Recent credit card fee hikes have sparked debate over the relative advantages of using cryptocurrencies. While companies such as Overstock report savings from processing cryptocurrency payments, not everyone in the cryptospace is convinced that, at this stage, cards aren’t still a better option for consumers. I’m here to argue for why cards are an inferior payment technology today, not just in a few years when the technology for cryptocurrency payments becomes more polished.
1: Cryptocurrency needs your permission to take your money
One of the single most fundamental differences in how cryptocurrency works vs. cards is that all payments and transfers are done with full permission of the user. The merchant or recipient can show their receiving address, but the user must actively initiate the payment. As a cryptocurrency user, you ultimately get to decide exactly when, and under what terms, to part with your money. This is a radical difference from the card-based system, where merchants will routinely keep your card number on file and can initiate a charge at will, removing your funds from your account with no action or consent on your part. Entire industries, such as fitness and other subscription models, have been built on this ability to simply keep taking money out without consent, applying extra fees through fine print or “mistakes,” putting the burden on the consumer to go through the lengthy process of discovering and disputing extra charges, if they are even made aware before it’s too late.
This is one of those areas where those who haven’t struggled financially have no concept of the power of this benefit. I can personally attest to the stress of not knowing what I’ll find when looking at my account balance, and have been put in difficult financial positions because of a duplicate or other unexpected charge, some of them interfering with my ability to pay more pressing expenses (for the poor, having to pay something a day early, or out of order, can be financially devastating). Many, including much of the middle class, deal everyday with this sense of powerlessness and fear from having an account balance that’s totally negotiable by others. Having lived without a bank for nearly three years now, the peace of mind I now have is incredible.
2: Cards are inherently vulnerable to thefts and compromise
Cards are an inherently insecure way of paying due to the above-mentioned way they operate. With cryptocurrency, in order to receive payments a merchant has to display their receiving address (public key), while the consumer has to initiate a payment with their own exclusive access to their funds (private key). At no point does a merchant have access to customer funds except for the payment after it has been completed. With cards, the customer gives access to their entire balance to the merchant and simply hopes that access isn’t compromised or misused. Fraud, number theft, card skimmers, and more can cause an unsuspecting user to experience significant misuse of their funds. To steal cryptocurrency one must compromise the security of the consumer and their devices, a much more involved task that targets one at a time instead of a massive honeypot all in one go.
Before I stopped using cards, I had multiple reissued because merchants I had patronized had discovered skimmers, compromising the funds of thousands of customers. What finally caused me to close my bank account was one such instance where my identity was (very poorly) forged in order to clean out my account. As long as I keep my devices safe, I don’t have to worry about this anymore with cryptocurrency, where no one’s incompetence or security failure can take away my funds.
3: Cryptocurrency has no waiting period or signup process
Simply put, creating a new account or obtaining a new card for purchases involves a process, paperwork, and time. If you want a card, are setting up a friend, or want to switch to a different payment vehicle, you will not be able to do so instantly. With cryptocurrency, setting up a new user is as simple as downloading an app. This may not seem like a big deal for those who are used to setting up one payment vehicle and sticking with it for a long time, but for setting up new users, especially quickly, en masse, and internationally, the amount of friction reduced before business can be conducted is very welcome.
4: Cards have identity requirements and associated friction
Playing off of the last point, cards are inherently tied to your real-world identity and any associated documentation. There are many situations where identity barriers can pose real problems when transacting financially, whether it be opening a business account for a fledgling enterprise or having access to financial transactions without the requisite paperwork. There are many factors that can contribute to a lack of adequate documentation, from immigration status to loss of documents, age, even permanent address being in transition. Cash can be used by anyone, anytime, anywhere, with no setup barriers. Digital cash can do the same.
5: Cryptocurrency doesn’t log your every purchase to share with advertisers
Card companies collect consumer purchase data and share it with advertisers such as Google, compromising the privacy of the user. Tracing every single purchase and transfer to an individual’s identity is a serious privacy issue that has pushed many to use cash and other methods of payment. Online, however, this is not an option. Cryptocurrency has no direct link to the user’s identity, and coins such as Dash have advanced privacy features to obfuscate payment origins so as to sever the link between identity and payments/balance. Consumer privacy is one of the major cases for using cryptocurrency over cards for purchases.
6: Cards can’t efficiently do peer-to-peer
One of the best aspects of using cryptocurrency is the ability to make a payment to a merchant or another individual with equal ease. Cards were designed as merchant-facing technology, and while various banking and payment apps exist, cross-compatibility is an issue, including the friction involved in creating a new payment app account just to receive a lone payment. The same cryptocurrency wallet you use to pay for your coffee is the same one used to pay back a friend, and even if they don’t have a wallet they can acquire one within about a minute.
If your card fails at a merchant terminal, your next resort is to use cash, which you may not carry. If a cryptocurrency point-of-sale system fails, you can use the same money to send to the merchant’s personal wallet (provided it’s a small enough merchant to where the owner or trusted employee can do this). If you need to pay back a friend or stranger if your card malfunctions or is lost/forgotten and they cover your tab, you have to either carry cash or hope they use the same payment app or bank that you do. With cryptocurrency, a simple address will suffice, which can easily obtained within minutes even if they don’t already have a wallet.
7: (Most) cryptocurrencies don’t charge high processing fees
One of the original selling points of cryptocurrency was low transaction fees, and although this hasn’t been the case with Bitcoin and some others that have experienced failure to successfully scale, this benefit rings true across most of the technology. Many merchants use minimum purchase amounts to avoid the high cost of processing fees, giving the edge to cash for small purchases. Being able to pay a fraction of a cent for virtually any payment gives an inherent edge to cryptocurrencies, so much so that even converting to fiat currency still leaves a more favorable rate for a merchant than using cards.
8: Cards can arbitrarily change fees or terms
While inherent design failure such as Bitcoin’s inability to scale or come to consensus can lead to undesirable experience changes, coins such as Dash or other well-developed singular-purpose projects have a consistent user experience. Additionally, due to decentralization, no one actor can arbitrarily change the conditions of use, including terms and fees. This is not so with banks or card companies, which can, and do, hike or add fees on a whim, leaving little recourse for users and merchants.
9: Cryptocurrency can’t be blocked or easily confiscated
Finally, and most importantly, payments can’t be blocked and balances can’t be confiscated with cryptocurrency. This tends to be a line most often used in context of political dissidents or other scofflaws, however your average everyday honest and compliant merchant or consumer can be faced with this as well. Legal cannabis companies, for example, have long faced payment issues despite operating legitimately in the confines of the law. Users in Cyprus had a portion of their account balances seized by the government. With cryptocurrency, payments can be sent without restriction, and balances cannot be remotely confiscated, requiring overt and direct theft to repossess.
Cryptocurrency isn’t as fine-tuned as it will be in the near future. But even right now, at its rough and experimental stage, it absolutely blows credit cards out of the water.