You scoured the internet in search of an online casino that would accept your bitcoin deposit. You finally found one, and you're ready to go play! Yet you have this nagging sense that depositing bitcoin at the casino might not be the best way to go. Perhaps it's not - at least according to a key bitcoin developer.
In a tweet that is now causing quite a stir in the cryptocurrency space, bitcoin core developer Jimmy Song suggested that bitcoin may not be the best option for day-to-day transactions. Song is by no means implying people should stop conducting transactions with bitcoin; he just thinks there may be a better way to do things by combining bitcoin with credit cards. Whether or not it is appropriate for online gambling would really depend on how frequently you deposit.
For the record, gambling with bitcoin is pretty easy. You just find an online casino that accepts bitcoin deposits, then transfer whatever amount you want from your wallet into the casino's wallet. Actual game-play is no different than if you had deposited with a check or credit card.
If it is all so straightforward, why does Song suggest credit cards instead of bitcoin? Keep reading to learn all the juicy details.
Song's credit card proposal
There are financially savvy people out there who reserve a single credit card that they use to cover all transactions that normally would be paid for with cash. When the bill comes due at the end of the billing cycle, the credit card is paid off in full. Doing things this way gives the consumer the ability to transact business without carrying cash. At the same time, paying the bill in full at the end of each cycle prevents accruing any interest charges.
If a person uses a rewards credit card to purchase this way, he or she could still take full advantage of those rewards despite not paying a penny of interest. For example, let's say you used a cashback card that pays a 1% bonus on all your purchases. If you spent $1,000 in a given month, your cashback bonus would equal $10. You are not paying any interest because you pay the bill at the end of the cycle, so your $1,000 in purchases actually cost you $990 in reality. You save $10 by using the card.
What Song proposes is similar. Rather than using bitcoin for day-to-day purchases, he recommends paying with a credit card instead. He also recommends paying the credit card in full at the end of the month. Rather than paying with fiat cash, he recommends selling bitcoin to pay the credit card bill.
At the end of the day, you are still paying with bitcoin. You are just using a credit card to cover the transaction temporarily. It is a plan that allows bitcoin gambling even on sites that do not accept crypto. Aside from that benefit, why does Song believe credit card payments are a better system than just going straight with bitcoin from the start?
Protecting the ledger
If it seems odd to you that one of bitcoin's core developers is recommending not transacting directly with bitcoin, your perceptions are not unique. Song, and some of his colleagues who have voiced similar suggestions, have been heavily criticized for their proposals. Their defense is one of protecting the bitcoin ledger.
Bitcoin is a cryptocurrency, meaning there are no physical bills and coins representing it. Bitcoin is represented only as digital tokens in a worldwide computer database known as a decentralized ledger. Every transaction conducted in bitcoin must be added to the ledger through a complicated time and energy consuming process known as mining.
As the thinking goes, using bitcoin for day-to-day purchases unnecessarily adds to the workload of maintaining the ledger. Song's proposal is one of eliminating some of that work and ostensibly preserving the integrity of the ledger as a result.
Replacing a dozen $2 transactions with a single $24 transactions certainly would reduce the workload on bitcoin's computer nodes. Fewer transactions being processed means less work for mining computers to do. However, the argument of preserving bitcoin's ledger doesn't hold water.
The whole point of blockchain technology is to allow for a continuous ledger of information that never stops. Once a blockchain has been started, it continues on in perpetuity. It doesn't really matter how many transactions are added to the chain at any point in time. This has led a lot of people thinking there may be another motivation behind Song's tweet.
Protecting the value of bitcoin
No one knows for sure if Song has any motives other than reducing the workload on bitcoin's blockchain. Among those willing to speculate though, there is a valid reason for suppressing bitcoin activity. The thinking is that those in the crypto community who have managed to make tremendous wealth from bitcoin are trying to preserve its value.
Imagine being an early adopter that purchased 1,000 coins back in spring 2011. The value of Bitcoin in March of that year was $1. The value of bitcoin was $6,440 at the time this post was written. That means your original $1,000 investment would be worth some $6.4 million today.
The problem with bitcoin as an investment lies in the fact that the total number of coins available is limited. That means the price of bitcoin is controlled totally by supply and demand. Some speculate that the wealthiest bitcoin investors don't want too many people getting their hands on bitcoin over the next 5 to 10 years. Too many owners would theoretically devalue bitcoin, causing some of today's millionaires to lose quite a bit of their wealth.
Song's proposal puts more bitcoin into the open market with every sale meant to cover a credit card bill. Bitcoin in the open market can be bought up by wealthy investors, thereby propping up the price.
No one knows if that is the real reason for proposing that people not use bitcoin for day-to-day transactions. Furthermore, it's just one of the many theories floating around out there. At any rate, following Song's proposal would only work if the total amount of bitcoin you own is significant enough to keep a larger balance outside of your casino account.
More in your wallet than at the casino
Let's say you wanted to do what Song has suggested. You deposit the equivalent of $1,000 into your casino account via your credit card. You then start playing the MegaMoolah.com slot or some other game. Three weeks later your credit card billing cycle closes. You get the bill in about 10 days. You need to have at least $1,000 in bitcoin still in your wallet if you hope to sell it to pay your credit card bill.
This may sound elementary, but it's really not. The fact that bitcoin is not tangible makes it easy for people to lose sight of the fact that it still represents real monetary value among those who use it. So if you're going to spend bitcoin like it's cash, you need to treat it as such. It makes sense to set aside enough bitcoin to pay the credit card bill at the end of the month regardless of whether your gambling pays off in winnings.
In the simplest possible terms, making this plan work means having more bitcoin in your wallet than money in your casino account. Of course, this assumes that you don't do something like go win the Mega Moolah jackpot. If you win the jackpot, all of this becomes moot.
Credit cards defeat the purpose
Whether or not Song's proposal is worth considering is entirely up to you. But at the end of the day, paying with a credit card and then covering the credit card bill with cryptocurrency seems to defeat the point of using cryptocurrency to begin with. Bitcoin and the thousands of other cryptocurrencies that have followed were developed specifically to be an alternative to fiat currencies.
Like it or not, credit cards represent fiat currencies. A credit card is nothing more than a piece of plastic representing the fact that the bank has agreed to loan you money on an unsecured basis. So using a credit card still keeps you in the fiat system. It doesn't make a lot of sense to pay with fiat currency first, then sell bitcoin to cover the bill.
For gambling purposes, a credit card is only better than bitcoin if you are playing in a casino that doesn't accept cryptocurrency deposits. If your casino does accept Bitcoin, why go through the extra step of depositing via credit card and then selling bitcoin to cover the bill? That seems like a lot of unnecessary work just to reduce the workload on bitcoin's blockchain.
Bitcoin is better for gambling
Bitcoin is better for gambling at casinos where it's available. Depositing via bitcoin allows for a secure and somewhat an anonymous transaction without the need to share sensitive bank or credit card information with the casino. Bitcoin transactions don't take that long either, perhaps an hour, so you're up and running shortly after making your deposit.
Gambling with bitcoin has another advantage: it doesn't allow you to deposit money you don't have. With a credit card, you are essentially taking a loan every time you make a deposit. You are hoping you can pay that loan off at the end of the billing cycle. Bitcoin is different. It is a cash-on-the-barrel transaction. You cannot gamble with bitcoin you don't have.