Bitcoin Transactions vs Credit Card Transactions

Bitcoin Transactions vs Credit Card Transactions

You have a credit card and you have Bitcoin. You want to make a purchase and you see that the merchant accepts both options as a payment method. So which do you choose? You might think the obvious choice would be using a credit card, especially if Bitcoin is doing well.

But it’s not always quite so straightforward. There are other factors to consider, such as if Bitcoin is on a downward turn, how much your credit fees are, if you are getting value and more.

If you have questioned if you’re making the right choice whenever you’re in this situation, then we can help. Let’s take a look at Bitcoin transactions vs credit card transactions to get you a clearer picture.

Bitcoin Transactions

Bitcoin is unregulated and uncontrolled by any organization or party. The network is designed for peer-to-peer transactions which remove any and all middlemen and allow two people to directly transact with each other greatly reducing fees.

If you own Bitcoin, you store it in a digital or offline wallet, you have complete control over its contents and no thyroid party or banking institution can move, manipulate, or interfere.

When you make a payment using Bitcoin, it’s a similar process to making a bank transfer or wire transfer. The money is pushed from you to the other party. There are no financial institutions in the middle and the assets don’t have to filter through any other route to be checked, reviewed, or assessed.

The transactions, however, are publicly recorded on the blockchain. Despite this, since you don’t have to provide personal or identifying information with your transaction, no one can monitor or trace your activity or prevent you from spending what you like with who you like.

Credit Card Transactions

On the other hand, we have credit card transitions. When you make a payment using a credit card, you are effectively authorizing the seller to pull the money from your account.

The payment will pass through financial intermediaries during the process but the end result is the merchant now has the amount of money authorized in their account minus fees which they have to pay. And of course, the fees that you now must pay to your credit card company as a penalty for essentially borrowing money from them.

Aside from the fees involved for all parties, another downside of credit cards is how easy they can be to hack. Around the world each year, there are millions of reports of fraud using credit cards.

While in most cases, the owner can report the fraud and not lose the money, credit card fees often go up for everyone to offset the company’s expenses of reimbursing fraud victims. Even in today's world, credit cards are not as safe as it seems they should be.

The Important Differences

So now we’ve looked at how the transactions work for each type, let's look into the important differences between paying with Bitcoin and paying with a credit card, and things you should consider.

1. Physical vs Non-Physical

One of the most obvious differences between the two is usually, with a credit card, you have to physically hand your card over to the cashier or merchant to authorize the payment.

Of course, there are instances where you can pay online or over the phone using a credit card, but a problem arises during the times that you do have to physically hand over your card.

When you are making a purchase in person, the point-of-sale terminal is an area of vulnerability. Since these terminals can be hacked and replicated or other people can sometimes catch sight of your PIN, it’s not always a 100% safe experience.

Added to this, an untrustworthy cashier could take note of your card information and replicate the card or use the numbers to make online purchases at a later date.

While these situations may be rare, they do happen. And they can easily happen to you. However, because paying with Bitcoin doesn’t require a physical card, written numbers, or point-of-sale terminals, these risks are immediately eliminated.

You also have sole control over your wallet, where the Bitcoin is going, and without anyone intercepting the payment.

2. Chargebacks

One area where credit cards have a huge advantage is the option for chargebacks. Chargebacks are there so credit card owners don’t have to payout for fraudulent payments, disputed transactions, or where a service wasn’t received as it should have been. Chargebacks save a lot of stress and make paying with a credit card a great choice because you have this extra piece of mind.

On the contrary, you cannot reverse payments with Bitcoin. Once you have sent it, it is gone. This means if you make a mistake and send it to the wrong wallet address, it’s too bad. No one can help and you cannot retrieve the BTC to resend. You have to take the loss.

3. Ease of Mobile Payments

If you store your Bitcoin in an online wallet, you can use your mobile to make payments and send Bitcoin. You can even use QR codes, or NFC technology to send payment just by touching your phone against the other party’s if you are together. This makes the process of paying with a mobile incredibly quick and simple.

You can make payments with a credit card on your mobile also, however, because there are several financial institutions between you and the receiver, the process can be a little slower. Plus, you must wait for the payment to be approved which can add more time.

4. Fees, Fees, Fees

When it comes to banks, it seems like you are charged for everything. Having a bank account, using an overdraft, not holding a high enough balance, not paying in your salary, etc. It’s a never-ending line of fees that has you wondering what the heck you’re supposed to be getting out of this deal.

Now, while credit cards charge fees also, they feel a little more justified. A company is lending you the money you don’t have to buy a thing you need. Sure, it’s worth paying a little extra in fees sometimes.

However, the fees can be exceptionally high. And if you miss the payment at the end of the month, then the fees can rise. In the end, perhaps it’s not worth buying something with a credit card, after all. But if you’re desperate then you can be left with no other option.

On the other hand, Bitcoin fees are different. You don’t get charged transaction fees based on how much something costs or how much you’re sending. Rather, you get charged based on the amount of data needed to process the transaction.

This means you can pay very little in comparison to how much you’re sending to the merchant. If you’re lucky enough, you might even end up paying zero fees!

5. Speed of Network

You can reasonably expect credit card transactions to complete in a few seconds, maybe a little longer if there are any security checks that a third party has to complete. However, with Bitcoin, you could be waiting for around ten minutes or more. In fact, if the network is busy, people have been known to wait up to 90 minutes to complete the payment.

The network's current hash rate and level of activity increase the waiting times for everyone trying to process transactions and there is nothing you can do to make it go faster.

This slowness is a common complaint among users and credit card companies are miles ahead of Bitcoin in this department. Credit card companies process 5000 transactions per second, whereas the Bitcoin network processes 7 transactions per second. There’s no comparison, really.

Companies vs Individuals

Overall, companies benefit more when people use Bitcoin. When Bitcoin is used, the merchant doesn’t have to pay credit card fees, point-of-sale terminal fees, or deal with unfair chargebacks.

For individuals, overall it seems that using a credit card is the better option. Credit cards offer the protection that Bitcoin can’t and while fees do exist, they are nothing compared to what you might lose if you send BTC to the wrong person or use BTC just before there is a huge jump in price.

Added to this, people can also use their credit cards to collect rewards and points that can be used for things like free meals, flights, movie tickets, and more. Just don’t forget that credit card late fees can spiral out of control fast if you start to fall behind on payment.

Ultimately, the final choice is yours. If you’re happy to use your Bitcoin and not potentially fall into the trap of a credit card, or you want to eliminate the risk of credit card fraud this then is a good choice.

If you’d prefer to use a credit card, collect the rewards, have the security of chargebacks, and save your Bitcoin for a rainy day then this is also a good choice. Only do what will benefit you personally the most.

Important Points to Takeaway

  • Bitcoin transactions operate between the sender and receiver with no third party in the middle unlike debit or credit card transactions
  • Credit cards offer a good level of protection with their chargeback service and you can collect extra points or rewards but they also come with high fees that can spiral out of control
  • Bitcoin is being accepted as a payment method more and more which means there are more opportunities for you to spend your Bitcoin and avoid credit card debt if you prefer

Credit Card and Bitcoin FAQs

Can You Buy Bitcoin With a Credit Card?

As a general rule, most crypto exchanges will not accept credit cards as a payment method. This is to prevent credit card fraud or to stop investors from buying crypto then claiming cashback. Allowing credit cards can be a messy process so you’ll rarely find anywhere that accepts themes.

However, if you do find a platform that does accept them, this is not necessarily a red flag as some companies are willing to.

Is Bitcoin Safer than Credit Cards?

Bitcoin and the network are incredibly safe. They are extremely difficult to hack and are constantly monitored for flaws or issues which are fixed immediately.

While private keys can be lost or stolen, this is a user error rather than Bitcoin.

By contrast, credit card fraud is high and cards are frequently cloned or stolen. Although, credit cards are quick to respond to fraudulent activity and always refund genuine victims.

Neither option is 100% secure but Bitcoin is said to be more secure than a credit card.

What Is a Crypto Rewards Credit Card?

A crypto rewards credit card is just as it sounds. It’s a credit card that rewards use with cryptocurrency. So, you can use your card for your gas, groceries, and other bills as normal but you’ll also be given crypto by the company on top.

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