Bitcoin Cards for Payment
In our previous article, we discussed bitcoin’s shortcomings as a payment method. To recap: bitcoin has had astronomic transaction fees in the past, due to how the technology incentivizes its miners to add new blocks to the blockchain. In fact, the transaction fee spiked only a few weeks ago, before coming back down. Slow transaction times also plague the cryptocurrency, opening up the possibility of interference from malicious third parties. Finally, its volatility makes many merchants hesitant to accept it. If a transaction takes three weeks to process, and the value tanks by a thousand dollars (as recently occurred), that’s not going to look good on the balance sheet.
Bitcoin could make structural changes in the future in order to improve its liquidity, but its decentralized nature makes this unlikely. Currently one of the only ways to spend it effectively is to use a debit card.
These have been out for several years now, and many different choices are available to the customer. Essentially, it’s a prepaid card that you dump bitcoin onto and then use just like your debit card. Most, if not all, of the legitimate ones are authorized by Visa and MasterCard, meaning you can use them all across the world.
International travel is one of the few use cases where they make sense. You can determine which fiat you want your bitcoin to convert into when you use it, even holding multiple currencies on the card simultaneously, making it easy to spend your way through a variety of countries. You can also use them at ATMs practically anywhere.
The problem is that you’re not really spending bitcoin. Since it converts to fiat currency at the point of purchase (or before), you may as well use a normal debit card. If you’re trying to get around the world monetary system for political or other reasons, this isn’t the payment method for you.
Along similar lines, Coinbase recently unveiled a crypto gift card. This improves bitcoin’s liquidity by letting you exchange the currency for commercial products from companies like Nike, but unlike the debit cards, you’re severely limited in where you can use it. The main benefit seems to be for people whose banks aren’t letting them convert their crypto back into fiat, and want to spend it on something, anything, while the value remains high.
Alternatives to Bitcoin
With bitcoin twisting in the wind as a payment method, let’s take a look at two other altcoins.
Dash has a much different transaction authorization system than bitcoin. “Masternodes”, or elite users of the platform who own a certain amount of the currency, can vote to pre-approve transactions by examining a set of factors that mark it as trustworthy or otherwise. Once the transaction is authorized, the merchant receives an approval within seconds, and sometime after that, the transaction is added to the blockchain. This is similar to how credit cards work. When you swipe your card, the money is not automatically taken from your credit line; the merchant gets a promise from the card company that the payment is genuine and that the money will come through at a later time. Since this system works perfectly well for entire countries, it seems reasonable that Dash will become the go-to cryptocurrency payment option. The only problem currently is that not many merchants accept the coin due to an overall wariness towards crypto.
Dash has also proven to be much less volatile than Bitcoin. Its value has diminished recently, but the swings have been only in the tens of dollars, not thousands.
Monero solves for another of Bitcoin’s potential problems as a currency: it’s fungibility. Fungibility, in very simple terms, refers to something’s exchangeability. A dollar is fungible for another dollar, four quarters, ten dimes, etc. Bitcoin’s problem is that somewhere down the line, authorities may step in and claim that some of the currency is ‘tainted’ (i.e. unusable) because it was used at an earlier point to pay for illegal goods on the dark market. Bitcoin’s public record of transactions on the blockchain makes this incredibly easy to figure out. It’s like if there was a giant public scroll of the serial numbers of every US dollar and what they were used to buy.
In case this scenario does come to pass, Monero would be a perfect alternative. Its blockchain has more privacy protection than Bitcoin’s — it’s impossible to see what each Monero was spent on.
As of writing, there are many coins and companies looking to solve the spending problem. Further down the line, we’ll take a look at some more examples.