Saturday, January 25, 2014

Use Bitcoin: Credit Cards Weren't Designed for the Internet

by Dietrich Schmitz

Just yesterday, I registered my account at Coinbase, one of the largest most reputable, secure web Bitcoin brokers in the World.

The choice was careful and made after a period of weeks of study.  

If you don't know the history, during the past 12 months, Bitcoin has grown into a full scale 'made for the Internet' web commerce payment solution.

Credit Cards Pose Unacceptable Risk

Bitcoin stands to replace all known on-line payment methods including Credit and Debit cards, PayPal, etc. for many good reasons.  The clincher for me was the realization that credit cards simply weren't designed for the Internet. 

Think about that for a moment.  

Regardless of the safety assurances you receive from merchants, whenever you make the overt choice to pay using a credit card, you are placing trust in one or more commerce intermediaries to facilitate a transaction and also a level of trust they are keeping your secret credit card information secure on a merchant's website.  Often, that information also includes your date of birth and social security number.  This poses both a financial and identity theft risk.  That is unacceptable and the potential for global crime rings hacking websites to steal your credit and personal information is all too real as the frequency with which website attacks occur escalates.

As often happens, we have almost become numbed to news of millions of credit cards being stolen with regularity.  Clearly, this has become a profitable business for the criminals.  And in this case, crime often does 'pay' large sums of money, all at the victims' expense, and where the criminal may be on the other side of the world immune from local prosecution.

What is Bitcoin?

You can find an abundance of information on Bitcoin just by googling it.  But, I think this video does a nice job of explaining it for starters:

Why Use Bitcoin?

The other day, I came across a story which covers the most compelling reasons for why Bitcoin should be considered for Internet commerce.  Here are the story's abstracted key points:

- It's fast (faster than Bank Transfer, faster than cc with zero confirmation) 

- It's cheap. Bitcoin transaction fees are minimal, or in some cases, free. 

- Central governments cannot take it away because Bitcoin cryptocurrency is decentralized (peer-to-peer P2P). 

- No Chargebacks. As can happen wit credit card purchases. Once a Bitcoin purchase is made it cannot be retrieved without the receiver's permission (receiver is getting Bitcoin from sender). 

- People cannot steal your information from websites. There's only a public key and private key. You own the private key inside your encrypted wallet. Credit cards are insecure and require you to provide your secret information as part of a transaction that then gets stored on the merchant's website. If a website attack is successful, then the bad guys have your credit card to use as they see fit. 

- Bitcoin is not inflationary. Unlike fiat currencies such as the U.S. Dollar that get printed however capriciously the Federal Reserve desires, Bitcoin is set at a fixed amount. The more printing (Quantitative Easing), the more likely inflation will occur. 

- It's as private as you want it to be. Sometimes, we don’t want people knowing what we have purchased. Bitcoin is a relatively private currency. On the one hand, it is transparent; thanks to the blockchain, everyone knows how much a particular bitcoin address holds in transactions. They know where those transactions came from, and where they’re sent. On the other hand, unlike conventional bank accounts, no one knows who holds a particular bitcoin address. It’s like having a clear plastic wallet with no visible owner. 

- You don't need to trust anyone. In a conventional banking system, you have to trust people to handle your money properly along the way. You have to trust the bank, for example. You might have to trust a third-party payment processor. You’ll often have to trust the merchant, too. These organizations demand important, sensitive pieces of information from you.  Because bitcoin is entirely decentralized, you need trust no one when using it. When you send a transaction, it is digitally signed, and secure. An unknown miner will verify it, and then the transaction is completed. The merchant need not even know who you are, unless you’ve arranged to tell them. 

- You own it. There is no other electronic cash system in which your account isn’t owned by someone else. Take PayPal, for example: if the company decides for some reason that your account has been misused, it has the power to freeze all of the assets held in the account, without consulting you. 

- You can 'mine' Bitcoins yourself. In spite of the amazing advances in home office colour printing technology, most national governments take a fairly dim view of you producing your own money. With bitcoin, however, it is encouraged. You can certainly buy bitcoins on the open market, but you can also mine your own if you have enough computing power.

Coinbase has the added benefit of two-factor authentication which means only I can access and make transactions.  Take a look at Coinbase's security and you'll see they are dead serious about keeping your Bitcoin safe.

I won't use Coinbase to store my personal Bitcoin Wallet.  It will facilitate making web payments, per se,  as I can 'on demand' transfer from my bank account the precise amount required for making payment to a participating Coinbase merchant.


If I choose to transfer amounts and send them to my local PC, I can do so as well, using Bitcoin-Qt.  Bitcoin-Qt is available for Windows, Apple Macs, BSD variant and Linux operating systems for download here.  You'll find some good information on using Bitcoin-Qt here to help with getting up to speed.


I see nothing but a huge upside potential for Bitcoin and so do thousands of merchants now adopting this payment method, around the globe.

The virtue of having this payment method makes so much sense to me.  It eliminates the risk of stored secrets on the Internet.  There are none.  And one need only transfer the needed amount from cash to Bitcoin to cover the cost of a purchase.  This makes the transaction effectively behave as though it were your 'Debit' type card where the money is deducted from your Bank account directly, only you have control over how much and when that will occur.  There are no stored secrets to reveal and no intermediaries to get involved.  It's just you and your Bitcoin.

So, if you use Bitcoin for nothing else (such as its inherent cryptocurrency virtual commodity trading potential), it makes emminent sense to employ it for your Internet commerce transactions.  Close down the risk of using credit cards today -- they weren't designed for the Internet.  

Watch the below youtube Coinbase tutorial and then sign up to create your Coinbase Bitcoin account today!

-- Dietrich

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