Cryptocurrency Adoption Accelerates in Adult Industry

LOS ANGELES—Cryptocurrency payment solutions are increasing in popularity among online retailers, but adoption of this new technology has had a slow start within the adult industry. In the past few months, however, things have picked up speed. The turning point came earlier this year when Pornhub announced a partnership with Verge, a cryptocurrency project focused on security and anonymity. Brazzers followed shortly thereafter, launching a never-seen-before five-year subscription to commemorate the partnership. Since then, additional cryptocurrencies have been added to the Pornhub and Brazzers networks, including Horizen (formerly ZenCash) — a partnership that I directly advised on. Not surprisingly, other adult websites are catching on. In the months since the Pornhub announcement, we’ve seen more and more sites in the adult industry follow suit and begin accepting a widening range of cryptocurrencies. The reason behind this is that cryptocurrencies provide solutions to a number of the biggest issues facing online businesses in the adult industry, including maintaining customer privacy and dealing with chargebacks and payment delays. No Risks of a Breach of Customer Privacy Until recently, there weren’t a lot of private payment options for consumers looking to access adult content. Paypal links to your email address, bank transfers are documented, and credit card transactions can cause questions at home. The lack of privacy options was frustrating to consumers, most of whom value their data privacy, especially when visiting adult websites. Fortunately, cryptocurrencies provide the discreet digital payment solution that consumers have been looking for. When making a payment with Bitcoin or other cryptocurrencies, customers do not have to submit financial details that will be linked to them forever. Payments can be made exposing only their wallet address, which is anonymous, and a transaction id. This allows the website or service provider to verify the payment and deliver services without exposing the customers private information. Not only will the financial details of a customer’s purchase not show up on their credit card bill, they won’t even show up in the company’s database. Thus, in the face of a website data breach, like that which hit Ashley Madison, there’s no risk that customers’ payment records will be exposed to the public. But cryptocurrencies aren’t just good for customers, they’re great for websites in the industry as well. No Chargebacks to Hurt Your Balance Sheet One of the biggest expenses for websites in the industry is chargebacks. Unfortunately it’s very easy for a credit card user to sign up for a website service and then reverse the charge afterwards by calling their banks and claiming the charge as a fraudulent transaction. Not only does this result in a loss in subscription fees, but in many cases the website can incur penalties from the bank for the cancellation of these transactions. Cryptocurrencies, however, do not provide the ability to chargeback and the transactions cannot be reversed by the consumer. This can be a huge boost to an online provider, who might normally see a significant chunk of its revenue reversed on chargebacks. Payments Hit the Bank Instantly While credit card payments feel instant for the customer, they take a long time to reach the service provider’s bank account. It can take days to months for the transaction to be completed, preventing businesses from making use of that capital. Crypto transactions, on the other hand, are processed through blockchain technology, which happens almost immediately. There are no intermediaries to cause delays, and thus transactions that used to take days can be completed in a matter of seconds. This means almost instant money for the service provider. Why Hasn’t Adoption Been Quicker? Despite the incredible advantages cryptocurrencies have to offer adult websites, there has been relatively slow adoption of the new technology. The main reason for this is the steep learning curve for service providers to understand what cryptocurrencies are, how to use them, and how to accept them. At its most basic level, this means learning how to create a crypto wallet and to set up an account on a cryptocurrency exchange platform. The next challenge has been the issue of price volatility. Just as most US businesses don’t want to accept Euros and take on unnecessary currency risk, they don’t want to accept digital currencies that can have wild price fluctuations. So until website operators understand how to exchange their cryptocurrencies for dollars rapidly and seamlessly, we won’t see widespread cryptocurrency adoption. However, a number of new payment gateways, such as CoinPayments and CoinToPay, have been introduced in recent months that make it easier for online providers to accept cryptocurrencies and exchange those cryptocurrencies for fiat. These can be directly integrated into a website, essentially eliminating the need for business owners to learn how to accept or exchange cryptocurrencies. As awareness of the technology grows and as new payment providers ease the process for service providers, we will undoubtedly see many more businesses in the adult industry adopt crypto.*** Dean Steinbeck, managing director of Crypto Law Insider and general counsel at Horizen (formerly ZenCash), is a leading authority on legal issues related to cryptocurrency and blockchain technologies. Dean is a US corporate lawyer with a focus on data privacy and technology and over 15 years of experience representing VC-backed software development companies. His experience gives him an in-depth knowledge of the legal intricacies within blockchain technology, data privacy, intellectual property, venture capital funding and regulatory compliance. Contact him at [email protected]