Years ago, Satoshi Nakamoto introduced an ecosystem that was independent of the centralized financial system that dominates the global economy today. The ultimate goal was a world in which people could pay for goods and services with these new financial instruments. However, Binance-like crypto payment cards do not offer this.
Many companies and crypto exchanges already claim to offer services that allow crypto users to purchase goods and services using cryptocurrencies. However, it is clear that, as with the crypto payment cards from Binance, their crypto payment solutions do not get on the blockchain. Users are thus exposed to the same risks that are part of traditional payment methods.
How the crypto payment process works
There are two ways to process a cryptocurrency transaction with fiat.
One method is that the broker to receive the cryptocurrency and convert it to a fiat locked instant exchange rate. Then he delivers the fiat to the merchant or vice versa.
Second method is to first liquidate the user’s cryptocurrency on the fiat in his user account before he reaches the broker and then send the brokerage payment to the broker to complete the transaction. The first method is performed on a blockchain, while the second is not.
Payment platforms offer one of the two types of transactions mentioned above. However, it remains open how exactly these payment service providers plan to process transactions – whether they would allow consumers to pay with cryptocurrencies or fiats within a blockchain.
What users want and what the Binance crypto payment cards offers
The reason why people choose to shop with a cryptocurrency is the advantage of complete control over their money on blockchain, outside the bank. However, some payment solutions available to crypto users neglect this basis for the way they perform transactions.
According to Binance’s marketing, the card can be used to purchase goods or services from merchants, giving the impression that the consumer is paying the merchant with a cryptocurrency. Account holders don’t actually buy anything using cryptocurrencies or make purchases on blockchain. In fact, it is a transfer to the customer’s Fiat account.
If the fiat account is empty, Binance converts the cryptocurrency from the user’s crypto account to the fiat currency. The transferred fiat currency is then saved to the fiat account and used to make a purchase with a Binance debit card. As part of the transaction, Binance will send the converted Fiat currency of the card issuing company to complete the payment process. From a technical point of view, therefore, the payment never includes crypto or blockchain payments.
Why the Binance card causes crypto discrepancies
There are two conceptual issues. First, the process of liquidating cryptocurrency into fiat currency through Binance, which is similar to a banking mechanism, is beyond the control of the user and precludes the basic spirit of owning cryptocurrency instead of holding cash in the bank.
Second, by sending a payment with traditional credit cards that are not on the blockchain, the user loses the security benefits of the blockchain. The whole process basically places Binance in some sort of banking position, and not as a payment intermediary between the user and the merchant, which in this example is Visa or Mastercard.
The most user-friendly approach would require receiving a cryptocurrency and immediate locking at a rate that the user will see before paying. Such a mechanism would restore transparency and give the user full control over the digital currency, while ensuring that the transaction remains in the blockchain, thus reaping its benefits.
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