Bitcoin is a bad payment option

Bitcoin is a bad payment option

Summary: The US payment system is set up well for cash and credit cards. Buyers using Bitcoin effectively pay a premium for doing so.

TOPICS: E-Commerce

I'll admit it, I've never used Bitcoin. I'm no Ross William Ulbricht, allegedly "Dread Pirate Roberts," proprietor of underground Bitcoin-based Silk Road criminal marketplace, with a need for anonymity. I'm not interested in gambling that the value will go up. I'm looking for a convenient way to buy things.

Bitcoin doesn't do it for me, and Benjamin Edelman, Associate Professor at Harvard Business School, has a good explanation of why my instincts are correct. They just don't compete with credit cards.

The key is that the price of the product that you're buying is generally the same no matter what you pay with (gasoline, in some places, is one of the rare exceptions). If I'm buying $100 of widgets from Acme, I can give them $100 cash, in which case I'm out $100 and Acme has that much. If I pay with a credit card, I'll get a bill for $100 later, Acme will get $100 less the discount (the fee paid to the bank), so probably about $98. If I buy with Bitcoin I have to go to my wallet, like Coinbase, and pay $101 to get $100 of Bitcoins, the extra $1 going to Coinbase, and pay the Bitcoins to Acme. Hopefully, the price of Bitcoin hasn't swung in the meantime to the point that $100 isn't enough anymore.

So with Bitcoin I'm paying the transaction fee, not the merchant. But it's worse than that. Credit card companies compete wildly based on customer benefits, from purchase protection to hotel and airline points. Yes, there may be a fixed annual fee and you'll pay high interest if you don't pay off your bill every month, but you can make out much better with a credit card than with Bitcoin if you do pay your bills. And if you use the credit card enough, the value of the benefits drowns out the fixed annual fee.

For me the transparency aspect also argues against Bitcoin. This stuff is confusing, and adding in the complexity of the exchange rate doesn't help matters.

I'll grant that the Bitcoin ecosystem is pretty young and that they may get better, but I think only at the expense of whatever might be a benefit to Bitcoin. Banks want your money because, while they have it, they can make money on it. What about a Bitcoin wallet company? Are they banks? Can they loan out the coins in your wallet? Without some sort of scheme like this they can't afford to offer discounts or benefits like the credit cards offer.

It might get better once the system gets as organized as it is with cash and credit cards, but then what's the benefit of Bitcoin? If you're going through a bank it's not like you're anonymous. Institutions like that are heavily regulated and obligated to keep an eye on what you're doing with your money.

Edelman asks where Bitcoin could really bring value and comes up short for an answer. International payments? Western Union will send $1,000 to dozens of countries for $8, far less than you and the receiving party will pay for a Bitcoin transaction.

The gee-whiz coolness of the Bitcoin algorithm may end up being valuable somehow, but as a currency, the value proposition to the average person just isn't there.

Topic: E-Commerce

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  • How Did Larry Become An Expert Then?

    "Larry Seltzer has long been a recognized expert in technology, with a focus on mobile technology and security in recent years"

    But before making the claim came the admition "I'll admit it, I've never used Bitcoin. "

    Does Larry regularly undertake to issue reports on things he knows nothing about or was this just a special one time occurence?

    If previous "technology experts" were like him, email and the Internet would still be in the dark ages.
    • I'm sorry, am I wrong here?

      Now that you're done insulting me, did I get something wrong about Bitcoin?
      Larry Seltzer
      • No, you did not

        I guess you rattled his bones and gave him too much to think about regarding his sacred bitcoins.
        • Too much to think about? quite the opposite...

          I think more thinking needs to be done by the author.

          The main thrust of the argument in the article seems to rely on the premise that you must 'buy' Bitcoin to spend Bitcoin, and that incurs fees. This is not a property of Bitcoin, this is a property of currency conversion. I live in the UK, if I go to the USA then I am going to need USD. To get those dollars is going to cost me money in commission charges.

          This is not the fault of the dollar. This is the cost of currency conversion. If I already had dollars then I would not face this problem.

          Now its easy for you to get dollars, you live in the USA and you can find employment that pays you in USD and you can open a bank account denominated in USD and have it paid therein.

          As well as having your services as en employee, you may have other services, or good that you can offer in return for USD. Perhaps you make widgets. you can sell these widgets and get dollars.

          These are just a few examples of ways in which one might obtain dollars. These apply equally to Bitcoin. You can sell goods for Bitcoin, you can offer services for Bitcoin.

          You may argue there are not many opportunities to this compared to how "easy" it is to get USD. I would say to you that here in the UK there are significantly more ways to earn Bitcoin than their are USD. So really much of the arguments about ubiquity rely on jurisdiction and geographical location. Thinking along these lines starts to expose ways in which BTC brings something new to the table.

          So I agree with the points you make in your article, that commission fees charged on currency exchange are burdensome. However I don't agree with your leap of logic that this somehow makes Bitcoin a bad way of paying for things.

          I have Bitcoin. I have bought things with Bitcoin. Let me tell you how easy it is:

          At the point you hit the little checkout button on whatever site your are using, if you have the option to pay with BTC then you select it. Typically you are then redirected to a screen that has a QR code, a little bit of info about what you are buying, the price in Bitcoin and an address to send the Bitcoin.

          At this point you can:

          1. Click the address
          2. Scan the QR code with the app/device of your choice
          3. Send the Bitcoin to the specified address using some preferred method.

          I've only ever done option 1. Clicking the link opens up your wallet app, pre fills the address and the amount, leaving it up to you to check and then confirm the transaction.

          You might have to enter your password.

          So to clarify, when all things are equal (i.e. you have the currency in question, you have the software/electronic accounts already set up to transact online) it boils down to whether you prefer:

          1. Select card, physically locate your card (or the details), enter card number, expiry date, [optionally start date, billing address - maybe you can copy this if you specified delivery address], enter CCV. hit confirm. enter verified by Visa/Mastercard secure password (or similar). Click OK. Fee typically ~2% + $0.10

          2. Select Paypal, login, [optionally] select payment method, click confirm. Fee typically 3.4% + $0.30 merchant pays.

          3. Select Bitcoin, click a URL, click ok, [optionally] enter wallet password. Fee typically 0.0001BTC ~$0.05 buyer pays.

          In essence there is not much in it, though [2] and [3] require far less user input. I do UI design for a living in practice, there is a huge difference between the amount of friction introduced in [1] compared to [2] & [3].

          When it comes to fees [1] and [2] are significantly more expensive with a third party payment processor taking between $0.10 to $0.30 per transaction and 2% to 3.4% of all transaction values. Compared to typically $0.05 per transaction in Bitcoin. Sure you could say "but as a consumer I don't pay the fee!". To which I would say, yes, of course you don't whilst shaking my head in dismay at your naivety ;)

          So when you evaluate Bitcoin as a payment option, in a fair test. Where you consider it as a first class currency, its quite clearly superior in terms of ease of use and cost to users.

          Now I am not so silly as to suggest we ignore the very real issue that BTC is in it's infancy, of course it is not yet well adopted. This lack of widespread adoption makes it less useful as a form of currency in general. These are transient properties though, and are not inherent to Bitcoin as a protocol.

          A vast majority of people have not heard of it, that does not mean people will not hear of it in time. However, I cannot stress this point enough, nor does it mean people *will* hear of it in time.

          That seems to the crucial difference between detractors and supporters of Bitcoin. The detractors are convinced that it will never work, without really considering properly whether it could. The supporters, they tend to only think it might work, whilst being very afraid of the real possibility it might not work (protocol failure, scalability issues, security issues, never gains critical mass in terms of adoption, usurped by a centralised govt mandated alternative etc etc).

          If you are going to write an article attacking Bitcoin, at least make a credible and well though out piece that isn't a huge red herring. There's plenty of reasons why it might not worked, lets not make ignorance one of them.
          • Most of the Bitcoin boosters who post here...

            ...seemed to be convinced that it's the money of the future.
            John L. Ries
      • Yeah, you did

        You got a lot wrong.

        1. Coinbase and Bit Pay guarantee exchange rates as long as transactions are completed shortly after reporting the rate (holding your phone up to the screen within 15 minutes or so of deciding to buy). So exchange rate issues are a ... non-issue.

        2. Vendors typically offer up to 5% off for people paying with Bitcoin. Why? Because they are passing though their savings to the consumer... vastly offsetting any exchange fees consumers have to pay.


        If you've ever owned an online business you know that credit card fraud is a massive cost center. Merchants charge from 5% to 20% more to cover fraud. In addition merchants pay 2% to card companies. You might not think you're paying for credit card convenience, but you are... you're paying a lot. Where do you think Target gets the money to cover up the millions in losses? The merchant is always hit first... credit card companies have no financial liability for fraud.

        Now look at Bitcoin... transactions are provably irrevocable and fraud-free. Overstock offers you a 5% discount to pay with BTC, so does my dad (who owns a wig shop in LA).

        And with good reason. Bitcoin is, simply, a better payment system. And as it becomes more broadly used, the software supporting it becomes more sophisticated.

        Check out the new encrypted invoices (Signed Payment Requests), they offering legal recourse to consumers, while offering payment protection for merchants. This is light-years ahead of credit cards... which offer some small convenience at an incredibly high price.
      • Yes, also you missed the point of BTC.

        To understand bitcoin you need to look closer, your comparisons would be similar to comparing a car to a horse in 1910..
        A couple of quick (and respectful) corrections..
        - Bitcoin transaction fees are completely optional. (ie they are free if you like)
        - Banks charge the Sellers. Bitcoin does not.
        - Coinbase is a great system, but it is a third party that provides bitcoin services.

        To understand Bitcoin, you should be creating your own wallet with Bitcoin-QT - yes its a bit techie, but so is setting up a system to receive CC payments and this is ZDNET right?.

        Bitcoin is a transaction system that includes scripting, and requires oversight from no - one. It is far more flexible than any payment system around. Credit Cards are clumsy inefficient, slow and insecure by comparison.

        My Anecdote...
        I donated 77 euros to a friend cycling in Britain for charity. The Credit card company took $12 in fees, I guess they needed the money more than Heart research. That behavior is abominable, and common, and impossible through Bitcoin.

        Since then, I only donate in BTC, I know that EVERY cent goes to the people. I usually throw in around 10c for transaction fee, but like I said, that's optional.

        Please look closer (maybe try using it)... This is an amazing technology, you might be surprised at it.
        • "every cent goes to the people"

          That's a bit of a stretch. All charities have some degree of overhead and some are outright scams. Donating in bitcoin doesn't guarantee honesty or effective use on the part of the recipient any more than donating in dollars does.
          John L. Ries
          • By "the people"I meant the charity.

            I know what you are thinking here John, that there are administrative overheads etc etc... and I strongly agree with that sentiment,
            But the point here is that The Credit Card company was NOT the charity, it was the conduit to pass the money to the charity, it would have been nice if they charged nothing to pass the money to the charity,
            It was helping itself to the money, before it even got there.

            My friend was in a team, so I had carefully calculated my donation so he would be 1 penny less than the leader (ha ha!) so I noticed the 7 pounds short, I may not have been paying close attention otherwise. You can also infer that the charge was not disclosed to me first.

            And that leads to the huge can of worms where Visa/Mastercard/Paypal et al. took 18 million in donations to Wikileaks, charged the donators for doing so, but then never gave the money to Wikileaks, and never gave the donations back. Whether or not you agree with WL, you have to admit that stinks.

            Quote... "Bitcoin fans don't want to get rich, they want to be free."
        • professionalism


          I applaud your professionalism! I have read many BTC related comments but yours was excellent. I hope that Mr. Seltzer digs deeper into Bitcoin. I would like to send you $5.00 in BTC in hopes that you will forward it to your favorite charity. Please post your wallet address. nosregh
          • Thank you.

            Thank you Nosregh.
            I appreciate that very much, a very palpable compliment.
            So much can be achieved with polite discourse.

            Rather, than publish my own details and charity preferences,
            May I suggest you pick a charity from this list;


            Interestingly, none of the ones I send to are on this list.... maybe I should update it...
            Thanks again.
          • Donation


            I have made a donation to the Children's Tumor Foundation If you are ever in Kansas City and would like to connect and chat about BTC. Feel free to text me here 913-735-4098 I have been involved in mobile commerce since 1999

      • Key advantages of Bitcoin are pseudonymity and privacy.

        For many activists, independence and freedom depend on pseudonymity and privacy. But, in doing their work, activists need such services as servers and VPNs. Bitcoins are an excellent method for both fundraising and payment. Using Multibit wallets and mixing services via the Tor anonymity network, it is possible to entirely anonymize Bitcoins. That protects both donors and activists. With Bitcoins, there is no oversight or control by potentially corrupt corporations or governments.
      • The things you got wrong

        Did you read the comments section on Edelman's article at

        Here's a few counter points to Edelman's argument:
        - Very few people have access to cards [let alone ones] that provide 2.2%
        rewards. 1.5% is currently the best available broad offer.
        - More than 1/2 of online purchases are not made with a credit card, thus earning no
        rewards whatsoever.
        - Overstock has provided rewards to bitcoin users and can do so in the future with the savings from lower acceptance costs in order to encourage usage.
        - The 1% price point for Coinbase was early monopolistic
        pricing. The second entrant (Circle) has already lowered the price of
        buying bitcoin to zero.

        Re Bitcoin vs. Western Union:
        What is your Western Union data from? I just priced sending $1000 at (for cash pickup at an agent location) and they show it costing at least $20 while taking 3 days to get there...or, if I want it there 'now', I'd need cash (at an $86 fee) or a credit card and have to pay a $95 fee. Since bitcoin transfers take under 10 minutes, I think the fair comparison would be the $86 or $95 fee option. The cheapest ($5) option requires sending from a bank account to a bank account and waiting 6 days for settlement/clearing. On top of all that, the effective FX rate used by WU is approximately 4.7%. So, even if you were to use the $5 bank-to-bank option, the total cost would be over $50 by the time the money was available to the recipient 6 days later. And, if you did the cash option (to have speed equal to bitcoin transfer), you'd pay $86 + $47 = $133. Twice paying 1% to Coinbase or 0% to Circle sounds comparatively reasonable...especially considering they've yet to achieve scale and amortize their costs and lower their prices.

        It's also worth noting that Kenneth Rogoff, Professor of Public Policy and Professor of Economics at Harvard University, who has also served as Chief Economist and Director of Research at the International Monetary Fund believes that the world would be better off with bitcoin per his article Costs and Benefits to Phasing Out Paper Currency available here: Also, since we're throwing around Harvard credentials, please note that Rogoff is a fully tenured professor, not just an assistant professor like Edelman.

        I hope this clears up why and how you're wrong. Let me know if there's anything you don't understand.
        • Regarding the Kenneth Rogoff paper . . .

          Interesting post. I just would encourage you, however, to actually read the Kenneth Rogoff paper you linked. It is everything but an endorsement of bitcoin, just the opposite in fact. The paper is not about Bitcoin, he isn't talking about cryptocurrency at all. He is talking about digital fiat currency -- which only exists in banks -- and is advocating that we get rid of paper money so that all money would only exists in banks. His reason is essentially because paper money, i.e., cash, gives to much power to ordinary people and if all money was digital fiat, banks and government would have complete control over it. At least that is my reading of it.

          He divides this into two sections. The first section he talks about the increased control getting rid of cash would give to the central bank. In the second, how getting rid of cash would give increased power to government. Specifically, he argues that by having all money directly controlled by the banks (i.e., digital fiat money) they could then use negative interest rates as a new way of taking money away from people (instead of the traditional method which is to increase inflation). In the second section he argues that cash is anonymous, and therefore should be eliminated to ensure government can track and monitor all monetary activity in order to improve taxation, regulations, and law enforcement.

          If anything, this guy is advocating the opposite of the world envisioned by Bitcoin advocates. From my reading, he hopes for a kind of complete totalitarian state, where the powerful have absolute power over the many by achieving direct control over people's money. Bitcoin is, in part, about giving people direct control of their own money by taking it out of the banks. In essence, Bitcoin is more like cash than it is like fiat digital currency, and in this sense Mr. Rogoff's article is really an attack on Bitcoin.
      • Yes, quite a bit wrong about bitcoin

        Yes. You underestimate the cost of using banks and financial services, and dismiss the advantages of using Bitcoin.

        100 million people in the USA are unbanked or under banked. That is because the security of banks is one of exclusion... people must qualify.

        Bitcoin excludes nobody. Anyone can have a bitcoin wallet, and anyone can then make a purchase over the Internet using Bitcoin.

        The costs of transactions for the unbanked are huge. Vast. And these are the people least able to afford the costs. Bitcoin provides a solution.

        As you say, Bitcoin is improving. Due to massive investment in the area. Because Bitcoin CAN be better. I am looking forward to those improvements, and would hope you might investigate a bit more about what is ahead.
    • Watch This

      Andreas M. Antonopoulos delivers an incisive, compelling, deep discussion of Bitcoins Status and potential, much better than I could have.

      If you have a spare 90 mins, I suggest you watch this, it will bring you up to speed to where Bitcoin (was) about 2 months ago.

      Thanks again
      • Validated

        Validated, OscarGold, no way to reply, not valid SMS # lets try again.

  • A lot of people look at Bitcoins as an investment

    And that is NO WAY for a currency to behave.
    Currency should "flow", get it?
    • A huge myth....

      The problem with constant inflation is many, and obvious even from a strict Keynesian view:

      1) The loss of value due to monetary inflation isn't measured by the Consumer Price Index. That only measures price inflation. In fact, technology and greater productivity lower the real costs of goods. Monetary inflation not only negates the downward pressure of technology, but pushes prices up as well.

      2) People assume a 2 percent "raise" is a raise. But if the inflation rate is 3%, then they are taking a 1% pay cut. And if they are using CPI to estimate "inflation" they are taking an even larger pay cut. This is called the "Money Illusion," and was a term popularized by John Maynard Keynes.

      3) When people erroneously equate the two (monetary inflation and price inflation), they fall victim to the "Secondary Money Illusion" where they think 5 percent raise when the published figures of 3% equates to a raise in "real dollars". Nope, not if productivity went up by 3 percent. They just took a 1 percent pay cut.

      Bottom line: The income gap began to explode in the early 70's when we got on a constant inflation treadmill. Productivity gains quit providing gains in income. No surprise, because we took productivity gains off the table when we measure inflation.

      Money SHOULD be a store of value, if we want people to afford education. Medical care. There are reasons we want people to be able to save and not lose value. And there is every reason for banks (and the federal reserve IS a bank) would not want the population to be able to save. Because they are in the business of handing out loans.