What You Should Know About Crypto Chargebacks

I once thought about accepting cryptocurrency for payments but decided against it. After re-evaluating this choice with disputes in mind, I wanted to share my thoughts.

In this guide, I’ll explain why chargebacks don’t apply to crypto and whether it’s a good option for your business.

Keep in mind, I’m not endorsing any platform, cryptocurrency, or solution. This is purely for your understanding.

First, let’s clarify why crypto transactions can’t involve chargebacks.

Key Takeaways

• Customers can’t file chargebacks for purchases made with cryptocurrency.
• They can dispute transactions on crypto exchanges (e.g., Coinbase).
• Cryptocurrency lacks financial regulation and buyer protection.
• Accepting cryptocurrency may help reduce chargeback rates.
• Weigh the pros and cons before deciding to accept cryptocurrency.

Using cryptocurrency isn’t a great way to prevent chargebacks from traditional purchases. A better option is to use chargeback alerts. This tool lets you address disputes before they turn into chargebacks.

See how they work.

Can You Do Chargebacks on Cryptocurrency?

No, you can’t do chargebacks on cryptocurrency transactions. Once a crypto payment happens, it’s final.

Why’s that?

Cryptocurrencies like Bitcoin and Ethereum use blockchain technology. Blockchains ensure transparency, security, and trust. All without needing a central authority, like a bank, to manage reversals or disputes.

For e-commerce merchants, this means no chargebacks when accepting cryptocurrency payments.

The Fair Credit Billing Act (FCBA) governs chargebacks, at least in the US. This law only applies to credit billing errors and doesn’t extend to blockchain transactions.

The blockchain has no governing authority. Thus, there are no consumer protections like those offered with credit cards.

However:

Platforms selling cryptocurrency, such as Coinbase, can still face chargebacks. This happens when customers use credit cards to buy crypto and dispute those charges.

Here are examples of card-funded crypto transactions that could lead to chargebacks:

• Buying Bitcoin with a Visa card on Coinbase.
• Purchasing Ethereum using a Crypto.com card.
• Paying for in-game blockchain items with a debit card.
• Accepting card payments for Tether (USDT).
• Buying NFTs on platforms like Rarible with a Visa card.

If your business involves these areas, you’ll need to understand the chargeback policies of your payment providers.

We offer a lot of this information. I recommend starting with this guide.

Will non-crypto merchants prevent chargebacks by accepting this currency?

Glossary:

• Blockchain: A decentralized digital ledger that records transactions.
• Fair Credit Billing Act (FCBA): A law allowing consumers to dispute unauthorized or incorrect credit card charges. Here’s a summary (PDF).

Summary: E-commerce merchants won’t face chargebacks for crypto purchases. Platforms selling cryptocurrency or enabling card-funded transactions may still deal with chargebacks.

Will Accepting Cryptocurrency Prevent Chargebacks?

Accepting cryptocurrencies can help prevent chargebacks in certain cases. When customers pay with cryptocurrency, they waive their consumer protections. This means they cannot file a chargeback, no matter the reason.

Because if they can’t file a chargeback on a crypto-made sale, what else could they do?

For shoppers, this is a major downside to using cryptocurrency. While centralized currencies have their flaws, they offer protections. Most governments have moved at a snail's pace to regulate or provide protections for crypto transactions.

That leads us into whether businesses should accept crypto.

Summary: Yes, businesses can avoid chargebacks as long as customers pay with cryptocurrency.

Should I Accept Crypto as a Form of Payment?

Consider accepting cryptocurrency only if you’re prepared to handle the risks involved.

That might not be the answer you were hoping for, but it’s a complex topic that needs context. I’ll explain more in the sections ahead.

Let’s start with the pros and cons.

Pros & Cons of Accepting Crypto Payments

Pros:

• No chargebacks: Customers cannot reverse payments.
• Lower transaction fees: Costs are typically lower than credit card fees.
• Global accessibility: Accept payments without worrying about currency conversion.
• No intermediaries: Payments go directly to you without involving banks.
• Faster settlements: Receive funds faster compared to traditional banking systems.
• Privacy for customers: Transactions can offer more anonymity than card payments.

Cons:

• Price volatility: Cryptocurrency values can change within hours.
• Regulatory uncertainty: Laws and tax rules differ by country and are still evolving.
• Limited consumer adoption: Most customers still prefer traditional payment options.
• Technical barriers: Requires knowledge of wallets, blockchain, and how crypto works.
• Irreversible transactions: You can’t refund mistakes, like incorrect addresses.
• Security risks: Wallets and keys are at risk of being hacked or stolen.
• Accounting challenges: Tracking payments and handling taxes can be complex.

Let’s dive deeper into the nuances of some of these points.

1. Lower Transaction Fees

Imagine a business processes a $1,000 payment using a credit card. They pay a 2.9% fee plus $0.30, which totals $29.30. By comparison, a Bitcoin transaction on the Lightning Network might cost 1 Satoshi — a few cents.

Though, this cost can vary.

These savings add up for businesses with high transaction volumes or low profit margins. Lower fees also make small transactions, like $1 – $5 payments, more practical.

This cost efficiency supports scalability. For example, the Lightning Network can handle over a million transactions per second.

2. Why is the Lack of Intermediaries Good?

Bypassing intermediaries like banks does the following:

• Eliminates delays
• Reduces fees
• Avoids the risk of account freezes
• And more

This gives businesses more control over their money.

For example, an international client sends $10,000 using cryptocurrency. The funds arrive within minutes, with no banking delays or international wire fees.

3. More Customers Are Privacy-Conscious

According to McKinsey, 71% of shoppers would stop supporting a business that shared their data without permission [1]. In the first half of 2024 alone, over 1 billion people were affected by data breaches.

A 490% increase from the previous year [2].

Would you trust shopping from a business that’s carefree with your data? I hope not.

I digress.

Anonymous payments, like those made with cryptocurrency, could boost customer trust in your brand. If your business experienced a breach, customers’ payment information wouldn’t be exposed. This added layer of privacy builds confidence.

4. Cryptocurrency is Volatile

The volatility of cryptocurrency is a major downside. It’s one of the biggest reasons I hesitate to use it.

Here’s an example:

A business receives a $500 Bitcoin payment at 9:00 AM when Bitcoin’s price is $30,000. By 4:00 PM, Bitcoin drops to $28,000 due to unexpected news, like regulatory crackdowns. The $500 payment is now worth only $466.67 — just hours later.

And why does this happen?

Cryptocurrency prices are sensitive to market speculation, government announcements, and even Tweets. Sharp price swings can happen without warning. Making it risky for businesses.

5. Accounting is Another Nightmare

Payments made in cryptocurrency must be converted to fiat value at the exact time of the transaction for accounting purposes. Businesses must also record the blockchain hash of each payment for potential audits. This isn’t fun.

Then there’s the issue of capital gains tax.

If a business holds cryptocurrency and its value increases, the profit is taxable when the crypto is sold or used. The tax rate is based on capital gains, which in the US ranges from 0 – 37% as of 2024.

How does crypto compare to traditional payment methods?P

Comparison of Cryptocurrency to Other Payment Methods

Here’s a quick comparison of cryptocurrency and traditional payment methods:

• Transaction fees: Crypto fees are usually lower than credit card fees.
• Speed: Crypto transactions settle in minutes, faster than bank transfers.
• Global use: Cryptocurrencies work worldwide without currency conversion fees.
• Reversibility: Credit cards allow chargebacks, while crypto transactions are final.
• Security: Crypto offers strong encryption but comes with risks, like losing private keys.
• Adoption: Credit cards and digital wallets (e.g., PayPal) are widely accepted. Crypto adoption is still growing.

I’ve covered many of these areas throughout the pros and cons section. There’s no reason to dive deeper into it.

Adoption is an area I haven’t discussed yet. Let’s dive into that.

Crypto’s Impact on E-Commerce

Here are some cryptocurrency adoption rates to consider:

• As of 2024, about 6.8% of the global population — over 560 million people — own cryptocurrencies [3].
• 40% of American adults reported owning crypto in 2024.
  
  • Up 30% from 2023 [4].
• The global cryptocurrency market reached $2.2 trillion in August 2024.
  
  • A 36% increase from January's $1.6 trillion [5].
• In 2024, 37% of U.S. e-commerce sellers accepted cryptocurrency.
  
  • Up from 27% in 2022 [6].
• The watchmaking industry reports 8% of daily sales are done using crypto [7].

These trends show more businesses are embracing cryptocurrency. Offering customers more payment flexibility. As adoption grows, regulations are likely to follow. Such rules could make managing cryptocurrency easier for sellers.

But only time will tell.

We’ll wrap this up by exploring efforts to add dispute-like systems to the blockchain.

Attempts at Crypto Dispute Resolution

Back in 2016, PayPal filed a patent for a cryptocurrency chargeback system. 

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Here’s how it would have worked [8]:

• Chargeback report submission: A payer submits a chargeback request for a transaction.
• Chargeback ledger publication: The system records the report in a shared chargeback ledger.
• Response from payee: The payee is notified and can respond.
• Ledger update: The ledger is updated with the payee’s response.

PayPal abandoned the project in 2017. Still, with thousands of crypto projects emerging each year, it’s likely someone will attempt to create a similar system in the future.

The closest existing service I’ve found is Kleros, which offers "justice as a service." 

It’s not legally required like chargebacks but allows merchants to integrate it into their platforms. Kleros lets customers dispute unfair purchases through a randomly selected jury. Who then reviews the case and renders a decision.

There’s not much else to add here.

Conclusion

I’m not a cryptocurrency advocate, but I wanted to explore it through the lens of chargeback prevention. Cryptocurrency does reduce chargebacks — if customers are willing to use it.

However, merchant protections could change as regulations evolve.

Chargebacks will always linger in the background. Whether you’re selling crypto or accepting traditional payment methods. And too many chargebacks can lead to losing your merchant account.

That’s why prevention is key. Chargeback alerts have helped some of our customers prevent up to 91% of chargebacks.

Try them out.

Sources

• [1] Consumer-data opportunity. McKinsey & Company. 4/27/2020.
• [2] Biggest Year for Data Breaches. Anonyome Labs. 2024.
• [3] Ownership Data. Triple A. 2024.
• [4] Crypto adoption report. Security. 9/26/2024.
• [5] Crypto statistics. Kraken. 9/4/2024.
• [6] Crypto in e-commerce. ECDB. 8/19/2024.
• [7] Crypto in retail. Lunu. 8/19/2024.
• [8] Crypto currency chargeback system. Google Patents.