Cryptocurrency cards are debit, credit or prepaid cards that allow consumers to easily spend their cryptocurrency on everyday purchases in stores and online.
A crypto card is a credit card, debit card or pre-paid card that can be loaded with funds using cryptocurrencies like bitcoin (BTC), ethereum (ETH) and altcoins.
Like all credit cards, crypto credit cards allow you to spend money that belongs to a bank or other financial institution. The bank is ‘giving you credit’. Later, you pay back those funds, usually with interest. Currently, it seems that all ‘crypto’ credit cards actually transact in fiat (‘normal’) currencies, like the AUD. The crypto part of the name is related to the cards’ rewards programs. While a traditional credit card might reward a user with loyalty points, a crypto card rewards its users with cryptocurrency.
At the time of writing there are no crypto credit cards available to AU residents.
Crypto debit cards are cards that allow you to draw on your own funds for spending. Traditional fiat currency debit cards are linked to bank accounts. Crypto debit cards are linked to cryptocurrency wallets. Your crypto funds are converted to fiat currency to pay for the goods or services you purchase. Some cards hold the funds as cryptos until the time of purchase. Others convert the cryptocurrency into fiat currency at the time of loading.
Some crypto debit cards offer their users rewards in cryptocurrency.
Crypto prepaid cards are cards that can be pre-loaded with funds. Unlike debit cards, they are not linked to a single account; the funds can be deposited straight to the card from various sources. A crypto prepaid card is loaded with cryptocurrency, which is converted to fiat currency either at the time of loading or spending.
Crypto cards are available as either plastic cards or virtual cards. Virtual cards are simply a set of numbers that you can use for online purchases or payments made through a payment app on a smart phone.
If you use a crypto card to buy goods and services, you are not actually transferring crypto currency to the merchant.
Crypto debit and prepaid cards are operated by institutions that convert your crypto funds into fiat currency either when the funds are loaded to the card or when the card is used for a purchase. Crypto credit cards, which are different to debit and prepaid cards, do not involve cryptocurrencies in the transactions at all. They get the name ‘crypto’ because they reward users with cryptocurrencies, tokens and coins.
Crypto cards are great for earning coins and tokens as rewards for spending. Earning crypto can be good, as long as the crypto that you have earned retains or increases its value over time. If it loses its value, then you would have been better off earning fiat currency rewards. Be sure to check that the cost of the card fees do not outweigh the value of the rewards.
Crypto debit and prepaid cards can be a convenient way to convert your cryptos to fiat currency without going through an exchange.
The financial advantages of using a crypto card can be hard to calculate. Exchange rates, commissions and/or transaction fees may be expensive compared to simply changing your cryptos to fiat currency on a mainstream exchange in order to spend them. Also note that you may need to purchase and stake coins or tokens to get access to some crypto cards.
Tax compliance could be more difficult if you use a crypto debit or prepaid card. Under Australian tax laws, you must keep detailed records of every conversion of crypto into fiat currency. If you are making many small purchases using a prepaid or debit crypto card then you could create a large number of records, compared to a lump sum conversion of crypto to fiat currency.
Earning crypto rewards also generates record-keeping work. You must keep records of the rewards you earned, when you earned them and their value at the time you convert them into other cryptos or to fiat currency.
The final question to ask, before getting a crypto card – or perhaps the first question! – is What will your crypto be worth in one, two or ten years’ time? if you are confident that your holdings will rise in value, then you should avoid to spend them now, if possible.