How to make purchases with cryptocurrency

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  • September 9, 2022

Bitcoin has been keeping the financial world busy since October 2008. The development of Bitcoin in recent years shows that the digital cryptocurrency has come to stay. Now the digital coin is on the threshold of becoming a recognized means of payment.  

An important step out of the niche of the crypto market is the cooperation with PayPal, which Bitcoin was already able to secure in 2020. The internationally operating payment service provider has the reach and recognition to make the cryptocurrency interesting as an investment and payment instrument for the masses as well.

Already now, customers in the USA can buy Bitcoins with PayPal. Since August 2021, PayPal’s extended services have also been available to British customers. Users based in Germany can only trade Bitcoin via the online broker Etoro so far. The payment service provider has already announced its intention to integrate further countries into the growing Bitcoin network.  

PayPal is thus providing consumers with easier access to the crypto market. The next step is the acceptance of cryptocurrencies as a means of payment. In e-commerce, bitcoin is already being recognized as an additional payment option in isolated cases. If the trend continues, it may become interesting not only for crypto experts and investors to familiarize themselves with the possibilities of the digital currency.  

Before the payment comes the purchase

Cryptocurrencies and their possible uses on the financial market seem to be increasingly shaping everyday life. The European Central Bank is already working on the Digital Euro, a cryptocurrency based on the euro that could also establish itself on the international financial market.  

But anyone who wants to pay with a cryptocurrency must first acquire it and manage it in a special account. This is how the purchase of Bitcoin succeeds: 

1. Choose the right trading platform

Bitcoin are traded on crypto exchanges, marketplaces or via a special broker. Here, consumers are free to choose which partner they want to work with. Crypto exchanges and brokers sell directly to buyers. Marketplaces, on the other hand, merely provide a platform to bring together prospective buyers and sellers.  

With many reputable providers, customers first have the choice of whether they want to try out trading with Bitcoin on a demo account or jump right in with a real money account.  

2. Set up account

Once the provider is selected, the Bitcoin client must be downloaded and installed. For this, the common database of the network is also downloaded, in which the individual Bitcoin transactions are stored. To prevent counterfeiting, each coin is assigned to a fixed address, which is why users have to register accordingly.  

Customers can then set up their account, the so-called wallet. Depending on the provider, this requires the provision of some personal data. For the login, the e-mail address is also required and an individual password is created. Subsequently, verification of the account via an identification procedure supported by the provider is usually required.  

3. Deposit money for the bitcoin purchase

In the third step, the wallet must be loaded with money in order to be able to purchase Bitcoin. Here, the purchase price is based on the current bitcoin rate. The account can be topped up by bank transfer. Depending on the provider, it is also possible to trade Bitcoin with PayPal, credit card, Giropay or Sofort├╝berweisung. If the cryptocurrency is to be bought with PayPal, only the online broker Etoro is currently available to German customers for this purpose. 

4. Buy bitcoin

Once the wallet is set up and filled with funds or linked to a corresponding payment method, customers can determine the amount of Bitcoin they want to purchase and then complete the purchase via button. The bitcoin balance and the equivalent value in real money are currently displayed in the wallet after a certain processing time, which can vary depending on the provider.  

5. Secure wallet

After the copying process is complete, it is recommended to back up the storage file to an external storage medium such as a USB stick or an external hard drive. In this way, the wallet remains protected from loss or damage to the hard drive. 

Once the purchase is complete, the Bitcoin balance can be managed in the wallet and used further. The acquired Bitcoin can be stored and sold again if the exchange rate develops favorably in order to make a profit. In e-commerce, however, it is also increasingly possible to pay directly with the cryptocurrency.

Pay with Bitcoin: This is how it works

Setting up a Bitcoin wallet and purchasing Bitcoin in the desired equivalent value are the first important steps to using the cryptocurrency as a means of payment. After the purchase of the coin, the available balance is displayed in the wallet. The equivalent value in real money can fluctuate depending on the current daily rate on the crypto exchanges.  

To complete a purchase on the Internet with Bitcoin, the respective merchant must accept the cryptocurrency as a means of payment. If this is the case, Bitcoin will also be listed among the selection of possible means of payment during the payment process. For checkout, customers select the means of payment and complete the purchase.  

Afterwards, the amount due in Bitcoin has to be transferred to the recipient. This is usually done directly from the wallet. A transfer order can be entered here, which only requires the recipient’s address and the amount to be transferred. Once the order has been sent, the instructed amount should arrive on the recipient’s Bitcoin account within ten minutes. In order to be able to assign the payment, the sender’s address is also noted here. In this way, the transaction can also be tracked at any time via the Bitcoin network.  

These are the advantages and disadvantages of the crypto payment method

Since Bitcoin is not yet very common as a means of payment, consumers should look into the advantages and disadvantages that the cryptocurrency brings to payment transactions before making their first transaction.

Advantages

  • Transactions are possible without the direct intervention of a bank. 
  • Transferring money via a Bitcoin wallet is fast, secure and efficient. Thus, transactions can be completed within a few minutes.  
  • Unlike traditional money transfer, transactions with Bitcoin accrue low conversation rates.  

Disadvantages

  • Transactions with Bitcoin are irreversible. Once a payment has been made, it cannot be reversed under certain conditions, as is the case with a bank.  
  • Due to the great interest in the crypto market, the blockchain is subject to frequent hacker attacks, which can also affect consumers in unfavorable cases.  
  • Transactions with Bitcoin always require a stable and sufficiently powerful internet connection as well as a terminal device on which the trading software is supported. This can lead to restrictions in the flexible execution of transactions.  

Paying with Bitcoin: El Salvador as a pioneer

El Salvador is the first country in the world to allow Bitcoin as legal tender. Since September 2021, people in the country have been able to make purchases with the cryptocurrency and also pay their taxes in Bitcoin. Thus, the Central American state has become a pioneer for the crypto market.  

A law to this effect was passed in March 2021. According to it, every merchant in El Salvador will be obliged to accept Bitcoin as a means of payment, provided they are technically capable of doing so. Companies that have the resources to do so will also be required to implement technological measures necessary to make payments with Bitcoin.  

Among the population, the draft law had been critically noted. However, the government stressed that it was beneficial to the country’s economic growth and thus essential to open up to the circulation of digital currencies. As an incentive for the population, the state has granted the option to give users of the digital wallet “Chivo” a starting credit of $30 (about 25 euros). To make the use of Bitcoin as a means of payment even more attractive, around 200 Bitcoin ATMs are to be installed in El Salvador.  

Crypto experts believe that in the medium to long term, more countries will implement Bitcoin as a legal tender. This is likely to be a decisive step for the future of the cryptocurrency.