What are crypto cards and how do they work? One of the most convenient ways to make payments while you are shopping is by using your credit card, but to keep it that way is up to you because you will need to use it with care.
The new kid on the block is the crypto card which is just like the credit cards but it rewards the users in cryptocurrencies.
There are several rewards but it depends on the crypto card you use, and, as it is with credit cards, you should take care of where and how you spend.
There are several crypto credit cards emerging from different startups and therefore these are now easily available.
Even traditional financial service companies have also started offering these cards linked with crypto to attract new customers.
These cards do not offer cash back on purchases made or travel rewards like the traditional credit cards do but offer rewards in crypto.
Ideally, things are a bit more complex with crypto credit or crypto debit cards than traditional credit and debit cards.
Therefore, there is a lot you should know about them before you use them, and, fortunately you are in the right place for that.
In this article, you will find everything in detail which includes what these cards are and how they work, what you should expect from them and how exactly you can evaluate whether or not a crypto credit card is good for your wallet.
What are Crypto Cards and How Do They Work?
In simple terms, crypto cards are those that allow you to spend crypto and earn crypto.
You can do so either with a crypto credit card or a crypto debit card.
However, unlike the crypto debit cards, you will be allowed to borrow funds from the issuer of a crypto credit card and pay them back later.
It is just like the traditional credit cards, well, almost.
The only big difference between a crypto credit card and a traditional credit card is that you get crypto and pay back in crypto only, and, if you earn rewards, those are also offered in crypto coins.
There are different types of crypto cards available in the market and each of them rewards the users in a different manner. Here are a few examples.
- If you use a crypto credit card offered by the Gemini crypto exchange, you will be entitled to receive a reward in Bitcoin of up to 3% on payback. This amount will be deposited instantly into your Gemini account.
- If you consider using the BlockFi credit card, you will however gain cash back of 1.5% as rewards. This reward is paid in more than ten types of crypto coins which include Bitcoin and Ethereum.
- If you are using the SoFi credit cards, you can redeem the rewards points earned in terms of either Bitcoin or Ethereum.
- On the other hand, the Venmo crypto credit card will allow you to buy Bitcoin, Litecoin, Ethereum, or Bitcoin Cash when you earn cash back while making a purchase.
- And, with Brex Business Cards you can spend your reward points on either Bitcoin or Ethereum.
Therefore, you can earn rewards no matter whichever crypto card you use but the only thing that you should remember is to watch how you spend.
This is because, just like any other traditional credit cards, failure to pay back your dues or delay in making your payments will fetch high interests as well as late fees and annual fees.
In addition to that, it will also affect your credit score. It is best not to carry any balance on your crypto card, just as in your conventional credit card.
Therefore, you will need to understand the working process of the crypto cards, the terms and conditions underlying them, and the risks and benefits of using them, if you want to keep your finances in the ‘pink of health.’
There are different types of crypto cards available in the market right now.
You can choose to use any type of card according to your convenience.
For example, if you travel a lot you will be better off using a travel rewards card and redeem the points that you earn on airfare or hotel.
You may also use a crypto card that will allow you to convert your crypto coins into fiat currency like Euros or Dollars and use them to make a transaction.
On the other hand, if you are simply a crypto enthusiast, you can use any crypto card that will allow you to earn rewards in Bitcoin.
You can use a crypto debit card such as the Crypto.com Visa Debit Card which will offer you rewards in CRO, their native crypto coin, or the Coinbase Debit Card which offers rewards in Bitcoin, Ethereum, Dogecoin and from eight other types of crypto coins.
You can also choose to use a crypto credit card such as SoFi Credit Card, Venmo Credit Card, Brex Business Card, or BlockFi Credit Card, with varied benefits and features as mentioned above.
However, you are requested to check on the availability of them in your region as well as the terms and conditions on their usage as applicable within your jurisdiction.
Also, keep in mind that there are some crypto cards that offer a waitlist as of now and may be launched later on and few may be open for application right now.
The emergence of the crypto debit cards eased the process of accessing the funds quickly by the crypto holders. Now they do not need to convert crypto to fiat currency for their day-to-day spending.
This is a long-drawn and inefficient process since they have to wait for some time for the funds to be deposited into their account.
The debit cards not only revolutionized the process but at the same time increased the interest of the public in crypto which has affected positively in its mass adoption.
It is no longer a ‘monopoly’ type of money for some people since a large group of people can now own and spend crypto coins in a real world environment.
These crypto debit cards can be used in different merchant outlets just like any traditional debit card and it is not backed by the bank account of the user but with their crypto account or wallet.
In the case of crypto debit cards, the funds will be typically drawn from your crypto account or wallet when you use them.
This means that you will need to make sure that you have adequate balance in your account while making a purchase with your crypto debit card, just like a traditional debit card issued by an ordinary bank.
You can also use a prepaid debit card in which you will first need to load money onto your card before using it.
It works just like your prepaid phone card. On the other hand, in the case of the crypto credit cards, you simply borrow the money from the card issuer when you use it.
Ideally, one of the newest inclusions in this field is the crypto rewards credit cards.
The type of reward you will get will depend on the type of card you choose to use as well as the policies of the processing network, and these are subject to change, sometimes even without prior notice.
You may earn credits in the form of cask back or airline miles, all offered in Bitcoin and the crypto coin types. You may even be allowed to redeem your points for other permissible types of crypto coins.
Sometimes, you may also be offered card protections by Visa or Mastercard in a crypto credit card.
Though both crypto credit cards and crypto debit cards are useful in their own respective ways and virtues, there is one significant pitfall of the crypto debit cards in comparison to the crypto credit cards.
It is that you earn your rewards in a crypto debit card in a crypto specified by the bank.
In most cases it is seen that this approved crypto coin is significantly less valuable as compared to some of the most popular crypto coins in the market such as Bitcoin and Ethereum.
Another vital difference, if not a downside, of the crypto debit card in comparison to the crypto credit cards is its Proof of Stake obligation.
In its most basic concept, this means that you as a crypto holder have to lockup or stake a part of your coin holdings to a particular blockchain network in order to support that network.
Several crypto debit cards have PoS as an essential term of card membership.
Sometimes these specific requirements of a crypto debit card for locking up your coins with the financial institution can cause significant concern especially if you find that the opportunity cost is not worth it.
In such a situation you may incur losses by tying up your coins and the rewards offered by the debit card may not be significant enough to compensate for the losses you incurred.
As it is evident from what is said earlier, the working process of the crypto rewards credit card and the crypto debit cards is pretty much similar to any ordinary credit or debit card issued by an ordinary bank.
You are offered rewards when you swipe the card but in this case, the rewards are offered in crypto coins.
The transfer of funds when the users use these cards is usually aided by Visa or Mastercard, two of the largest and most trusted payment processing networks in the world.
These cards are therefore accepted anywhere Visa and Mastercard payments are accepted.
However, every different type of crypto credit card or debit card differs in the way they process a transaction and offer rewards to the cardholders.
For example, if you are using a BlockFi Rewards Visa Signature Credit Card, you will earn 1.5% cash back in crypto on all qualified purchases, 3.5% reward in crypto within the first 90 days of your membership, and 2% cash back in crypto if purchases are more than $50,000 in a year.
All these rewards are offered in BlockFi Cryptocurrency Rewards Points and when these points add up to a substantial amount you will be allowed to convert them into a crypto coin of your choice.
On the other hand, if you choose to use a Gemini Credit Card, the rewards you gain instantly when you swipe your card to make a purchase will be deposited to your Gemini account immediately and automatically.
This happens every time you use the card. This means that you do not have to wait for a month for the statement.
Therefore, it is important that you know the working process of the crypto credit or debit card of your choice. For that you will need to research well to find out whether the card is really rewarding for the cardholders.
During your research on the working process of the crypto credit cards and debit cards, make sure that you follow a few additional steps to know the terms, conditions, user responsibilities, and risks involved in using them.
Remember, if you want to use crypto credit cards in particular, you will need to pay off the balances on time and diligently to avoid late fees, penalties and interests.
Things to Consider
Here are a few things that you need to consider before you apply for and use a crypto credit card.
- Taxes – The rewards that you earn in the form of cash back and travel rewards may not be taxable but if these are awarded in crypto coins then these will be taxed when you sell them off. This is because these coins are just like any other crypto coin and have the potential to increase in value.
- Flexibility – Different crypto cards will have different crypto portfolios that it supports and offers rewards to the users in. Therefore, if you want to earn profits in a specific type of crypto coins, make sure that you check the flexibility of the card and the crypto exchange that supports it so that you are allowed to invest in the type of crypto coin you want.
- Benefits – Check for the benefits offered by the crypto cards because most of them are pretty bare-boned when it comes to offering benefits to the users. Make your choice accordingly. For example, if you travel a lot, go for a travel rewards credit card and if you simply want to save money on your purchases made every month, the cash back credit card will be of more value to you and serve all your purposes much more effectively.
- Limitations – All types of crypto credit cards may not be available in your region because the state laws may vary from one county to another regarding crypto usage. Therefore, check the terms and conditions, limitations and jurisdictions of the specific crypto card before you apply to find out whether or not you live in an entitled state.
Checking these things is extremely important if you wish to manage your crypto account from outside the United States so that you do not end up with charges for violating international laws while using your crypto credit card.
If you wish to use a crypto debit card, you will also need to make some checks beforehand as well such as:
- Check for the availability of the service in your region because some jurisdictions may not allow it.
- Check whether or not the crypto debit card will be accepted at most of the outlets and POS.
- Check it up with the Internal Revenue Service or IRS regarding the taxes you may need to pay on your crypto debit card transactions and report your capital gains and losses, especially if the price of a crypto coin was higher at the time of using it than when you acquired it.
- Check the types of crypto coins supported by the crypto debit card as well because there are only a few specific types of crypto coins that have attained mainstream appeal in spite of the fact that there are thousands such coins available in the market right now. It is best to go for a crypto debit card that supports multiple crypto coins.
Finally, check the fees and exchange rates that are applicable to purchases made via a crypto debit card since different providers will charge different rates based on their business policies.
While some may not charge any fee for making a deposit but may charge high fees on withdrawals made, others may charge reasonable rates for both.
There may be a few card providers that may waive a few fees when you spend a specific amount of money in crypto.
In addition to that, there may be a few other debit card providers who may charge foreign conversion fees along with other fees and charges.
These fees, they say, are for the reimbursement to the payment processing companies Mastercard and Visa.
In the end, it is time to consider the pros and cons of using a crypto credit card or a crypto debit card.
Though these function more like a traditional credit or debit card, there are few perks and benefits that they offer the users which a traditional card may not.
As for the crypto debit cards, the benefits are:
- The transaction and conversions are not subject to exchange rate expenses and therefore you have the same amount of money whether it is while converting Bitcoin into US dollars or into Russian Rubles irrespective of your geographic location.
- You will not need a bank account to use these cards but you will need a crypto wallet or an account with the crypto exchange.
- The online transactions and purchases made through a crypto debit card are usually processed much faster and in a more convenient way.
The other benefits of crypto debit cards are cheaper or waived foreign conversion fees, ability to spend crypto coins like fiat money, multi-currency support that allows more diversified spending, and withdrawal of ATM fees by some card issuers.
However, on the flip side, the downsides of using a crypto debit card include triggering a taxable event when you spend crypto, geographical restrictions that may be applicable in some cases, and the need to have adequate balance in your account prior to using your debit card.
As per the unique benefits of the crypto credit cards apart from allowing you to use it in numerous VISA and Mastercard outlets, it may vary according to the policies of the crypto credit card providers.
However, here are some of the common benefits of using a crypto credit card:
- You may not have to pay any fees if you use a free card in terms of processing, administrative, or annual fees but may need to pay third-party fees occasionally.
- You will not need to use your own crypto to use your credit card and hold onto it since you will actually borrow the amount from the credit card provider when you use it. This means your holding will continue to earn all potential market gains.
- Depending on the service provider, you can earn a high percentage as cash back on your purchases. Sometimes it can be as high as up to 8% as offered by Binance depending on your monthly average balance of BNB tokens in your wallet.
- Some crypto credit card issuers, as said earlier, may even offer protection to your funds in some cases. For example, funds on Binance are protected as per SAFU or Secure Asset Fund for Users standards.
As for the risks involved in using a crypto credit card, it is the same as holding crypto coins where holding too many Bitcoin and Ether in your account constantly changes the fiat value.
Similarly, if you spend too much on your crypto credit card, you may not know the exact amount that you owe to the credit card issuer.
Also, the amount you owe will depend and vary largely on the exchange rates as well as the tax jurisdictions.
If you make any capital gains, or losses, due to the change in value before using your credit card to purchase anything, you will have to pay the right taxable amount.
However, you can avoid such payments if you purchase stablecoins with your crypto credit card since the prices of these coins hardly differ from the pegged value of the coins.
Are Crypto Rewards Cards Worth It?
Yes, considering everything, the crypto debit and credit cards are absolutely worth using.
You will be able to enjoy exciting possibilities for your businesses and also enjoy several benefits when you use it for making your day-to-day spending in general.
Use of these cards will be wide and extensive and will also become a reality pretty soon considering the fact that these cards are available easily for everyone to use.
All crypto users and enthusiasts can use their hard-earned crypto coins in the real world that were lying idle until now.
What is more, using these cards, as said earlier, will offer them a varied set of benefits and rewards which is an added incentive and a way to make passive income with crypto coins.
Therefore, albeit with varying degrees, the crypto cards are worth using by the crypto enthusiasts who do not have the needed risk appetite to get involved in the crypto market and trading for real.
With low risks involved with these cards, these are really an attractive option for those who finally put their first step into the exciting world of cryptocurrency.
Ideally, these crypto cards are worth using for even those people who are deeply involved in crypto trading and investing as well.
In short, these cards are worthy to anyone who has a strong belief in the digital currency ecosystem and movement as well as its longevity, profit, and potential growth.
However, you should get a crypto credit card if you only have a reasonably good spending habit.
If only you are cautious in using your crypto cards, you can earn quite a significant amount of additional crypto coins in the form of rewards offered by these cards.
Therefore, weigh up the costs against the benefits offered. For that you should find answers to some specific questions such as:
- What is the annual fee, if any?
- What are the rewards and exchange rates?
- Are there any other types of fees charged by the card issuing company?
- What additional benefits can you gain by using a particular crypto card?
Apart from that, make sure that you choose and use the right type of crypto card that will offer you a much better value than any other card available in the market.
It will always make more sense to use a crypto card that offers a higher cash back rate and charges a lower annual fee.
Remember, as of now, there are quite a few such cards available out there in the market.
At this point, it is also good to remember that cryptocurrencies may be attractive but are also extremely volatile at the same time.
Since the value of the coins may rise and fall dramatically, frequently and unexpectedly, cryptocurrencies are certainly not a great option for making money in the short term.
To summarize, it can be said that using a crypto card is good but you should use it sensibly.
Overspending on crypto cards is never a good idea because it will lead to credit card debt with heavy interest charges and it will also lower your credit score.
You must spend responsibly even if the rewards seem to be very attractive. No matter what you get, it should increase in value.
Crypto cards are an exciting improvement and inclusion in the credit card industry but it is important to make sure that using these cards makes real sense for you. Thanks to this article, now you know how to use them and grow your portfolio.