Cryptocurrency is slowly taking up an immutable and instant payment system that is increasingly being used in the retail payments industry. With recent developments in the crypto sector, Bitcoin can easily replace the normal credit card in the near future. The main argument in favor of Bitcoin is its significantly lower fees compared to traditional credit cards. This can serve as an important consideration for businesses operating on a slim profit margin where a lion’s share of the profit is eaten up by credit card companies.
Credit cards offer users the pleasure of purchasing any product or availing of any service without having to make immediate payments. This makes it a favored option of people around the globe but various other factors are present which makes Bitcoin a potential successor to credit cards in days to come. Read on to know more about this ongoing debate of supremacy between Bitcoin and credit cards.
Which Is More User Friendly?
Credit cards are extremely easy to use while Bitcoin on the other hand requires users to put in some effort. Cryptocurrencies like Bitcoin have no means of ensuring that the payment is remitted to the intended party. This stands out as a potential disadvantage, especially while comparing with remaining payment solutions. Lack of any designated customer service department makes it difficult to fix the mistake on remittance to the wrong address.
Certain sectors of our population are not very open to new technology. This especially comprises the elderly population and people residing in rural areas. They feel more comfortable using cash or credit cards while engaging in transactions. Such people are less likely to use Bitcoin or similar cryptos as a means of exchange. Highly volatile Bitcoin value further adds to its grey region and makes it difficult to gain the trust of people on this crypto as a deflationary currency.
Credit Cards Encourage Spending
Bitcoin being a deflationary currency discourages spending. Even if people open up to this crypto, they will think twice before spending and this will cause the sales of business houses to decline considerably. Bitcoin has an upper limit of 21 million and this significantly influences the consumption patterns of different Bitcoin holders.
While the above two arguments go against Bitcoin, let us still assume a hypothetical scenario where people keep on spending at equal levels even after adopting Bitcoin as a mode of exchange. We will now take a look at the transaction fee to find out the most advantageous mode of payment between Bitcoin and credit cards. According to different reports, credit card payment fees range between $2.5 USD to $3 USD for every $100 USD spent. This amounts to around 2-3% of the total transaction value. Bitcoin’s fee structure is influenced fully by the market trends and the speed at which people wish for their transactions to get processed.
The Bitcoin rate in India today is 10,09,529 INR, and Bitcoin transaction fees are less than $1 USD for any transaction. Bitcoin transactions were fee-less when the coin was launched initially. However, the fee reached peak levels of $30 USD during December 2017 with the price of the crypto lingering around the $20000 USD mark. This sheer volatility makes it difficult for people to gauge if the future of Bitcoin’s transaction fees shall remain below the credit card fees in days to come.
Credit card fees, on the other hand, are inclusive of the product prices. As a result, consumers rarely get to know about the excess amount payable as it almost stays invisible. Bitcoin fees are very evident and users stay aware of them. This, in turn, discourages spending as people tend to avoid transactions with a higher price range.
Bitcoin Credit Card
Even with inherent lacunas, we simply can’t ignore the massive phenomenon bitcoins have become. Cryptocurrency is rapidly entering the payments industry. This has also led to the popularity of Bitcoin credit cards that can be used in a way similar to normal credit cards. These cards constitute funds that are loaned to the general public. The credit is given based on fiat value against the quantum of cryptocurrency you set as the collateral. Let us now take a look at the most popular Bitcoin credit cards of 2020:
- A ratio between the amount of your loan and the market value of your collateral is a Loan-to-Value ratio (LTV). Nexo, a loan insurance company offers a bitcoin credit card which allows users to take LTV-based cryptocurrency loans. You just need to keep a certain amount of crypto as a deposit and within minutes of signing up a credit line is rewarded in fiat currency. There is no monthly minimum or monthly fees for using the Nexo cards which are pretty easy and flexible in its operation.
- Another cryptocurrency credit card is offered by Monaco, which is popularised by the name of Crypto.com. This also follows an LTV-based model and facilitates the credit card internally by its proprietary cryptocurrency, Monaco. Specific credit limits on the Monaco credit cards are determined by the amount of crypto you deposit. A unique thing about Monaco cards is that you don’t need to undergo any form of credit checks. However, you should get your identity verified for availing of its benefits.
- Next comes TenX which supports an LTV-based model for its credit cards. A flat fee of $15 monthly is levied on the card, which diminishes with increasing usage.
At the end of this article, you must have understood that it is a bit far-fetched to think of Bitcoin as a replacement for credit cards. However, greater acceptance of Bitcoin amongst the global population is bound to benefit the economy as a whole. Cryptocurrencies such as Bitcoins are a great alternative to traditional means of exchange which carry an inflationary trend and are controlled by the government. In the event of any economic meltdown like the one experienced in 2008-09, Bitcoin will become the preferred means of exchange compared to traditional tools such as credit cards.
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