Is the porn industry overcoming its bitcoin shyness?
There's a saying in the technology world: If you want to know the next big thing, keep your eye on the porn industry.
Though retailers have begun to warm to bitcoin, however, adult entertainment companies have resisted accepting the virtual currency—even as revenues at many studios have plunged in recent years.
The instability of bitcoin's value, along with a lack of understanding about how the currency works, has kept porn's biggest names on the sidelines. But Wicked Pictures—one of the industry's larger studios—plans to embrace bitcoin fully in the near future and expects the competition to follow.
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The company started testing bitcoin payments for online streaming videos last year and will offer the option to all customers in first-quarter 2014,
"There has been a lack of knowledge about what it really is," said Avi Bitton, chief technology officer of Wicked Pictures. "I've been working to educate people in this industry. I see it as an electronic payment system first and foremost. ... Wicked is the biggest [adult] company that will be accepting bitcoin, and that's going to drive a lot of adoption."
A few things are working against bitcoin's implementation by porn players, including the reluctance to do anything that might affect revenues.
"Some of these people have been burned before by new payment transaction companies coming in and taking their money," said Tony Gallippi, founder of BitPay, a payment service provider that some call the PayPal of bitcoin. "They've stuck with the old reliable Visa and MasterCard, but they pay much higher rates to process those credit cards than your average McDonald's or Burger King [does]."
But the biggest hurdle is the inability to do recurring billing with bitcoin, which is designed as a one-time transaction service.
Online porn companies (and the online arms of traditional adult studios) make their money on monthly subscriptions. Users sign up once and don't have to think about it again (in fact often forgetting they're signed up for automatic billing). Businesses are concerned that if customers had to make monthly transactions, they wouldn't stick around.
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Bitton added that many companies don't know how to leverage bitcoin, and the whiplash-inducing fluctuations in its value last year didn't help, either. (Bitcoin values can fluctuate by hundreds of dollars a day—sometimes losing as much as half of their value without warning—exposing investors to unprecedented volatility.)
"The potential downside is if you ... speculate on your pile of bitcoins rather than cash it out on a frequent basis, you end up losing them," Bitton said. "If you've got some reasonable policy for managing your stockpile, I don't see a significant risk. ... If adult had jumped on early and been accumulating bitcoin, [the industry] would have made a fortune."
While Wicked is buying into bitcoins, other major studios say they're not ready.
"From the very little I know about [bitcoin], it doesn't apply to our membership," said Scott Taylor, president of New Sensations.
The porn outlets that accept bitcoins are generally small sites. Some cam sites (on which models strip and perform solo sex acts in exchange for "tips" from users), such as ClassyCams, allow payments with the currency. But most larger sites, such as LiveJasmin and MyFreeCams, don't take bitcoins.
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Reddit hosts forums on which users post nude selfies in exchange for the currency. And last September, U.K. escort agency Passion VIP, began letting patrons pay in bitcoin.
"Passion VIP has always been forward thinking," the company said in a statement. "We became interested in bitcoins ourselves a while ago, dabbling in some 'mining.' We felt there were probably a lot of people out there who had bitcoins and no way to really enjoy spending them. Accepting bitcoins seemed an obvious extension of our own interest in the currency."
—By Chris Morris, Special to CNBC.com