I've been asked to pay for a purchase in Bitcoin. Why would someone use this method instead of say Paypal and as a consumer am I protected in any way? I have never used Bitcoin or looked into it so I'm completely new to how this works.

  • bitcoin is an invention to ensure merchant protection, so any consumer protection method involving it will be riskier/expensive than using paypal. If you want consumer protection, skip bitcoin, but remember a payee today is a payer tomorrow. – skang404 May 16 '18 at 21:18

Why would someone use this method instead of say Paypal and as a consumer am I protected in any way?

Bitcoin provides protection in different ways, it can be used to pay for goods and services, but the nature of the payment system is quite different than something like Paypal.

With Paypal, the system is run by a centralized party (Paypal). This means Paypal can function as the arbitrator of any disputes, which is how they provide consumer protections. If a seller rips you off, you can open a dispute, and Paypal may decide to simply revoke the funds from the seller, and return them to you. As a user, you must trust that Paypal will act fairly on all accounts, and not restrict access to your money in any way.

Bitcoin is different: the system is decentralized, meaning there is no central party that can make changes to the state of the system arbitrarily. Once a transfer of bitcoins has been confirmed, the only way those bitcoins can ever be moved again is if the owner of the private key for that address signs a transaction to move them.

This means if you send your bitcoins to someone in exchange for some goods, and they rip you off somehow, there is no way you can appeal to a figure of authority to have your bitcoins returned to you. The only person who could authorize a return transaction would be the person that you sent the coins to.

This also means that you don't have to trust anyone to uphold your financial sovereignty. For many Paypal users, this is probably not an issue, since they use Paypal for 'regular things'. But for many others, use of Paypal may be restricted for political reasons, or because the sorts of transactions they do aren't allowed by Paypal's policies. For those users, a guarantee of financial sovereignty is very important!

As mentioned by others, if you are going to buy goods using Bitcoin, you should be diligent:

  • Do what you can to ensure the seller is legit. Does their website look legit? Does it include contact info for a legit business? Can you find many independent reviews of their business online?
  • Consider making your first purchase a small one, so you can build some trust that the business will deliver as advertised for a larger purchase.
  • Use an escrow service to complete the transaction. This essentially offloads the arbitration duty of Paypal to a neutral third party within the bitcoin ecosystem.

It is perhaps worth mentioning that while bitcoin can function as an online payment system, that is by no means the full extent of it's usefulness. Put differently, bitcoin's utility is not simply in being a 'Paypal 2.0', it is useful because it can do things that no other monetary instrument can. Bitcoin is a permission-less, censorship-resistant, decentralized, borderless, programmable system of value. What the implications of this are is a debate that is still unfolding.

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Bitcoin is not considered a currency by most countries. Additionally, is no central authority who can mediate and reverse transactions if you are scammed.

While paying people with bitcoin or any cryptocurrency is definitely possible, and does happen, you should take steps to ensure that you are not getting scammed.

Make sure you know who you are transacting with. If possible, take delivery of the goods/service before completing the payment. If that's not an option, use an escrow service.

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I've been asked to pay for a purchase in Bitcoin ... I have never used Bitcoin or looked into it so I'm completely new to how this works.

Do not rush into this. Understanding how bitcoin works takes a little study time. It does not work anything like other methods of payment that you are used to. If you rush into it, you may make costly mistakes.

Why would someone use this method instead of say Paypal

There are a variety of possible reasons, including:

  • The recipient may wish to remain anonymous and untraceable.
  • The recipient may want the payment to be irreversible.
  • The transaction fees may be lower.

and as a consumer am I protected in any way?

You are not protected in any of the ways you may be familiar with.

When you make a credit-card payment, if you accidentally pay the wrong person or the recipient does not provide the goods you purchased, you can report this to the credit-card company and they will reverse the payment. With bitcoin, only the recipient can make a repayment, there is no intermediary with the power to intercede.

If you lose your credit card, the company will issue you a new one. If you forget the PIN, the company will issue you a new card with a new PIN

None of the above apply to bitcoin, you have to make sure you know how to recover if you lose a "wallet" or if you forget a pass phrase. You cannot rely on other people doing these things for you.

The protections claimed for crypto-currencies include

  • protection from acts of governments (e.g. devaluing a currency)
  • anonymity

These are important to some people but may not be the kinds of consumer protection you had in mind.

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