Why is crypto touted as a superior payment system?
Take a minute and set aside everything you know about cryptocurrency as a monetary system or investment. Instead, let us talk about crypto as a payment system. Compared to credit cards, bank transfers and other electronic payment options, cryptocurrency does have its advantages. Those advantages are seen as one of the best ways to increase crypto adoption around the world.
When we talk about payment systems, all we are referring to are the tools people use to pay for things in the absence of passing cash back and forth. Prior to the advent of electronic payments, the most common payment system was the paper check. Even before that there were paper ledgers and slips that served as IOUs.
Today, nearly every non-cash payment system is electronically based. That leads us back around to bank transfers and credit cards. Electronic payment systems also include debit cards, prepaid debit cards, and services like PayPal. All of these payment systems bring something to the table. But so does crypto. The point of this post is to discuss exactly what crypto offers and why so many people believe it is a superior payment system.
Transacting at the speed of crypto
One of the first things crypto enthusiasts point to is speed. Simply put, there aren't any payment systems as fast as cryptocurrency. Your average crypto transaction takes place instantly. And if you do have to wait, it is generally only a few minutes. By contrast, other payment systems can take days.
Let's say you wanted to use PayPal to send money to an overseas relative for her birthday. If you have the money sitting in your PayPal account, you might get lucky and see the transaction completed in a few hours. But if the money is coming out of your bank account instead, it will take at least a couple of days to transfer overseas.
It is even worse for international bank-to-bank transfers. A person sending money from the U.S. to the UK may be looking at three to four days. If the transfer is made on a Friday afternoon, add another day or two for the payment to arrive. Remember that banks do not operate on Saturdays and Sundays.
Cryptocurrency transactions take place over a dedicated network that never shuts down. Coins are being sent across the network at lightning fast speeds 24 hours a day, every day of the year. There are no holiday shutdowns, no restricted bank hours, etc.
Potential for frozen accounts
Cryptocurrency also tends to be a better payment system because it is not subject to frozen accounts. In other words, you could send an unusually large sum of bitcoins to a business associate and not have to worry about his account being frozen. You will not have to worry about raising government suspicions either. Why? Because Bitcoin transactions are not subject to government or central-bank interference. The same is not true for fiat transactions.
In the U.S., the federal government has great latitude to freeze bank accounts when criminal or fraudulent activity is suspected. While this may be a good thing from a law enforcement perspective, there have been plenty of stories of U.S. citizens having their bank accounts frozen for no reason other than they accepted a large deposit. Most of these people were proven innocent after navigating a lengthy legal process, but they never should have been put in the position to begin with.
You can transfer as much cryptocurrency as you want without having to worry about what the government thinks. And if a user chooses a cryptocurrency like Monero, there is an additional level of security that makes transactions nearly impossible to track by anyone.
Lower transaction fees
You may not have the need to send or receive payments large enough to attract government scrutiny. But every electronic payment comes with a fee, doesn't it? Yes, it does. Whether you pay the fee directly or pay it indirectly through higher prices, there is a fee that has to be paid. This is true for both fiat and cryptocurrency transactions.
Cryptocurrency does have an advantage here in that fees tend to be significantly lower. When you trade coins on an exchange, you pay a small fee for both buying and selling. When you transfer bitcoins to an online casino, you will likely pay a small transaction fee for the privilege of doing so. The fee is worth it to be able to play MegaMoolah.com, by the way.
Note that cryptocurrency fees are charged by exchanges, payment processes, and some businesses. But guess what? If you transfer coins directly from your wallet to someone else's, there are no fees involved. You can send every coin you own to a friend overseas and do it absolutely free. Send fiat using a bank transaction or credit card and you will pay a charge.
Perhaps bank and credit card fees are not a big deal to you. That's fine. Have you ever thought about the security of the banking system? How many news stories have you heard involving banks, credit cards, etc. being hacked and millions of users being exposed? It happens often enough that most of us can remember at least one or two stories.
Admittedly, cryptocurrency is not 100% secure either. But it is more secure than the traditional banking system. For starters, a variety of encryption methods are used to prevent transaction data from being stolen and used for nefarious purposes. Next, cryptocurrency requires distributed consensus in order to verify transactions. So even if data were stolen, it would be very difficult to put it to good use.
Some cryptocurrency platforms, like Monero, are even more secure because user information is not included in transaction data. There is no way for hackers to personally identify Monero users or their wallets even if they were successful in decrypting a copy of the distributed ledger. And that leads us into the next point: privacy.
You might be the kind of person who values privacy in just about everything. You enjoy playing slots online, but you do not necessarily want anyone else knowing about it. Making your casino deposits with a credit card or bank transfer puts you at risk. Anyone who has access to your banking information can figure out you are depositing funds at the casino.
That is not the case with cryptocurrency. Most of the major cryptocurrency platforms allow you to create a digital wallet with nothing more than an e-mail address. You can then purchase crypto on an exchange and have it sent to your wallet. Use your wallet to make your casino deposit and you are good to go.
Just by using a private e-mail service and an address that you keep secret you are free to transfer coins with the knowledge that your privacy is guaranteed. No one will know what you are doing with your coins unless you choose to tell them.
This is a big deal for some people who live in places where certain kinds of activity are restricted. For example, there are some countries where online gambling is strictly prohibited. Using cryptocurrency to play at overseas casinos in countries where it is legal takes care of the problem.
Converting to and from crypto
Finally, converting fiat to cryptocurrency and back again is pretty simple. Using an exchange like Coinbase, any conversion is a simple matter of buying and selling. Another option is the Skrill payment system. They allow you to convert between seven different cryptocurrencies and dozens of fiat currencies at will. You can convert straight up without having to sell first and then buy.
Why does this matter? Because you can convert between different cryptocurrencies a lot easier than you can different fiat currencies. You might want to use bitcoins at an online casino but litecoins to pay a vendor. As long as you have an account with an exchange like Coinbase, you can convert instantly.
Not without its flaws
You now know why some people consider cryptocurrency a superior payment system compared to bank transfers, credit cards, and the like. But it is not without its flaws. Cryptocurrency is by no means perfect as a payment system or a monetary system. And that says nothing of crypto as an investment.
The most prominent flaw with crypto as a payment system is price volatility. You may think of investments when you think of volatility, but there is a real practical issue here. It is the one issue that gives so many merchants pause about accepting cryptocurrency payments.
The price of any given coin can fluctuate wildly during the course of the business day. That means merchants willing to take cryptocurrency payments are also taking a huge risk unless they decide to work with payment processors willing to instantly convert those payments into fiat. But even with that sort of arrangement in place, the same price volatility can do great harm to payment processors and inhibit their ability to do what they do.
Cryptocurrency is a payment system in addition to a monetary system and an investment. It has its pros and cons, though some people see it as superior to other payment systems in nearly every way. What do you think?