Ask HN: Can Cryptocurrency Beat Credit Card in Consumer Micro Payment Market?

6 points by jw2013 9 years ago | 2 comments

Amid all the hype on cryptocurrency, I think in consumer (espcially in micro payment), credit card is better than cryptocurrency because:

1) it has cash back; 2) it has no fee in most cases (still some website/service will charge you though, but even for cryptocurrency if you buy on coinbase, say, you still have to pay some fee), but nowadays it is very hard to let the payment to go through without adding some transaction fee; 3) the payment is instant for the user, meanwhile bitcoin is much slower. Many altcoins are fast but still the credit card payment is just fast.

I am not saying cryptocurrency cannot be backing the credit card company to do the transactions transparent to users. That is possible. Because for that use case, all my argument above for credit card can still hold for cryptocurrency.

I wonder what you guys think if consumer using cryptocurrency directly for micro payments can be a reality, and why?

dsacco 8 years ago |

There are two points you did not mention which make credit cards a more suitable medium:

1. Credit cards use a stable currency. Cryptocurrencies are not yet stable in price and are heavily impacted by speculation. If someone pays you in Bitcoin, you'll probably want to quickly convert that a conventional currency so you have a reliable store of value. You'll be doing a lot of de facto forex transactions as a result.

2. Credit card networks have far more transaction bandwidth capability than blockchains. Presently, there is no implemented cryptocurrency which can scale in the same way VISA and MasterCard have. This could change in the future, but I have doubts about it changing without trading off all or most of the "decentralized" component (at which point, why are we bothering?).

I think it's debatable that cryptocurrencies beat out credit cards in fees because they're fundamentally incomparable right now. Bitcoin is the most mature cryptocurrency, but it doesn't have anything resembling a mature ecosystem. It is not widely accepted, and you cannot directly use Bitcoin as credit. It doesn't have consumer protections like credit/debit systems do. There's really no telling if it would remain competitive with credit cards after it scaled up to real usability. You can abstract away transfer processing fees to a distributed consensus network, but you dramatically slow down the entire system in the process.

MichaelBurge 8 years ago |

> 1) it has cash back;

That's only a benefit for a small percentage of people. If you're a middle-manager or salesperson, cash back on purchases reimbursed by the company can be considered part of your compensation.

I suppose the bank can negotiate with certain popular companies for a higher cash-back rate, which is harder to do as a bunch of individuals.

Outside of these, it's not really a benefit since it's included in the interchange fee. You might not notice it because your bank hides it with clever marketing, but it's there.

> 2) it has no fee in most cases

One common credit card fee is 2.9% + $0.30.

> 3) the payment is instant for the user, meanwhile bitcoin is much slower.

Payment is 6 months if you want to be sure. Anything less can be charged back. Bitcoin payments are instant if you're willing to immediately confirm, which isn't a bad idea on payments smaller than $50 or where it's a repeat customer.

The one area that you truly benefit from a credit card is in the consumer protection laws: You can chargeback very easily and it's tough for the merchant to dispute it. Bitcoin transactions can't be reversed, so if you get scammed you're out of luck.

The items you've mentioned are just banks out-marketing you. They aren't fundamental benefits. You pay for them with a markup that the merchant adds, and you also end up paying for a bunch of banks and Visa/MasterCard to exist.

Checks or ACH are better than both credit cards and cryptocurrencies, when applicable. Terrible security and a bit clunky, but very efficient for moving money around. And you can even get a card with a lower fee: I think the debit cards from major banks are 0.05% + $0.21, though you might have to convince the merchant to charge you less.

My ruling? For casual use, then - mostly because of the better security:

Credit cards > Cryptocurrency > Check/ACH

For anything serious, then - mostly due to cheaper transfer costs and assuming you can trust the counterparty:

Check/ACH > Cryptocurrency > Credit Cards

For guns, drugs & porn, then - mostly because you don't want self-righteous politicians or outraged soccer moms pressuring your financial processor:

Cryptocurrency > Check/ACH > Credit Cards