The invention of the credit card opened up a world of possibilities for consumers. Ever since the 1950s, credit cards (or charge cards as they were first called) have been an essential feature of the finance world. The portability and convenience give consumers the ability to make purchases and repay the money later.
In 2021, the rise of cryptocurrencies (or crypto) and blockchain technology has disrupted the finance world. Cryptocurrencies offer a new, decentralized, peer-to-peer payment system and investment opportunity for consumers. There are thousands of crypto coins, with Bitcoin and Ethereum being the biggest and most widely used.
Service providers like Visa and Mastercard have begun to issue crypto cards to stratify a growing need for easy payments. There are various types of crypto cards, and each has specific functions and purposes. Here, we’ll look at five things you should know about crypto cards, including what they are and how they work.
- What are Crypto Cards?
- How do Crypto Cards Work?
- 5 Things to Know about Crypto Cards
What are Crypto Cards?
Crypto Cards take cryptocurrencies from exchanges and link them to a card system for making payments and earning rewards. There are two varieties of crypto cards that work similarly to normal credit and debit cards: crypto debit and crypto credit cards.
Crypto debit cards
A crypto debit card functions like a debit card. The crypto debit card links to a crypto exchange or digital wallet that stores your crypto. When you make a purchase, the fiat currency value of the purchase is deducted from your crypto reserves.
Crypto Credit Cards
A crypto credit card works like a regular credit card but has a rewards component. When you swipe your crypto card, you get an extended line of credit which you settle later with fiat currency. The rewards you get can vary from cashback rewards to buy more crypto or discounts on online subscription services.
How do Crypto Cards Work?
Crypto cards follow the same process as regular credit and debit cards. However, it’s important to remember that crypto cards are limited to a small number of merchants. This will change in a few years. Read here to find out more about other changes in crypto.
In the case of crypto debit cards, once you have linked the card to your digital wallet or exchange, you can make purchases securely. Let’s take a brief example:
Say you decide to visit your local coffee shop to purchase a $3 cappuccino to go. Luckily, the coffee shop accepts your crypto debit card. At the moment, you have $100 worth of Bitcoin loaded in your digital wallet.
When you pay for your $3 cappuccino, the crypto service provider sells $3 of Bitcoin and converts it into dollars. The coffee shop received $3, and you are left with a balance of $97 in your digital wallet.
5 Things to Know about Crypto Cards
1. Where can I use Crypto Cards?
Currently, countries are seeking to restrict or ban cryptocurrencies altogether. China has made news recently on its crackdown on crypto and banning crypto mining outright. Turkey has banned trading in crypto due to money laundering fears to fight corruption.
So, depending on where you live, local policies will affect where you can legally use a crypto card.
2. Are there any fees involved?
Exchange rates and transaction rates will depend on the service provider. Take note of foreign fiat currency conversion rates and how the fees affect you. Some crypto cards which charge forex fees usually need to reimburse the processing companies like Visa.
If a crypto card has transaction fees built into the rewards program, this can lessen the value of the reward points.
Take note of the various transaction fees associated with a crypto card before deciding to get one.
3. Do I get taxed for crypto transactions?
Unfortunately, the IRS classes cryptocurrencies as capital assets and not currency. Therefore, when you make any purchases with your crypto card, each transaction must be reported for capital loss purposes.
When cryptos increase in value, the profits earned class as capital gains. Capital gains must be declared for tax purposes. It’s the same tax you pay for trading on an exchange, but now you are doing it with a card for products and services.
4. Which cryptocurrencies support crypto cards?
As mentioned earlier, there are thousands of cryptos on the market. However, only certain cryptos like Bitcoin support card payments.
Some cards only accept one crypto as an exchange medium, while others can work with multiple crypto coins. When shopping around for crypto cards, see if you prefer a single crypto card or a card which supports many digital currencies.
5. What are the best Crypto Cards?
Several services providers are offering a range of crypto cards. Each service provider has its perks and reward offers. Here are some of the best crypto debit and credit cards to check out:
- Binance Debit Card
- com VISA card
- BitPay Mastercard
- Nexo Debit Card
- Block Card
- Coinbase Debit Card
- Gemini Credit Card
Just as the first credit cards made payments easier and accessible to the masses, crypto cards will do the same for crypto users. The speed of blockchain technology allows for fast transactions and conversions to make purchasing easy and secure. Crypto cards are the next step to worldwide crypto adoption and a viable option to the traditional financial system.