How Cryptocurrencies Like Bitcoin Could Save the Indie Porn Industry

Illustration by Jonathan Tune

It's a small miracle that cartoon porn artist Kadath has managed to stay afloat in the adult entertainment industry. Since 2011, he's been tossed from online vendor to online vendor, struggling to find a URL where he could peddle his drawings of humanoid animals engaged in hardcore sex. He used to sell porn and collect money through the marketplace Gumroad, but one day, the people who ran the site contacted and said they were giving him a week to delete his content and transfer his funds out of their system. After that, he went through Ribbon—before once again being abruptly ordered to pack his bags. Even though Kadath says he was led to believe that Ribbon was cool with adult content, they froze his account and forced him to beg for two months to extract his funds. And he was one of the lucky ones: Other artists weren't able to get their money back or were banned from these sites altogether.

"The impression I got," Kadath told me, "was that Gumroad and Ribbon were forced to drop adult content because their payment processors didn't want to deal with 'high-risk' material."

Kadath's impression is correct—banks and credit card processors don't want to be associated with types of businesses that the Federal Deposit Insurance Corporation (FDIC) in 2011 labeled "high-risk," an arbitrary, morally loaded term referring to industries that run the risk of facilitating fraud. By charging outrageous fees, freezing accounts, seizing unpaid funds, or rejecting business outright, these financial institutions are choking out the indie porn business.

The attack isn't just directed at independent illustrators, either. Patreon, a well-known Kickstarter-esque fundraising service for artists, had hundreds of thousands of dollars frozen by PayPal, which notoriously does not process fees associated with adult entertainment; Patreon founder Jack Conte told me the dustup had something to do with a project that involved a "lizard who had a naked butt."

Kadath found refuge and solidarity when he was introduced to Richmond-based entrepreneur and programmer Brent Conn, who had started devising ways to bolster the struggling indie porn industry after noticing how many erotica artists were being deprived of a livelihood. Because banks and processors were sticking their noses up at adult entertainment, Conn turned to that famously unfettered payment option: Bitcoin.

"Many people see [Bitcoin] as just another way to accept money. I see it as something that could change the industry and really bring in sustainable money to small content creators," he explained. Conn is on a mission to proselytize alternative payment solutions to struggling adult entertainment businesses. Bitcoin, he says, won't drop anyone because it's decentralized—there's no company behind it and there's no way for a prudish government to shut it down.

"It's like gold," Conn said. "Even if you made gold illegal, you couldn't stop people from trading it unless you were sending cops into everyone's homes."

When Conn was getting started in the porn industry, he quickly found out how ridiculously difficult it is to collect money selling erotica. "I spent like two months calling processors, even the sketchiest ones in Australia," he told me. "None of them wanted anything to do with my kind of work. They wouldn't touch it, or I'd have to pay $3,000. It wasn't looking sustainable at all for a small content creator." He hopes that one day he and others in his field will convince enough adult entertainment companies to use cryptocurrencies like Bitcoin to make it possible to drop credit cards altogether.

The FDIC pressured financial institutions to closely monitor e-commerce processors like PayPal three years ago, but the real crackdown on porn came last May, when the Justice Department launched Operation Choke Point. The goal was to combat traditionally seedy businesses like tobacco merchants, escort services, online casinos, firearm sellers, and adult entertainment companies. Banks and payment processors acted as the enforcers, refusing to deal with or strictly regulating these apparently sordid businesses.

Does that persecution of legal businesses sound like a violation of due process? The House Committee on Oversight and Government Reform sure thinks so. "The goal of this initiative is to deny these merchants access to the banking and payment networks that every business needs to survive," the congressional committee wrote in a report, adding that these "blanket prohibitions on entire industries are wholly inconsistent with the Department's repeated assertion that it is merely pursuing fraudsters."

Fraud does occur in the adult entertainment industry: When seduced on a porn site to sign up for a $1 or $2 "free trial," often the fine print notes that a user will be billed in full a month after their first view. Sometimes the fine print is too fine, and the "free trial" actually costs a few hundred bucks. Other times, users forget it altogether and contest the charge when it appears on their account. That, or they're embarrassed to have a porn-based charge at all. When the charges are contested, it looks like fraud—and sometimes it is.

Maria Sparagis, the President of DirectPayNet, which helps medium to high-risk businesses diversify their payment options, said fraud often happens through—but not necessarily because of—porn sites. When credit card information is stolen from big companies like Target, the fraudsters sometimes validate those credit cards by making small purchases on porn sites.

As a former employee of MindGeek, which owns PornHub, Sparagis has seen it all. She said that despite fraud's prevalence, the choking out of indie adult entertainment businesses is an issue of social justice. "There are barriers to entry when you're considered high risk," she said. "Ten years ago, when we were at the infancy stage of e-commerce, it was much easier to get something off the ground. Right now, to get an adult entertainment company off the ground would be very, very difficult. When getting a merchant account, you'll have to have very good credit, put up a lot of money up front—and they might keep 10 to 15 percent of your settlements per month.

"A lot of the time, it isn't worth it," she told me.

The alt-culture erotica site BlueBlood claimed to be the first such place to accept Bitcoin in April 2013. Part of the allure, the blog post that announced the move said, was that "you can also choose to be 100 percent anonymous when you purchase a membership via Bitcoin."

According to Conn, more and more adult entertainment companies have been turning to cryptocurrency in recent months. Obviously, it wouldn't be financially viable to only accept payment through Bitcoin at this stage. Not many people know how to use the stuff, and credit card transactions still constitute the majority of porn sales. Additionally, most porn sites are subscription-based, which works with credit cards but not with Bitcoin—you can't set up recurring payments with the currency.

But creating the infrastructure to accept Bitcoin has already taken some of the financial pressure off high-risk businesses. And it's not like Titcoin, a rather obscure porn-inspired cryptocurrency, is going to be anybody's barely-legal tender of choice any time soon.

Conn's adult entertainment site—or as he calls it, his "digital-goods marketplace"—can offer discounts to Bitcoin-carrying users, because the adult entertainment–friendly credit card processors his site uses skim off 10 to 20 percent of every transaction. His current site supports just a handful of artists right now, but when his new erotica network launches in a few months, he'll be working with about 50 porn illustrators, he said.

Independent porn artists are desperate for this kind of network. "I've gone to conventions and worked within the community to get people on board with the idea," Conn said. "Many of them have reached out to us themselves out of desperation for a place to sell their material."

Patreon also hopes to accept crypotocurrencies like Bitcoin soon. Conte, the founder, says it's a matter of ethics: "We like the idea of collapsing the gap between creator and consumer. I feel like Bitcoin is aligned here because any time there are no fees for transactions—that feels really good. When people give a chunk of money, they know that the entire chunk of the money is going to the person they're giving it to."

The downside of Bitcoin, of course, is that it could be used to pay for all sorts of truly indefensible stuff, like child pornography. That said, thanks to aggressive government actions like Operation Choke Point, the livelihoods of legitimate, independent erotica artists are under fire. Kadath, grateful for Conn's drive to innovate payment solutions, has turned a corner.

"I'm able to have a steady flow of income that allowed me not to stress as much about finances." he told me.

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