When drawing the analogy on cryptocurrency transactions and credit card transactions major points to refer to include; Transaction speeds, Transaction fees, Global reach, and General Acceptance. According to Bitcoin original white paper, Bitcoin is a Peer to Peer Electronic Cash System. The Bitcoin white paper description touches the major difference between Bitcoin and credit card transactions.
Bitcoin as a New Payment System
Bitcoin is an electronic form of money that is transferable from one person to another anywhere in the world. Technically is classified as a cryptocurrency because of the encryption technology it deploys. BTC is designed to avoid government censors and so it can be used anonymously. Bitcoin is transacted on a network known as the Bitcoin Blockchain.
BTC payments are different from wire transfers or cash transaction in many fundamental ways. Unlike these other payment means, Bitcoin payments are pushed directly to the receiver without going through other financial institutions. Cryptocurrency payment is processed through a private network of computers.
Crypto transactions are recorded in the blockchain, a public ledger system that permanently stores all bitcoin transaction records. Bitcoin is based on peer-to-peer technology and relies on the blockchain and its sha256 cryptography security technology. Bitcoin does not have any third party directly involved in its control and regulation.
How Credit Cards differs from Bitcoin Transactions
Ideally, credit cards allow sellers to deduct payments for a service or commodity from a customer account. The transactions traverse several financial intermediaries in the process. Typically, a transaction with a Visa credit card involves at least four parties. The parties are; the merchant, the acquirer (the financial institution that enables payments to the merchant), the issuer (the card holder’s bank), and the individual cardholder.
Meanwhile, a bitcoin transaction is executable without involving personal identification information such as name and address. Bitcoin transactions use an anonymous alphanumeric address that changes with every transaction and a private key. Bitcoin payment is executable through mobile devices using Quick Response (QR) codes.
Credit cards are physically handled and kept safe in a wallet, bitcoin transactions processes in an electronic wallet. The Bitcoin wallet is stored on your smartphone, computer or in the cloud. Once a bitcoin transaction is executed, it is irreversible. Only the receiver can reverse the transactions. Meanwhile, credit card transaction can be canceled by the card owner.
When a credit card transaction is canceled, the merchant is charged a fee by the credit card company. The fee is set forth the cover the transaction costs associated with the canceled transactions. Since Bitcoin transactions are irreversible, traders are protected against such losses. Furthermore, traders accepting credit cards pay transaction fees of 0.5% to 5% in addition to 20 to 30 cents. These fees are charged on every transaction.
On the other hand, Bitcoin payments are processed at a very low cost or zero cost. This is because of bitcoin fees based on the volume of data sent. For traders, the advantages of receiving bitcoin are numerous. Payments received in bitcoin are cheaper on process fees. Furthermore, the risk of chargebacks is avoided. For shoppers, the advantages of using bitcoin include simplicity, anonymity, low fees, and fast processing.
Credit cards offer important beneficial features such as the ability to borrow money and protection against fraud. Credit card companies offer free reward points and credit cards are widely accepted. There are some few retailers such as overstock.com (OSTIK), Dell, and Etsy, started to accept bitcoin, most have yet to make its payment option. However, using credit cards carries the risk of incurring late fees, interest charges, and foreign transaction fees and bears some risks on your credit ratings.
The Bottom Line
bitcoin resembles cash as much as credit cards do. Virtual currency aims to combine the advantages of direct cash transactions with the power of digital technology.