Bitcoin, the blockchain-based digital currency has many virtues, such as security, unfettered global reach, and very low transaction fees. With current debates regarding the backlog and lag of bitcoin transactions and the block size, those fees may soon be on the rise. Still, fees for using bitcoin are very low compared to credit card fees charged to merchants or individuals who accept them. Here is a quick comparison of those costs. (For more, see: Bitcoin Transactions Vs. Credit Card Transactions)

Credit Card Fees

Credit card companies charge consumer late fees for overdue bills, but importantly also charge merchants and others who accept credit cards for each transaction. First, credit cards charge a base fee that is the same for all regardless of the payments processor used, and is made up primarily of the interchange fee and the assessment fee. Interchange is the fee paid to banks or other financial companies that issue branded credit cards, and assessment is the fee paid to the credit card company itself (for example Visa or Mastercard). For example, 1.51% plus $0.10 is the current Visa interchange fee for a swiped consumer credit card per transaction, as well as an assessment of 0.13% plus $0.0195 per transaction, for a total of around 1.65% + $0.12. (See also: What are some examples of sneaky credit card charges to watch out for?)

Credit card processing companies, such as First Data, who route and clear credit card transactions then charge a markup on top of that fee. This markup is typically negotiated with merchants, based on expected transaction volume and size. These fees can run between 1.5%-3.0% per transaction, plus another $0.10.

This means that for the average user, a credit card fee will end up costing 3.15% + $0.22 per transaction.

Bitcoin Fees

Bitcoin does not rely on a centralized system involving processors and banks. Rather, it utilizes a distributed network of "miners" who validate and confirm each transaction and are rewarded with newly minted bitcoins in return. The fee is largely up to the bitcoin user to decide, but attacheding a very low, or zero fee to a transaction will tend to be ignored by miners and those transactions may never get confirmed. The typical transaction fee is around 0.0001 BTC, and with Bitcoin trading at around $610, that amounts to $0.061. Larger transactions (in terms of kilobytes) require higher fees. (For more, see: What is Bitcoin Mining?)

Those users wanting to incentivize miners to confirm their transactions sooner can attach larger fees, such as 0.001 BTC ($0.61), for example.

To compare somebody transacting $100 of value with a credit card would thus cost around $3.37, while a BTC transaction of similar value would cost at most around $0.61 - making credit cards a little more than 5.5x more costly for that transaction.

The Bottom Line

Bitcoin transactions are markedly less expensive than a similar credit card transaction, due to the fact that Bitcoin relies on a distributed network of miners rather than a centralized network of banks and processors. Even as the Bitcoin network gets backlogged, and transaction fees are forced upwards to encourage miners to validate transactions, there is a long way to go still before they begin to approach that of credit cards.

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