Wednesday, May 21, 2014

Bitcoin is a Bad Payment Option

By Larry Seltzer

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.

Read the rest here.


  1. "I'll admit it, I've never used Bitcoin...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."

    And we have another "stupidest things said by economists" to add to our list. Wenzel is kindly collecting them for us.

    "By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's" - Paul Krugman

  2. Wenzel is the clearing house for the stupidest comments ever written about bitcoin.