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Are Bitcoin Payment Services Similar to Credit Cards? What’s the Difference?

Are Bitcoin Payment Services Similar to Credit Cards? What’s the Difference?
Written by publishing team

Have you ever wondered how electronic money transfers work? What is the difference between a contactless debit card payment compared to a QR code transaction in cryptocurrency? They both share something similar, however, the end user cares more about completing the payment successfully than how it goes.

However, since we understand how these systems work, it is clear that one is more robust and secure than the other.

How does the visa work?

As of the fourth quarter of 2020, Visa had at least 3.6 billion cards in circulation, making it the largest payment processor in the world. But recently, Visa came into conflict with another financial giant – Amazon. E-commerce giant Visa has erred in charging exorbitant fees on credit cards, going so far as to announce that it will no longer accept Visa as a payment method in the UK.

In the payment processing game, it’s all about speed and fees. Those players who are taking advantage of the bulk of the world’s money flow are tapping into the river made of gold, just as market makers provide the exchanges with liquidity for a small fee.

On a superficial level, both Visa and Bitcoin (BTC) operate on vast computer networks to facilitate payments from one corner of the world to another. However, this is where most of the similarities end. Visa relies on banks connected via cards (debit or credit) to calculate how much money an individual is allowed to spend.

Then, Visa makes its money off the small fee of running payments through all the steps of the process:

  • Authorization: Run the transaction from the point of sale to the card issuer or bank for approval

  • clearing: After the transaction is approved, it is settled between the card issuer and the card holder

  • settlementDisbursement of executed funds between the aforementioned entities

Visa is not an independent money network. It is just an electronic infrastructure that transfers funds from one account to another, passing through multiple financial institutions. While the speed of Visa’s transactions is great – they almost no longer accept Visa – it is completely at odds with the way the Bitcoin network works.

Visa vs Bitcoin

Bitcoin also operates on a network of computers but these computers are not just facilitators between different institutions. Every computer on the Bitcoin network, called a node, not only facilitates transactions but also records every single transaction that ever takes place. “Furthermore, the Bitcoin blockchain network is independent of the banking sector because it generates its own money through the Proof of Work (PoW) consensus mechanism” – says Max Krupishev, CEO of Coinspaid.

In other words, while a Visa card is a gateway to banks, a crypto wallet is like a gateway to the Bitcoin decentralized network. Banks have central failure points, but Bitcoin can only go down if all global Internet services are completely disrupted due to the international distribution of nodes, each of which keeps a ledger of all transactions. Distributed Ledger Technology (DLT) is the backbone of decentralized finance, where all records are stored across different nodes to ensure security and data redundancy.

Another important distinction is that a crypto wallet does not hold Bitcoin like a regular bank account does. Instead, it contains a private key to unlock your bitcoin ledger from anywhere in the world to gain access to your bitcoin. If the private key is lost, the wallet address itself can be restored with an initial phrase, which opens you up to access the funds.

The implications of this are staggering because one may lose all devices with apps and crypto wallets, yet still be able to unlock funds through the initial gateway. When you own Bitcoin, you hold an entire bank in your initial ferry. However, a word of caution, if misplaced or forgotten, one could lose a fortune like Stefan Thomas when he lost access to 7,000 BTC, which is now worth around $395 million.

Visa pales in comparison to being just a pillar of the current banking system. In contrast, Bitcoin is not only a banking system but its own payment processor system as well.

Is Bitcoin superior to Visa as a payment system?

Since Visa does not have to rely on blockchain nodes to verify payments, but rather on financial institutions, the speed of its transactions is impressive. However, Bitcoin has a trick to counter the so-called Lightning Network.

In the case of the Lightning Network, its sole purpose is to offload transaction data from the blockchain’s main network, or Layer 1, to itself as Layer 2. In other words, the network consists of channels through which payments are made between two parties rather than the blockchain itself. This, ideally, circumvents Bitcoin’s slow transfer rate of just seven transactions per second (tps).

This type of scalability solution consisting of more than 31,000 nodes and 82,000 channels is not only fast, but also cheap. While the average Visa credit card processing fee is:

1.29% + $0.05 to 2.54% + $0.10

The average fee for Bitcoin Lightning Network is 1 Satoshi – the smallest denomination of BTC – or $0.000566531. Combined with speed, this makes Bitcoin the next generation instant payment system. Moreover, if the banks are down for some reason, the decentralized blockchain network can only be shut down if the entire internet is also down.

In terms of the benefits for merchants, Bitcoin once again outperforms Visa payments. Chargebacks are a great example of this. Max Krupyshev, CEO of CoinsPaid explains: “Because transactions on the blockchain can only be initiated by the owner of the wallet, chargebacks – or friendly fraud – are simply impossible. This alone can save the trader thousands of dollars each year.

What is the best way to join the bitcoin payment train?

Whether you run a business or your own money, it pays to have a reliable and properly audited crypto wallet like CoinsPaid. As an expert in the blockchain industry for seven years, it is tightly regulated by the Estonian Ministry of Finance, which follows the strict regulatory framework of the European Union.

Having already processed over €4 billion in 2021 alone, CoinsPaid is the recipient of the Payment Provider of the Year award by the AIBC Summit 2020.

When you link your bank account to the exchange, you open the door to the entire crypto world, not just Bitcoin but more than 30 cryptocurrencies and stablecoins, as well as more than 20 fiat currencies.

conclusion

Summing up, we can say that Bitcoin payments offer several significant advantages compared to obtaining a traditional Visa. For merchants, accepting BTC means saving up to 80% on processing, avoiding chargebacks, and boosting their user base. For shoppers, paying with BTC is a way to make sure the transaction is completed – no matter where the user is.

Understandably, many business owners remain cautious about cryptocurrencies due to how they are portrayed in the popular media. However, this is the case when it’s better to try something once than hear about it hundreds of times – and those merchants who integrate Bitcoin payments generally view it as one of their best business decisions next.

This article was originally published on FX Empire

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