Credit Card Vs. Bitcoin: Understanding the Key Differences

People have been using credit cards to pay for different transactions since time immemorial. The growing popularity of cryptocurrencies over the past few years also means that they now have bitcoins to perform the same transactions. But which one to 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 real white paper on this subject as a “peer-to-peer electronic payment system”. The description describes the main differences between credit card and bitcoin transactions.

Bitcoin payments are analogous to cash transactions or wire transfers, where payments are transferred directly from one party to another, minus the interference of any financial institution. A private computer network performs payment processing and a blockchain records every public transaction.

The foundation of bitcoin is peer-to-peer technology and relies on cryptography and blockchain to secure it, minus third-party oversights. There is no need to provide personal identification like your name and address, when transacting bitcoin. Also, platforms like Bitcoin Premier making it so much easier these days to trade in cryptocurrencies.

Understanding Credit Card Transactions

Credit card transactions, on the other hand, effectively involve the buyer authorizing the seller to “take” payments from the account, while going through the financial intermediary in the process. For example, a Visa transaction typically has four parties:

  • The individual card holder
  • Merchant
  • The cardholder’s bank (the issuer)
  • The financial institution making payments to your merchant (the acquirer)

Major differences

Credit cards remain physically stored in wallets, and bitcoin transactions are sent to and from e-wallets that can be kept on smartphones, computers, or in the cloud.

Now, bitcoin transactions are irreversible and only the receiving party can refund them. This is one of its main differences from credit card transactions that you can cancel. Thus, there are no chargebacks for merchants when accepting payments via bitcoin. Chargebacks refer to a credit card provider’s request to a retailer to cover losses on disputed transactions.

The benefits of getting bitcoins are obvious to traders. Payments made through virtual currency can significantly save on processing fees, minus the risk of chargebacks. The advantages of using bitcoins for buyers are user anonymity, greater simplicity in completing the transaction, no interruptions from intermediaries, and low transaction fees.

Credit cards also come with key benefits, such as fraud protection, rewards points, the ability to borrow money, and wider merchant acceptance. Although a handful of major retailers have started accepting bitcoin, it is not yet a mainstream payment option. But using a credit card comes with risks of foreign transaction fees, interest charges, late fees, and possible negative effects on credit rating.

The bottom line

As you can see, both forms of transaction have advantages and disadvantages. In the end, the mode you choose depends on your convenience. However, it would be a good idea to try out bitcoins, without giving up on your credit card right away.

Comments are closed.