Bitcoin, the Credit Card Killer?

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Cryptocurrency can provide quick international transfers of wealth which allow merchants to cut profit margins and lower transaction fees. This has some questioning whether Bitcoin could replace credit cards.

For a merchant, utilizing Bitcoin circumvents the substantial fees which come from credit card companies for maintaining purchasing power. This means that the 3 to 4 percent which sellers pay can be done away with. Given a high volume of transactions carried out with credit cards significant damage can be done to a company’s bottom line by the end of the workday.

Building a Better Bank

Another weakness in the current model is the disconnect between customers and their banking\payment providers. While banks and bank cards are necessary for day to day business transactions, there is little customer loyalty for who is providing liquidity. For the most part, customers interact with their credit card companies or banks when something has gone wrong. Substantial overdraft fees, and penalties for late payment, and high-interest rates are seen as necessary evils of modern financing.

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However, blockchain supported cryptocurrencies allow the power to be shifted back to the relationship between buyer and seller instead of focusing around banks. Blockchain backed credit is more affordable than credit card debt because digital currencies are fast and free to transfer worldwide. Combined with a reduction in fees paid by merchants, this is a transaction method which could disrupt traditional banking relationships.

The Strength of Blockchain

Another way that cryptocurrencies and blockchain technology could supplant credit cards as payment methods are through identifications. While credit cards can be stolen and used by anyone, a fingerprint or telephone could be paired to the account of a person using cryptocurrencies.

A blockchain backed cryptocurrency payment system like this would also allow retailers to receive payments more quickly, traveling directly between buyer and seller rather than going through the intermediary of the bank. However, there are two stumbling blocks to upsetting the traditional power players in providing credit.

At this moment, cryptomarkets are far too volatile to provide a real line of credit. Furthermore, cryptocurrencies can’t handle a volume of transactions similar to companies like Visa and Mastercard. Both of these issues are likely to be solved as adoption and utilization continue.

While we might be nearing a shift in the credit paradigm, it will likely occur when blockchain and cryptocurrencies can reliably take the place of your visa card. At the moment, they are simply not accepted or used everywhere.