Bitcoin: the solution to startups' international banking issues?

Second-hand software site Half Price Digital shows how bitcoins can help startups avoid tricky situations.

AccessTimeIconOct 16, 2013 at 12:40 p.m. UTC
Updated Sep 10, 2021 at 11:36 a.m. UTC
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Banks and large corporations continue to view the concept of bitcoin as a problem. But for some businesses, virtual currencies can help to alleviate a thorny situation. This can be especially true for startups, which often have to operate by being creative and taking risks in order to survive. When you’re just starting a business, it can be important to think differently.

For the second-hand games and software exchange site Half Price Digital, an interesting legal decision led its founder to register his business in the United Kingdom.

By utilizing bitcoin on the site, users can quickly buy and sell digital goods. Plus, the digital currency has allowed this company to operate despite difficult-to-navigate international banking laws.

UsedSoft v Oracle

A decision in the European Court of Justice (ECJ)'s UsedSoft v Oracle case last year prompted Half Price Digital’s domain and business registration in the UK.

According to this ruling, if you pay a fee for a digital copy of something such as a piece of software and are granted a license for an unlimited period of time, then the copyright owner has exhausted their exclusive rights for distribution.

The bit of legal-ese means that even if a software license that someone purchases in Europe explicitly states that it cannot be resold, the purchaser is still allowed to do so if they wish. This includes both downloaded software as well as physical media.

Half Price Digital’s founder Michael McNeff took that court ruling as an opportunity for people to buy and sell digital goods, including iOS and Android apps. But as a US citizen, he experienced a lot of difficulty obtaining a bank account in the UK to start his website.

While it was easy for him to register as a business there, banks did not want to open an account for a US citizen. In order to accept a large amount of payment transactions via PayPal, its UK subsidiary requires a merchant to at least have a bank account in that country.

halfpriceauction

Recently tightened US tax reporting regulation has made European banks wary of servicing American customers and McNeff didn’t want to travel to Europe just to open an account, which was something that banks there were requesting from him.

Enter bitcoin

McNeff decided to accept bitcoin on Half Price Digital because he thought it would attract a valuable market: tech-savvy users interested in selling their digital goods.

“My site uses Coinbase as a way for bitcoin users to pay for auctions,” says McNeff. “I chose Coinbase because I needed essentially the PayPal equivalent for bitcoin allowing direct user-to-user payment transfers.”

And instead of having just PayPal for paying auction fees, users have the option to use BTC. Inadvertently, this solved McNeff’s international banking issue while trying to scale his site.

Another advantage to using bitcoin for Half Price Digital is that PayPal cannot influence any legal ramifications of the site. By using bitcoin, the site is keeping at bay any pressure by PayPal to freeze the merchant account even though the court ruling is a clear sign that this type of activity is legal in the European Union. McNeff said:

“I think that in the future many US entrepreneurs will choose to form their companies in the EU to avoid US patent trolls. Patent trolls are a big problem for any US tech company and being outside their reach is a big advantage.”

Buying used Steam games might be another big resale market in the future. There is currently a lawsuit in Europe regarding Valve’s prohibitions on reselling games within its platform.“For some reason with digital content, if you buy it you can't resell it and if you lease it (like having an Adobe Creative Cloud subscription) you also can't resell it [in the US]," says McNeff.

Half Price Digital is a great example of being able to break down barriers of entry into a market. The resale of digital goods should be something that US consumers probably should have the right to do, and bitcoin is just one a tool that allows the site to be in business.

What other startup-related problems could virtual currencies solve? Do you feel you should be able to resell your digital items? Let us know in the comments.

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