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Bitcoin vs E-Wallet vs Credit Cards - Pros and Cons

by Nina Ritz 3 years ago in bitcoin
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We’ll explain the pros and cons of the three methods of payment, which can help you decide which one is the best for your specific needs.

Everyone who hasn’t been living under a rock for the past decade has done online money transfers routinely. You probably use E-Wallet services like PayPal, Venmo and AndroidPay all the time, combined with or independently from a credit card. Many companies and e-commerce giants such as Microsoft, KFC and Overstock also accept Bitcoin as a payment method. Whether you’re a digital nomad who has to be their own accountant, an owner of an e-commerce business or just want to buy goods online, you should know your options.

This is the point where most people start scratching their heads. Cryptocurrency transactions offer a plethora of options which all depend on reputation and value of the specific currency at the time, and need to be thoroughly researched. On the other hand, there is always the good old bank transfer that offers security for the small price of draconic fees, delays and unfavourable currency conversions.

In the following lines we’ll explain the pros and cons of all three aforementioned methods of payment, which can help you decide which one is the best for your specific needs.

Bitcoin - great rewards and great responsibilities

Bitcoin is not a thing of the future anymore. It has been integrated as a payment method by many renowned companies and integrated to the point where many digitally literate people see it as a legit way of paying and being paid for services. Cryptocurrencies still have a long way to go to become a mass payment method, but getting there soon is very much a reality.

What makes Bitcoin irresistible is that there is no middleman and transactions are practically instant. Payments are done directly from one digital wallet to another, with fees that are typically less than 1% of the amount. Another advantage over credit card transactions is that the transfer is final—there’s no disputes, chargebacks of freezing. However, this is also a double-edged sword so be mindful. Once a transaction is confirmed (there is a 10 minutes window until the transaction is confirmed and irreversible), it is final.

Safety is always a great concern. Credit cards and related transactions are relatively easy to hack. Bitcoin relies on blockchain which is a very powerful concept, applicable to much more than just currency exchange. Hacking a Bitcoin network is practically impossible since the data is “spread” over the network nodes and protected by encryption.

Privacy comes as another important issue in this day and age. Bitcoin transactions don’t include personal data of information about the user. However, this doesn’t mean transfers are anonymous—balances and transactions from every Bitcoin address are public and permanent. This is also a good thing, since this transparency means all transactions are there to be viewed and traced by a higher authority, if needed.

The downside is the unpredictability of cryptocurrency. The value of one bitcoin can vary enormously, depending on the number of users, supply, demand and politics. For example, the value in Jan 2019 was around $3,500 and in July it reached almost $13,000! The value is currently falling. This means that Bitcoin is still not stable enough to consider for long-term savings or retirement funds, but it’s definitely getting there.

E-Wallet as common ground

An e-wallet is a very flexible way of managing assets. It allows storing and managing both cryptocurrencies and fiat currencies, meaning that the user can purchase and pay with whatever they are most comfortable with. Another sweet spot is that the e-wallet is the only entity that knows your personal data (if any), making the transactions secure and independent from the other user. In the next paragraph we’ll give you tips on how to choose the best e-wallet for your needs.

How to choose the best E-Wallet

Depending on the type of currency, e-wallets can offer password storage, transaction tracking and user protection. What you get depends greatly on the type of e-wallet you decide to use. You should consider your location, since some offer benefits depending on the location of the user. Another thing to consider is what you want to use your wallet for. Would you like to make small purchases from time to time, make a savings fund or pay for services on a regular basis? Many e-wallets can be customized for your specific needs. Finally, your preferred currency (crypto or fiat) plays the biggest role in the decision. Here’s some basic types that are most common for average users.

Centralized E-Wallets

You definitely know them, but under a different name. Think PayPal or AmazonPay. This type of e-wallet is actually connected to the user’s bank account and needs personal user data for identification and tracking transfers. Personal data is stored in a centralized database which means hacking and data theft is possible, at least in theory (there hasn’t been any major breaches recently). On the other hand, there is a higher authority that can make decisions (for better or for worse) and mitigate the consequences. If you have a problem, there is someone to write to.

It’s all pretty straightforward if you are using this type only for fiat currencies transactions, but the picture is a bit different if you want to store your bitcoins. Most centralized e-wallets don’t allow full access to user’s Bitcoin because there is no private key. This is why most bitcoiners use this type only as a hot wallet.

Decentralized E-Wallets

This type is used for cryptocurrencies. Also known as DEX (Decentralized Exchange), protocols such as Ox, IDEX, or Nash Exchange offer a fully peer-to-peer exchange that is completely independent from intermediaries. There is no central database storing users information and activities, which means personal info isn’t necessary at all. Other data (such as transactions) is stored across the nodes (computers) meaning that hacks or crashes are far less likely to affect the user. Users have their own private key and can manage their Bitcoin in any way they like, have full control over their assets but little to no service whatsoever. The world of decentralized e-wallets offers many possibilities with subtle nuances, so do your homework before choosing one.

Full freedom of using decentralized e-wallets also means no one will hold your hand if things go south. For example, if you lose your private key there is no way to retrieve the contents of your wallet. Decentralized e-wallet protocols are often used as cold wallets, storing the main coin lot, preferably on the machine that’s not connected to the internet.

Hot Wallets vs Cold Wallets

It’s very simple—have a small, expendable amount of currency in a hot wallet for spending, and your big pile of e-gold in a cold wallet, as a savings account

Centralized e-wallets and other types where the company holds your funds (meaning that you don’t have full access to your assets) should be used for frequent, small transactions. If the company loses money for whatever reason, you will be the one getting the short end of the stick. Crypto asset exchanges like Polinex and Coinbase are some examples that fall into this category. Another example would be software that you download and use on your own computer. There are quite convenient because they don’t store your keys on their servers, but your assets are only as secure as the machine you’re using.

Cold wallets are the opposite. Your funds sit in a secure place and you transfer from it to more convenient, but less secure methods of asset management. For example, hardware wallets are devices that are kept offline by default, and plugged in to transfer funds when needed There are many good options on the market, such as Trezor and KeepKey.

Credit Cards - safety with a bit of a catch

Credit cards are currently the tried and true method of moving around your funds digitally. For better and worse they are tied to a bank and a fiat currency. Generally, this increases stability as most fiat currencies are far more stable than cryptocurrency. Furthermore, virtually all stores accept credit cards, and with online stores there is hardly any exceptions. Being tied to a bank also means some inherent insurance. Most countries have deposit insurance, which means that should the bank fail the government will pay you some or all the money you had in your account.

Credit card fraud is ripe and you do send all your payment information every time you make an online transaction, which is vulnerable to hacking. Protection from credit card fraud and insurance of damages varies widely between countries, banks, and insurance companies. Your bank will monitor your transactions and may put a suspicious transfer on hold to avoid the risk of all your money being siphoned out of the account in one go.

This partial security does come at a cost though—fees. Common for all credit cards are there transaction fees, which typically range from 3-5%. If you either shop from other countries or get paid in foreign currency, you also must deal with the banks exchange fees, which is typically not the best on the market—although neither are the internet shops own exchange rate. This issue is compounded if you both get paid and shop in foreign currency, as using a default bank setup you will first be charged for exchanging it to your currency, and then charged for exchanging it back so you can spend it again. If this is your case look to see if the bank offers a foreign currency account, and if they do not, find another solution.

Final Thought

The liberty and possible high reward system that cryptocurrencies offer is very enticing. However, the days of mining Bitcoin on your PC overnight are long gone, meaning that using crypto requires a serious investment. The risk is indisputable, but the gain might be worth it.

On the other hand, safe and secure old school credit card system is definitely going to make you pay through the nose, especially if your paycheck depends on the currency used on the opposite side of the world.

E-Wallets are really taking the best of both worlds, but are not immune to cryptocurrency fluctuations. Using this system can bring many benefits but always do your homework and invest wisely.


About the author

Nina Ritz

Nina is a digital nomad and a blogger. Her main interests are web design and marketing. In her free time, when she's away from the computer, she likes to do yoga and ride a bike.

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