Anatomy of a bitcoin transaction: Buying a used Subaru

Michael Hill
Associated Press

East Greenbush, N.Y. – Bitcoins can buy you a TAG Heuer watch, a cross-country flight or a meatball marinara sub. But really, how does it work?

What are the fees? Are there taxes? How do you spend a currency that can devalue dramatically between ordering appetizers and paying the check?

Here’s a look at a single bitcoin transaction, the sale of a 2017 Subaru from an upstate New York car dealer to a buyer from Virginia.

Eugene Rubinchuk got into bitcoin to get more business.

Rubinchuk and his father, who goes by “Mike the Russian,” already ham it up in local TV commercials for Michael’s Auto Plaza wearing furry hats.

“It’s just a way to reach customers we normally couldn’t reach, that normally wouldn’t think of us,” he said.

The cars and truck on the lot near Albany are priced in U.S. dollars. Rubinchuk simply signed up for one of the services that allowed him to accept digital currencies.

Jonathan Cypert got into bitcoin early and made out well.

In 2011, he read about a 2-year-old currency skyrocketing in value and soon invested $2,000 in computers to “mine” bitcoins for about a year and a half. That’s the complicated process that rewards tech-savvy participants for verifying bitcoin transactions in its public ledger, called the blockchain.

When he started, a single bitcoin was worth around $2.50. By the time he was ready to buy a used, low-mileage Subaru for his wife, a bitcoin was worth over $14,000.

Rubinchuk and Cypert talked on the phone the evening of Jan. 2 and settled on a sale price on the Subaru WRX STI of $34,640.

Tracking bitcoin prices on their screens, the pair agreed to proceed with one bitcoin equaling about $14,755. Cypert sent 2.34790481 bitcoins from his personal electronic wallet to the public address of Rubinchuk’s wallet.

Cypert also paid a network fee of about $3.50, money that goes to reward miners and keep the system running.

Then Rubinchuk watched bitcoin’s value go up and down as he waited to convert his digital money into dollars.

Rubinchuk wanted to convert quickly in case bitcoin’s value suddenly dropped against the dollar, costing him money. Bitcoin’s value can gain or lose more than $400 in a half-hour.

But the digital currency service he uses required him to wait for multiple confirmations from the bitcoin network before he could convert it into dollars. Rubinchuk recalls waiting about 30 to 45 minutes.

“I’m sitting there on pins and needles checking every five minutes if it’s available,” he said.

Rubinchuk converted the sale into dollars with bitcoin just slightly below where it was at the time of the sale earlier that evening. He made about $7 less than the sale price.

The money was in his business’s bank account within 48 hours.

Rubinchuk soon after signed up for a separate merchant account through another provider that assesses him a 1 percent fee on all transactions, insulating him from short-term volatility. He compares it favorably to credit card fees that run 2 to 3 percent for merchants.

Digital currencies are used by criminals to transfer funds anonymously. But Rubinchuk told the tax collector about this transaction.

In a standard IRS form for cash payments over $10,000, he reported the money he received, from whom it came and the fact that it originated “via bitcoin.”

Cypert avoided sales tax under a federal law covering service members that lets him retain his official residency in Alaska, which does not have a sales tax. But he will pay taxes on a long-term capital gain.