People have been using credit cards to pay for different transactions since times immemorial. The growing popularity of cryptocurrencies in the past few years also means that they have bitcoin to make the same transactions now. But which one should they choose, and what are the differences between these two modes of transaction? Let’s take a closer look.
Understanding bitcoin transactions
The inventor of bitcoin, Satoshi Nakamoto, had titled the actual white paper on this subject as a ‘peer-to peer electronic cash system.’ The description outlines the major differences between credit card and bitcoin transactions.
Bitcoin payments happen to be analogous to cash transactions or wire transfers, where the payments get pushed directly from a party to another, minus the interference of any financial institution. A private computer network executes payment processing, and a blockchain records every transaction that is public.
The foundation of bitcoin rests on peer-to-peer technology and depends on the cryptography and the blockchain securing it, minus third-party oversights. It isn’t required to offer personal identification like your name and address, while making bitcoin transaction. Also, platforms like Bitcoin Prime make it so much easier nowadays to trade in cryptocurrencies.
Understanding credit card transactions
Credit card transactions, by contrast, effectively entail the purchaser to authorize the seller to ‘pull’ the payments from the account, while going through the financial intermediary in the process. For instance, typically a Visa transaction has four parties:
- The individual cardholder
- The merchant
- The cardholder’s bank (the issuer)
- The financial institution enabling payments to your merchant (the acquirer)
Credit cards remain physically stored in the wallets, and the bitcoin transactions are sent from and to electronic wallets that can be kept on the smartphones, computers, or in the cloud.
Now, bitcoin transactions are irreversible, and only the receiving party can refund them. This is one of its major differences from the credit card transactions that you can cancel. Thus, there isn’t any chargeback for the merchants while accepting payments through bitcoin. Chargebacks refer to the demand of a credit-card provider to a retailer for covering the losses on disputed transactions.
The benefits of getting bitcoins are obvious for merchants. Payments that are made through the virtual currency can significantly save up on processing fees – minus the chargeback risks. The benefits of using bitcoins for shoppers are user anonymity, higher simplicity in putting the transaction, zero interruption from intermediaries, and low transaction fees.
Credit cards have crucial beneficial features, too, such as fraud protection, reward points, the prospect of borrowing money, and wider acceptance from merchants. Though a handful of major retailers have started accepting bitcoin, it is not yet a common payment option. But using a credit card comes with the risks of foreign transaction fees, interest charges, late fees, and possible negative effect on the credit score.
The bottom line
As you can see, there are pros and cons to both forms of transaction. In the end, the mode you choose depends on your convenience. However, it would be a good idea to give bitcoins a try, without giving up on your credit card right away.