Exploring the World of Crypto Payments: Advantages, Disadvantages, and How They Work | Dex-Trade Academy
1. Introduction
2. How do crypto payments work?
3. Crypto cards for payments
4. What are the advantages of crypto payments?
5. What are the disadvantages of cryptocurrency payments?
6. Closing thoughts
Introduction
Cryptocurrency is often associated with investment and speculation, but it also has another use case: payments. In recent years, both large retailers like Microsoft and small businesses have started accepting crypto payments for their goods and services. This is usually done via a payment gateway to simplify the process, and you can even use crypto to pay for items in fiat currency with a crypto card. So whether you want to pay back a friend or purchase an item, there are multiple options that use blockchain technology.
However, despite the increasing popularity of crypto payments, the process can be challenging for newcomers. The lack of familiarity with the technology and the potential for irreversible mistakes, such as sending the wrong kind of crypto to a certain address or selecting the wrong blockchain network, can lead to significant losses. In response, crypto service providers have created more intuitive payment methods to make the process foolproof.
How do crypto payments work?
At its simplest level, a crypto payment transfers cryptocurrencies from one wallet to another. To do this manually, you’ll need the recipient’s public address. Using your wallet, you then copy the address in and send the funds. However, the process can be tricky, and it’s easy to make mistakes. That’s why crypto service providers have created more user-friendly payment methods to simplify the process.
One such method is payment gateways. These gateways turn a complicated process into one that can be done in just a few seconds. The exact steps differ depending on the payment processor, but the usual method involves the recipient creating a digital invoice to be paid using their payment gateway. This is usually a QR code containing the receiving wallet address and the amount needed. The payer scans the QR code with the app and confirms the payment, and the crypto is transferred to the payee’s account or digital wallet.
Crypto cards for payments
Another option for crypto payments is using a crypto-linked credit or debit card. This way, you can make payments using cryptocurrencies even if the payee only accepts fiat. To use a crypto card, you’ll need to store coins and tokens with your card provider. When you purchase something, the cryptocurrency exchange sells your digital assets for the required fiat and sends this to the payee. In some cases, it may also be that you pay off your monthly credit using crypto.
Using a crypto card has advantages over other payment methods. For one, you can use crypto cards in more places than crypto payment gateways. However, it’s trickier to pay a friend directly unless they can accept card payments. Both Visa and Mastercard currently offer crypto card options through different financial service providers.
What are the advantages of crypto payments?
Paying someone in crypto has advantages even without using a payment gateway or crypto card. For example, Bitcoin (BTC) and other cryptocurrencies can be used in almost any country, saving you from converting into the local fiat currency when making international payments. Depending on the crypto payments provider, your transactions can go through almost instantly. This typically happens when you both use the same service. Even if your transaction isn’t instant, it can often be quicker than a bank account transfer and cheaper with fewer transaction fees.
A crypto payments service will have a customer support team to help you with any technical issues, which isn’t usually the case when you transfer funds manually with a custodial crypto wallet. Additionally, a crypto payments gateway is often simpler to use than setting up and managing a wallet yourself.
What are the disadvantages of cryptocurrency payments?
While the advantages are easy to see, experienced users might find some limitations when making crypto payments. For one, you have less control than setting up a wallet yourself, as a payment gateway effectively adds an intermediary into the process. Another disadvantage is that crypto prices can experience high volatility, especially if you're not using a stablecoin. This can make it difficult for the payee to plan their finances accurately.
In addition, you may have to go through a lengthy sign-up process with KYC and AML checks. While these measures are in place to keep people safe, it’s more effort than creating a wallet yourself. Some payment networks will also charge fees for the service they offer. Lastly, accepting crypto as a payment method still isn’t widely accepted, which can limit its usefulness in some situations.
Closing thoughts
Cryptocurrency has come a long way since the first real-world Bitcoin purchase. Over ten years later, we’ve progressed from a manual process to integrated digital currency gateways offered through FinTech banking and crypto services. If you want to start experimenting with crypto payments yourself, check with your crypto exchange to see what services they offer.
As with any financial transaction, it’s crucial to be cautious and take the necessary steps to ensure the security of your funds. Cryptocurrency transactions, in particular, require a certain level of technical knowledge to execute correctly, so it’s important to educate yourself thoroughly before diving in. Overall, crypto payments have the potential to revolutionize the way we think about payments and money transfers, and it will be interesting to see how the technology evolves in the years to come.
