It still remains difficult to make payments using crypto currencies in retail. There does appear to be a practical solution, called crypto credit cards, who use Bitcoin and other currencies to make purchases virtually everywhere. Read more why we think that crypto credit cards still have more disadvantages than advantages.

Friends of Bitcoin know from their own experience how difficult it can be to pay with Bitcoins and to translate this into goods and services. Things look pretty bleak, even on the Internet. Companies which accept Bitcoins include, for example, Amazon’s competitor Rakuten, the travel website Expedia and Microsoft. eBay is now also perhaps considering Bitcoin as a medium-term method of payment. Things are even worse in retail in Germany. Here there are only around 200 restaurants, shops and bars that accept Bitcoin. Anyone who does not want the rigmarole of converting Bitcoins to Euros can, however, resort to a Bitcoin credit card. These promise Bitcoin payments at every retailer, completely independent of whether they accept Bitcoin or not. However, these offers do all have several drawbacks.

Only attractive at first glance

On the surface, Bitcoin credit cards, available as an actual or digital card, do offer several advantages. They are issued via partnerships with internationally recognised credit card firms, such as Visa and, for this reason, work like every other prepaid debit card. To make a payment with it, the retailer therefore does not have to accept any Bitcoins but only debit or credit cards. In principle, that is the case in every shop. Thereupon the retailer receives the due amount in their own currency from their merchant bank. The cardholder bears the charges.

Such cards can also be used for online shopping and for cash withdrawals from cash machines. Bitcoin debit cards, therefore, promise an innovative and practical opportunity to use Bitcoin as a method of payment everywhere. As a result, there are already a range of companies that issue Bitcoin debit cards. BitPay, Cryptopay, Xapo, Wirex, and TenX are among the most popular names.

The downside of Bitcoin credit cards

The freedom of being able to use Bitcoin consistently as a method of payment does entail several specific drawbacks, however:

• The most significant disadvantage of Bitcoin debit cards is centralization. While blockchain technology itself is decentralized, Bitcoins have to be paid into the debit card company’s account to use the card. This centralization means the loss of control and the transfer of own Bitcoins to third parties. This risk can only be minimized by not transferring too many Bitcoins. There is a limited loss if the company is getting hacked.

• The high charges are equally off-putting. Even though the amounts vary from provider to provider, they are extremely high through the bank. Take the example of Cryptopay: the cost of the actual card alone is US 15 dollars. There is a flat-rate charge of US 2.5 dollars for withdrawals from cash machines. There are also charges on top for conversion to international currencies, which add up to a further 3 percent. Last but not least, monthly “service fees” in US dollars and a one percent premium is due in order to load the money into the account. And the credit card charges for the retailer? They remain and are still always incurred at 1-4%. Where are the savings here? All in all, therefore an expensive bit of fun, which turns out to be far too expensive compared with the retail charges for direct payments using Bitcoin.

• In addition, Bitcoin has systematic weaknesses as a payment method. The enormous volatility, in particular, is a major weakness. Exchange rate fluctuations of ten percent and several per day are no exception. That makes Bitcoin unattractive for daily use. Who will today buy themselves a crate of beer if they could buy two crates for the same amount in a week’s time?

In the words of the Payger founder Christoph Hering, “I feel that the greatest problem with crypto credit cards is that they do not resolve any problems.” “The retailer still always pays their 3-4 percent credit card charges for each transaction, and the cardholder pays up to 10 percent more! And that’s the case for every transfer. There are then capital yields taxes that are incurred on top for the cardholder. All in all, crypto credit cards are currently the most expensive payment option overall. The card issuers are the only ones to benefit from this model.”

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This article has been original published in July 27, 2018 by Payger