I believe that one day, you will no longer be able to use a credit card to buy goods online. Only Bitcoin will be accepted.

To begin, let’s examine the mechanics of credit cards and Bitcoin.

Credit Cards are a PULL system



Take a second to think about how a credit card actually works. On this card embossed visibly, is access to your money. When you shop online, you grant access to the vendor - providing Name, Credit Card Number, 3-digit security code, expiration date etc - to buy a $10 t-shirt, and trust that the company will PULL from your account only $10.



You check your statement every month to ensure that no one has stolen your credit card number and used it without your consent - whether that be a robber, a hacker, or an online merchant.

The credit card companies internally have an entire fraud department set up to try to detect unapproved activity with your credit card to try to limit the damage.



If someone has inappropriately PULLED funds from you, you call the credit card company to resolve it and get your money back. The inefficiencies of this system is why credit card companies have to charge merchants a 3% fee for any payments made with a credit card. This 3% is enough at the moment to cover for fraud.



Bitcoin is a PUSH system



When paying with Bitcoin, rather than giving your account for someone to pull money from, you are actually in control of the funds the entire time and voluntarily push only the amount you want to the merchant. When buying a $10 t-shirt, Bitcoin works by you sending $10 to the online store without anyone other than yourself having access to your money. It is similar to how the recipient of an email you send has no access to your email account. They only receive the particular email you sent them.



Due to this, there are no problems with chargebacks and no fraudulent expenses that the network has to deal with. As such, over 80,000 merchants have accepted Bitcoin as a form of payment online, including notably the 6 billion dollar sized companies: Expedia, Tiger Direct, Dell, Overstock, Newegg, DISH.



Awesome. Now there’s 2 choices for the consumer right?



No. This current state is only temporary.



As the amount of online spending conducted with Bitcoin increases, credit card companies will not only be unable to compete with the 0 transaction cost of Bitcoin through cutting fees, they will actually be forced to increase the fees they charge merchants from 3% to 4%, 5%, and 6% until merchants no longer even desire to offer the ability to pay by credit card and consumers no longer want to own a credit card due to the fees associated with owning one and lack of ubiquity to spend with it online.



Why?



Suppose fraudulent credit card spending is currently 1% of all transactions. Credit card companies at present charge a 3% processing fee and are still able to make a profit. They reasonably could even cut fees to 2%, decrease their margins and try to remain competitive with Bitcoin. Merchants may be excited by this development. This is not sustainable however.



The truth is that as Bitcoin is used more often online, there are more and more legitimate ‘Good’ transactions being taken away from the total pool of commerce conducted on credit cards. All business done with Bitcoin that could have otherwise been done with a credit card is legitimate because the consumer is trying to protect his or her privacy and is not using Bitcoin over credit cards to commit fraud. If I am a fraudster however, and I have someone else’s credit card number, I will continue to use it.



The resulting effect is that the % of fraud transactions for credit card companies will rise from the existing hypothetical 1% to 2% to 3% to 4% as more consumers use Bitcoin. At that point, even if credit card companies wanted to offer a lower rate for online merchants, they would not be able to.



In fact, credit card companies will have to raise rates. Merchants then will be faced with paying an ever higher % of their revenue to credit card companies. This will lead to merchants dropping off credit card acceptance - further accelerating the adoption of Bitcoin. As a result, there will come a point where there will be more merchants that accept Bitcoin than merchants who accept credit cards.



Bitcoin is not an additional choice for consumers to use for shopping online. The existence of Bitcoin will end credit cards.













