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Did you know that according to the Cheque and Credit Clearing Company there were in excess of 460 million cheques issued as payment in the UK in 2014? That equates to around 1.8 million cheques written every day! And while the humble cheque may still be regarded as a trusted payment medium, the reality is that it’s the embodiment of an archaic payment structure, fraught with disadvantages in the face of digital advancements.
Sure, today we also have the convenience of electronic payments, or credit and debit card transactions, but even these have drawbacks.
There are 3 major issues at hand here. Time, fees and risks. Let’s examine each of these points, and at the same time see how bitcoin solves for these shortcomings.
Cheque deposits and payments are subject to lengthy approval times. Locally, UK-issued and processed cheques are subject to the 2-4-6 cheque clearance system. This is simply a timeline which allows for certain actions from the date of deposit, as follows:
Card payments are substantially quicker, but are still subject to processing time. While on the surface these appear to have ‘gone through’ successfully, these are generally run in batches, after business hours, to be fully affected and monies transferred from payer to payee.
Bitcoin transfers, on the other hand, are practically instantaneous; confirmation takes place within 10 minutes. This means that bitcoin are transferred and available to spend as soon as the block has been verified and added to the blockchain. No lengthy delays!
The traditional payment system involves several intermediaries. As authorisation and funds are moved from one middleman to the next, each tacks on their respective processing fees. These will vary on the payment method used. In the case of credit card payment, for example, this could amount to fees of 2-5% (or more) of the value of the transaction. (Let’s also not forget the ongoing maintenance fees for the ‘right’ to hold a transactional account, either!)
Settlements made with bitcoin are generally free of transactional fees, provided:
Processing fees can be added voluntarily as a means to incentivise miners to expedite adding a transaction to the blockchain. In the instances where processing fees are charged, they are typically a marginal amount, at around one-third of a penny! A far cry from the exorbitant fees charged by traditional payment players.
Accepting payments via traditional settlement systems comes with a level of risk for the recipient. In the case of cheque payments, as I mentioned above, there is potential up until 6 days after deposit that the cheque will not be honoured. If you’ve already drawn against those funds, you’re left with the burden of spending without earning.
For credit card payments, chargebacks as a result of fraud are a grave concern. Fighting a chargeback takes extensive time and money, and isn’t often worth the trouble. Most payees simply accept the loss, taking a knock in income as a result.
Conversely, transactions in bitcoin are irreversible and the nature of the blockchain eliminates the possibility of double-spending. Once they are added to the blockchain, and as a result bitcoin transferred to a new wallet, only the owner of that wallet may initiate a further movement. These ‘features’ drastically reduce the risk for recipients as payments, once received, are deemed as verified and valid.
Will traditional payment systems disappear entirely in the wake of Bitcoin? It’s highly unlikely. However, for those looking for an alternative means to pay and receive funds, without the inherent delays, costs and risks of the traditional payment system, bitcoin represents an ideal, secure and trustworthy payment medium. For a more in-depth comparison of traditional and bitcoin payments, download our free eBook, 'What is Bitcoin?'.