Bitcoin vs. Credit Card Transactions: What’s the Difference?

Bitcoin vs. Credit Card Transactions: An Overview

Most individuals have a credit card that they may use to pay for products that they would prefer pay in full later. However, some people have access to Bitcoin as well. Which one should you use if you have both, and when should you utilize both to get the most bang for your buck?

Key Takeaways

• Bitcoin transactions function more like cash: they are traded between individuals without the need of a financial middleman.
• Although credit card companies are universally recognized, there are several intermediaries between businesses and consumers that demand fees for “essential” services.
• Credit card companies often give fraud protection, but Bitcoin does not.
• Merchants are increasingly accepting Bitcoin.

Bitcoin Transactions

Bitcoin was built for peer-to-peer transactions, which eliminates all parties save the two persons involved in the financial transaction. Bitcoins are held and controlled by you in a digital wallet. You are not need to rely on a financial institution to keep your money for you.

Payments are comparable to wire transfers or cash transactions in that they are “pushed” from one party to another without passing via another financial institution. Payment processing is carried out through a private network of computers, and each transaction is recorded on a public blockchain.

It is not essential to give personal identification, such as your name and address, while completing a Bitcoin transaction. This implies that no one watches your financial activities or sets boundaries on what you can and cannot do.

Credit Card Transactions

In a credit card transaction, on the other hand, you authorize a merchant to “draw” a payment from your account, going through financial intermediaries in the process. A typical Visa transaction, for example, has five parties: the credit card network, the merchant, the acquirer (the financial institution that facilitates payments to the merchant), the issuer (the cardholder’s bank), and the individual cardholder. There is sometimes a sixth party—the payment processor, albeit many are also the acquiring bank.

Credit cards have existed in their contemporary form since the 1950s, although credit has been granted to individuals for generations.

Each entity in the transaction charges costs to the others, which are ultimately passed on to the cardholder, thereby boosting prices. Credit cards must be physically stored and kept safe as well. Although technology is improving, card numbers are still simple for hackers to acquire, particularly if shops are allowed to keep them for future use. Even if you don’t, hackers may get access to merchant data and steal credit card information.

Key Differences

Bitcoin transactions are carried out with the use of a public key (an anonymous alphanumeric address that changes with each transaction) and a private key. You may also pay on mobile devices by scanning QR codes connected to your wallet. Credit cards may be used on mobile devices as well, but the payments must pass through multiple companies before being processed and accepted.

One important distinction between the two is that you often present your card to another person or swipe it at a point-of-sale terminal. These devices are vulnerable to hacking, and replicated terminals may transmit your credit card information to hackers. A dishonest cashier may save your credit card information, sell it online, or use it themselves. Bitcoin is sent directly from your digital wallet to the entity you’re paying, with no possibility for the information to be intercepted.

Bitcoin transactions are irrevocable and can only be returned by the recipient, as opposed to credit card transactions, which may be reversed. This implies that when retailers accept Bitcoin payment, there are no charge-backs. A charge-back is a demand made by a credit-card company on a merchant to reimburse the loss on a disputed or fraudulent purchase.

Merchants that accept Bitcoin save money on credit card fees, which may vary from 0.5% to 5% plus a $.20 to $.30 flat cost each transaction. Bitcoin payments may be transmitted and received at extremely little or no cost since Bitcoin fees are calculated depending on the quantity of data delivered or the wallet used.

While credit card transactions involve multiple participants, they are completed in a matter of seconds. Bitcoin transactions, on the other hand, might take 10 minutes or more depending on network activity and the network’s current hashrate.

The benefits of accepting Bitcoin are obvious for retailers. Payments done using digital currency save a significant amount of money on processing costs and remove the possibility of charge-backs.

The benefits of purchasing with Bitcoin for consumers include more transaction simplicity; customers are anonymous, there are no interruptions from middlemen, and transaction costs are cheap.

Other benefits of credit cards include the ability to borrow money and earn reward points. They are also accepted by a greater number of businesses and suppliers. Using credit cards, on the other hand, includes the danger of accruing late penalties, interest charges, international transaction fees, or negatively impacting your credit score.

Which option you choose is determined by your choices for fraud prevention, simplicity of usage, anonymity, and personal ideas regarding cryptocurrencies and current financial infrastructure.

What Is a Crypto Rewards Credit Card?

A crypto rewards credit card is a credit card that pays users with bitcoin in exchange for using it to buy goods and services.

Is Bitcoin Safer than Credit Cards?

Bitcoin is very difficult to hack; but, public and private keys may be lost or erased inadvertently. Credit cards and numbers may be stolen or lost, but the issuer is normally safeguarded against fraudulent activity. Both are concerned about their safety.

Can You Buy Bitcoin With a Credit Card?

Yes, if your card issuer permits you to use it for this reason. If you use a credit card to buy bitcoin, you accept high volatility risk—the danger of Bitcoin values falling and producing huge losses. Buying bitcoin on credit is analogous to taking out a loan to gamble—you’re likely to lose more than you gain.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is very dangerous and speculative, and this article is not a suggestion by Investopedia or the author to do so. Because every person’s circumstance is different, a knowledgeable specialist should always be contacted before making any financial choices. Investopedia makes no guarantees or warranties about the accuracy or timeliness of the information provided on this site. The author does not possess Bitcoin as of the day this post was published.

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