Written by Anson Zeall
When a credit-card provider demands a retailer take a loss on a fraudulent or disputed transaction, it is called a “chargeback.” In the credit-card industry, chargebacks are known as “friendly fraud,” and it is a major problem for retailers all over the world. With credit-card fraud at an all-time high, it is not uncommon for small merchants to actually go out of business over disputed chargeback fees.
One of the most elegant things about the Bitcoin protocol is that it completely prevents this kind of fraud. When money is transferred from one Bitcoin address to another, the transaction is one way and completely irreversible. Instead, refunds work exactly as they do with cash. If a merchant needs to issue a refund, only they have the power to do so.
This puts all of the power back right where it belongs: Back in the hands of merchants.
In a sense, Bitcoin has a built-in fraud protection; although the technology behind how Bitcoin works is extremely advanced, the actual concept is simple. All Bitcoin transactions exist on a shared public ledger called the blockchain. Anyone can look at the blockchain at any time via sites like Blockchain.info, and all copies of the blockchain are constantly checked against each other to make sure they all have the exact same data.
Using the blockchain, anyone can track any transaction. The whereabouts of all money in the entire Bitcoin system can be tracked exactly, down to the second. This one innovation alone has been hailed by even the staunchest Bitcoin critics, even including mainstream banks are considering adopting the concept.
That is because the blockchain allows a fraud-proof transaction between any two parties. Just like a cash transaction, the two parties do not need to know or trust each other to do business. In other words, Bitcoin works just like cash.
By its very nature, Bitcoin cannot create a false transaction. Credit cards simply cannot compete against that kind of consumer protection.
No Centralized Authority; as a completely open-source public ledger, Bitcoin does not have any one company or government backing it. The system is global, powered by “miners” who earn bitcoins as a fee for validating transactions and incorporating them into the blockchain. Much like the internet itself, Bitcoin has no central authority.
This means that when someone buys a bitcoin, it is his or hers. There is no annual fee. There are no minimum balances. There are no terms and conditions to sign. Again, it works almost exactly like cash, only online.
In the Bitcoin system, service providers actually offer a service; although most businesses accept credit cards, it is rarely because they want to. Customers like the ease of using a card, and for them it is just as easy as paying with cash. For merchants, however, credit cards offer minimal benefit and often actually eat away at overall profits. High transaction fees, chargebacks and other headaches are the cost of doing business.
It is a great business strategy, if it is a credit card company.
Bitcoin does not work that way. Most transactions are completely free for both the sender and the receiver. This system is so efficient that even sending a tiny amount, equivalent to pocket change, can be done in seconds.
The only obstacle for Bitcoin use is transferring coins into and out of standard currency. Not that long ago, buying bitcoins for standard currency was a slow and risky affair. Today, payment service companies like CoinPip, BitPay and Coinbase have made this process easy.
When businesses owners work with service providers like CoinPip, they provide them with tools to anchor bitcoin prices to the current exchange rate, right at the point of sale. Hence, the merchant can accept bitcoins directly into their account. From there, bitcoins can be converted back into the local currency at the current exchange rate. More importantly, it is down to none, risks bared by the merchant, and instead of charging them an absurd credit-card fee; these service providers charge them a tiny processing fee of 0.55%, to accept the risk-free Bitcoin payments online or in-person.
–Edited by Mohamed P.Hassan