Bitcoin or Credit Card? What Should You Accept?

By Jay Patel

With an increase in its adoption, Bitcoin has started becoming a viable alternative to existing payment methods. While a lot of consumers prefer peer-to-peer Bitcoin payments, many still use credit cards to pay for products that they would rather pay in full later.

Both payment methods have their own pros and cons. For instance, credit card has a giant network across the globe and are used by billions of users, whereas Bitcoin, despite being accessible worldwide, has a lower adoption rate.

That might just be the tip of the iceberg. Bitcoin and credit cards share a lot of characteristics of money but are fundamentally different.

In this blog, we will understand the difference between credit cards and Bitcoin payments: how they work and which one’s better for merchants.

Overview: Bitcoin & credit card transactions

Bitcoin transactions

At its core, a Bitcoin transaction is a transfer of value from one user to another. It’s just like a cash payment: direct, immediate, and irreversible. Let’s briefly understand how Bitcoin transfers work:

1. Initiating a transaction: When you send Bitcoins to someone, you create a transaction request that includes the wallet address (public key) of the sender and recipient, the amount of Bitcoin to be transferred, and the transaction fees associated with it.

2. Digital signature: To validate the transaction, you will need to authorize the transfer with your unique digital signature.

3. Broadcasting the transaction: If the transaction is successfully authorized, it will be broadcasted to the global Bitcoin network and confirmed by miners.

4. New block addition: Once confirmed, the newly formed block of transactions is added to the Blockchain — a distributed ledger maintained by all the miners worldwide.

Bitcoin payments are instant, permanent, and secured cryptographically. As they are peer-to-peer, no intermediaries can control your funds. You can store and spend Bitcoins from your wallet however you want. There are no subscription fees for using crypto wallets or spending Bitcoins. Moreover, all the transactions via Blockchain are private and anonymous. You don’t have to provide personal information or validate your identity to send/receive Bitcoins.

Credit card transactions

Credit card transactions are not direct payments. When a customer swipes a credit card, they think they are paying. But, really, they are not. Instead, they are authorizing the merchant (you) to ‘pull’ the payment from their account. The request is routed through several intermediaries. The problem with this model is that if any of the intermediaries ‘feel’ the transaction is suspicious or unauthorized, it won’t go through.

Let’s understand with an example.

When a customer pays through a Visa credit card, the transaction is instantly approved but not settled. It may take days or weeks before you receive the money. And even after the money is received, the transaction remains unsettled. This means the customer has the right to reverse the payment at any time by requesting a chargeback directly from Visa. And credit card companies are inclined toward consumers, and thus, it is likely that they will pull back the money from the merchant (you).

“Although a reported 72% of merchants respond to chargebacks, the average net win rate is slightly under 9%.”
Source: Chargebacks911, 2022 Chargeback Field Report

If you do not refund the money and when Visa is unable to charge you back, your customer can go to court to file a case against you. And if they win the lawsuit, the court can put a lien on your bank accounts and refund the customer’s money.

Thus, any payment made via Visa is never settled. It’s only processed. If everything goes well, you get the payment in exchange for goods and services. In the process, Visa gets paid for its services.

Bitcoin & credit card transactions in numbers

According to a report by Statista, the total number of Bitcoin transactions nearly reached 500,000 per day in 2023 — that’s significantly higher than previous years. Since its inception, the Bitcoin network has had an impressive uptime of 99.987%. It is a secure, reliable, and completely decentralized means of accepting payments.

On the flip side, over one billion credit card transactions are processed daily. Today, there are over 3.3 billion Visa cards around the world — as per the company. On an average day, they process over 2,000 transactions per second (tps). However, the network can be scaled to 65,000 tps. Thus, even if everyone on the planet used Visa, it wouldn’t catastrophically collapse.

Bitcoin & credit card transactions: Key differences

Bitcoins give you complete control over your funds, whereas credit card transactions are heavily regulated by giant financial institutions. As a merchant, it’s important to know which payment method will serve you well in the long run. To help you decide, here are the key differences between Bitcoin and credit card transactions:

Fully decentralized & reliable

Bitcoin runs on a global network of computers — each of which is called a node that not only facilitates payments but also keeps a log of each and every transaction ever made on the network. This makes Bitcoin transactions peer-to-peer and eliminates the need for any intermediaries.

“Bitcoin’s Blockchain takes the idea of decentralization further by distributing a shared ledger across everyone on the network. This makes it almost impossible for any one person/user to take control of the entire network and inflate it by generating excessive Bitcoins or manipulate any transactions.”
— Jay S. (CEO of Speed, a Bitcoin payment processor)

On the other hand, credit card companies like Visa are gateways to banks. And giant financial institutions like a bank have central points of failure. If a bank goes down or is inaccessible, the transaction will fail. However, the Bitcoin network can only collapse if the global internet services are interrupted.

The distributed ledger technology and proof of work mechanism make Bitcoins completely decentralized. No one can ever freeze your money or restrict your transactions. You will always have complete control over your funds.

Lower transaction fees

The average credit card processing fees range between 1.5% and 3.5%. Depending on the type of credit card accepted, there are several fees associated with every transaction. Some of them include interchange fees, payment processor charges, and assessment fees. For example, Mastercard’s average processing fees are 1.15% + $0.05 to 2.50% + $0.10.

However, when it comes to Bitcoin transactions, there is only a network fee applicable to all your transactions. The network’s median base fee is 1 Satoshi, which is approximately $0.000294. This means whether you accept international payments or run a local coffee shop, you will only pay a small fraction of the transaction amount while accepting Bitcoins.

In January 2020, 1 billion dollars worth of Bitcoins were transferred to another wallet in a few minutes for a total fee of 0.00001%. That is just $100 for facilitating the entire transaction.

To put this into perspective, let’s see the cost of accepting $100,000 internationally through Bitcoins and credit card:

You see, Bitcoins are not only cheaper to process but also can be transferred almost instantly anywhere around the world.

No fraudulent chargebacks

Chargebacks are the most common type of eCommerce fraud online retailers experience on a daily basis. It not only results in loss of funds but also harms a merchant’s reputation and may lead to account suspension, after which they may no longer be able to accept a specific type of credit card. According to a Forbes report, friendly fraud chargebacks account for 40% to 80% of all eCommerce fraud losses.

“Merchants lose an average of $3.75 for every $1 lost to chargebacks.”
Source: LexisNexis

Bitcoin can solve this. All the payments made via Bitcoins are permanent and irrevocable. This means customers cannot file fraudulent chargebacks or reverse the transaction once the purchase has been made.

Enabling Bitcoin payments can also be beneficial from a security standpoint. That’s because it’s relatively easy to gain access to someone’s credit card and make unauthorized purchases (which will again result in more chargebacks) than it is to steal someone’s Bitcoin private key.

Bitcoin payments, thus, are more secure than credit cards as you also don’t have to enter your PIN or critical information to complete your payment.

Widely accessible

Globally, over 1.4 billion people lack access to a bank account. This means they neither have a credit card nor any other payment methods for transacting online. Ultimately, these unbanked citizens are left out of our economy with no opportunities and very little leverage for building wealth.

Things are not the same with Bitcoins. Anyone can start using Bitcoins as long as they have an internet connection. There’s no need for a high credit score or huge bank balance to transact in Bitcoins. Transactions made via Blockchain are not bound to any country or region. They are global and widely accessible.

Thus, by enabling Bitcoin payments, you open yourself to global trade opportunities. Anyone can send you payment almost instantly, with a very little transaction fee.

Free & easy setup

Setting up a Bitcoin payment gateway is relatively easy and can be done in just a few minutes — without writing a single line of code through plug-and-play extensions. Some payment processors also offer standalone payment collection tools like QRs, links, and Point-of-Sale systems for accepting Bitcoins across your online and offline channels.

Onboarding a Bitcoin payment gateway like Speed is easy, too. You don’t have to go through strenuous KYC processes or verify your identity to get started. All you need is a valid email address to start accepting Bitcoins on the go.

The trilemma: Secure. Scalable. Decentralized. Pick any two.

Security and scalability are the cornerstones of any robust financial system. Credit card companies have successfully offered their users bank-grade security and unmatchable scalability for decades.

But the world is changing. People have started valuing privacy and decentralization over the dictatorship of a few giant financial corporations.

While the Bitcoin network is secure and completely decentralized, it lacks the scalability that credit card companies can offer. Bitcoin’s slow throughput of 5 transactions per second limits it from being as big as other payment options.

If this was 2017, you could only pick any two. Your payment network can be big and secure (like credit cards) or decentralized and secure (like Bitcoin transactions). But it cannot be all three (i.e., big, secure, and decentralized).

Enters Bitcoin Lightning Network

In 2018, The Lightning Network (LN) was launched to circumvent the limitations of Blockchain. It is the second layer payment protocol on top of Bitcoin. The Lightning Network solves three major problems: scalability, transaction speed, and micropayments. Let’s look at each one individually.

Scalability: One of the major problems with Blockchain was scalability. However, The Lightning Network is capable of processing billions of transactions per second. That is by far the most number of transactions any payment system can process per second.

Transaction Speed: Although Bitcoin transactions are faster than most other payment methods, The Lightning Network (LN) accelerates it even further. Payments made via LN can be measured in milliseconds to seconds.

Micropayments: Through The Lightning Network, you can now send payments that are as small as 0.00000001 bitcoin (≈$0.00029). This also makes sending and receiving micropayments practical and easy.

If The Lightning Network makes the Blockchain bigger, faster, and better, wouldn’t it be costlier, too? No. In fact, it also brings down the transaction cost significantly by settling payments off-blockchain.

Final words

Credit card or Bitcoins? We have an obvious winner. But which payment method you prefer boils down to your preferences. While Bitcoin offers you privacy, security, and full control over your funds, credit card companies have a large user base.

But the definition of money is changing rapidly. According to the latest report by Blockware Solutions, Bitcoin adoption will hit 10% in 2030, and post that, the growth will be parabolic, eventually reaching 80% population by 2050.

Bitcoin might as well be the future of payments. Are you ready for the paradigm shift? If not, now is the time to get started. Sign up with a Bitcoin payment processor today to start accepting Bitcoins across your online and offline touch points.

Author Bio:

Jay is a serial entrepreneur, a Bitcoin evangelist, and CEO of Speed — a leading crypto payment gateway. He spends most of his time building Speed, through which he aspires to make Bitcoin payments accessible to everyone worldwide. And when he is not doing that, he is busy reading and traveling the world.

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