The first course of action many people take when they decide to purchase Bitcoin or some other cryptocurrency for the first time is they attempt to buy cryptocurrency with a credit card. While credit cards and debit cards are definitely an option when purchasing cryptocurrency online, they come with some drawbacks as a payment option due to the stark differences between these traditional payment rails and the land of cryptocurrencies.
By: Arthur Crowson | Jan 8, 2020 | Modified May 13, 2020
Most people remember the Diners Club Card as the first real credit card created back in 1950, but the reality is there were a number of banks and department stores that had issued similar card systems in years prior. The first real credit card was released in 1958 by Bank of America. This was the first major card that allowed its customers to roll their balance over to the next month in exchange for a financing charge.
There have been many innovations in the credit card industry since those early days, and most of this progress has been focused around fraud prevention. If credit card companies are able to lower instances of fraud, then they’ll be able to charge lower fees to merchants who accept these cards as payment.
Fraud prevention is especially important in terms of cryptocurrency purchases because this is a high-risk industry. Since cryptocurrency transactions are irreversible, a person with a stolen credit card could simply purchase some cryptocurrency if they wish to profit from their credit card theft. While a victim of credit card theft will oftentimes be able to reverse the fraudulent purchase on their card, there will be no recourse for the exchange to get back the cryptocurrency they sold to the criminal.
Credit cards aren’t solely useful for buying Bitcoin either. You can also buy popular alt-coins like Ethereum, Litecoin or Stellar with a credit card. It usually depends on the exchange you use for crypto purchases.
There aren’t really any advantages of using credit cards to buy cryptocurrency online, unless you’re completely new to the crypto space. While platforms for purchasing cryptocurrency with a credit card are usually some of the most user friendly options on the market, it will usually be better to find an alternative option that has lower fees. Having said that, buying Bitcoin and other cryptocurrencies with a credit card can be a beneficial option, despite the fees, if you need quick access to cryptocurrency.
As mentioned previously, the key disadvantage of using credit cards for cryptocurrency purchases comes down to the fees. Bitcoin and other cryptocurrencies are an easy target for online fraudsters due to the fact that crypto-based transactions are not reversible. While innovations have been made in order to cut down the large amount of fraud that can be found with these sorts of transactions, the fees involved with buying cryptocurrency with a credit card are still much higher than other options.
While there are many similarities between how credit cards and debit cards work, there are also some key differences. Credit cards work on a credit-based system where purchases can be made with money that the user does not have. The user eventually pays back the money they borrowed with their card.
With debit cards, the card is simply linked to the user’s bank account where they already have funds available. If there is not enough money in a user’s bank account to cover a purchase, then it will be declined by the card processor.
Interestingly debit cards vary from country to country and some countries have proprietary systems while debit cards in the USA primarily work through credit card companies like Visa and MasterCard.
Buying crypto with a credit card comes with much lower limits than other available options. This is, again, due to the large amount of fraud involved with these types of transactions. Exchanges will want to limit the risks associated with this payment method, and most platforms only allow users to purchase a few hundred dollars worth of cryptocurrency at most with a credit card.
Visa and Mastercard are the two most well-known names in the credit card industry, and they both use their own forms of best practices when it comes to credit card fraud prevention. In terms of making a cryptocurrency purchase, one brand is not better than the other.
Cryptocurrency credit cards do not exist yet, but there have been rumors of such cards coming to fruition in the near future.
That said, cryptocurrency debit cards have existed for some time now. These cards allow users to hold a crypto balance in an online account and make purchases with a card backed by those holdings. In reality, the crypto is being sold for traditional fiat currency before being sent to the merchant. There are also cards available that allow users to sell their crypto for fiat currency before making the funds available on their card balance.
Bitcoin is by far the easiest cryptocurrency to purchase with credit cards. This is because it is the most popular cryptocurrency on the market, which has led to many more payment rails being built around the cryptocurrency network.
Libra does not exist yet, so it is currently impossible to purchase Libra with a credit card. However, once the Libra network launches, it will likely be possible to purchase the new digital currency by way of a credit card.
There have been instances of personal bank accounts being closed due to activities related to cryptocurrency, but these are still rather rare occurrences. In many situations where bank customers got in trouble for buying cryptocurrency, the bank also had reason to believe that cryptocurrency was being used for some sort of illegal activity.