remains PayPal (, which has been owned by Internet auction behemoth eBay since 2002. Whereas Bitcoin is the largest decentralized electronic payment system, PayPal is the largest centralized electronic payment system, or "payment service provider," and is much more mainstream.

Using PayPal, an online merchant can accept payments for goods or services without a credit card merchant account and the fees associated with it, which can amount to as much as 5.5% of sales for a small business.

With a PayPal account, individuals can make Internet purchases without a credit card and without incurring charges for PayPal use. Individuals can also use PayPal to receive money from a family member or friend without incurring fees so long as the funds come from the sender's bank or PayPal account instead of a credit card account. Using Western Union for such a transfer within the US leads to charges of $8 to $12 on a $100 payment.

PayPal generates most of its revenue from charges to online merchants. For most transactions within the US, the fee is 2.9% of the transaction plus $0.30, with large companies receiving discounts depending on sales volume. In 2012, PayPal generated a whopping $5.6 billion in revenue.

PayPal has safeguards to help protect buyers and sellers from fraud. Buyers have 45 days after a transaction to report that an item bought through PayPal hasn't arrived or that the item is "significantly not as described"--different, broken, or counterfeit, for instance.

Sellers have protection against fraudulent chargebacks when a buyer falsely claims that an item sold didn't arrive. But sellers have to provide a high standard of proof that any item they sold did in fact arrive.

To help prevent problems with the use of PayPal, you should take precautions. Log directly onto PayPal's website rather than clicking on a possibly bogus link in an email message, even if the email looks legitimate or looks like it came from a legitimate sender.

Beware of spoof websites with names such as PayPai that try to trick you into revealing your PayPal password. Don't use the same password for your PayPal account as your email account.

Bitcoin and PayPal aren't the only games in town. Several dozen other digital currencies exist, though most are similar to Bitcoin. Big Internet players such as Amazon with Amazon Payments and Google with Google Wallet also act as online payment service providers, as do a host of smaller companies.

Reid Goldsborough is a syndicated columnist and author of the book Straight Talk About the Information Superhighway. He can be reached at or

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