As cryptocurrency gains popularity, several advancements were introduced such as crypto debit cards, and the demand to use them in payment methods increases.
Cryptocurrency and crypto banking were relatively new, yet billions of dollars were invested in this new payment approach.
The debit card and the crypto debit card is based on the same logic. A customer can tap, swipe, or insert a debit card into the point of sale (POS) machine, the same with a traditional debit or a credit card. The only difference between a crypto debit card and the regular one is the currency. You pay in cryptocurrency instead of dollars.
For crypto debit cards, it will connect the cryptocurrency payment processing company with the client’s crypto wallet. The crypto debit card automatically converts the crypto being spent into a preferred fiat currency. To use digital currencies to make payments, here is what you need to know about crypto debit cards:
Crypto debit cards differ from user to user
Crypto debit cards vary in comparison to a stable traditional debit card. The right crypto debit card depends on the options and services one needs.
Consider getting a prepaid crypto debit card that you can load with a specified amount if you plan to spend a limited amount of cryptocurrency. Some crypto debit cards provide rewards such as cashback, points or other benefits.
Stephen Ehrlich, founder and CEO of cryptocurrency platform, Voyager Digital said cash-back reward programmes provide an opportunity to create wealth. Getting cryptocurrency as cash back or rewards makes a fruitful investment. Look for a crypto debit card that provides rewards that you can utilise. Crypto debit cards work with selected cryptocurrencies, so make sure that the crypto you own or want to earn is compatible with your debit card.
A crypto debit card can be applied from the crypto exchange platform or from a crypto payment service provider. Some requirements were needed to verify the identity.
Awareness on service availability
The adoption of cryptocurrency is higher today than ever before however, globally, some jurisdictions are going against digital currencies. Recent studies showed that cryptocurrency was considered illegal in some places, including full bans in Turkey, China and India.
However, US is moving forward to build a national digital currency and allow the trading, buying, and selling of cryptocurrencies. Apply for a crypto debit card only after knowing the rules and regulations on cryptocurrencies in your region.
Paying tax on crypto debit card transactions
The Internal Revenue Services (IRS) considers cryptocurrency as an asset, categorised as a capital asset. Bitcoin and various other cryptocurrencies are financial instruments just like bonds and stocks. Reporting the capital gains or losses were needed when using crypto debit card to make purchases.
When you use your card, you're selling some cryptocurrency and exchanging the amount for dollars. You might be selling at a higher or lower price than the price when you bought it, which means that you’ve created a capital gain or loss.
Some card issuers will automatically generate the 1099 form, which is needed for tax purposes. It will only report your total income from selling cryptocurrency. They won't keep track of individual transactions so file your taxes properly.
Setting fees and exchange rates
Different card providers have different transaction fees. Some providers even charge a foreign exchange (forex) fee. Many of the crypto debit card providers don’t charge deposit fees but all of them charge withdrawal fees. Some card providers waive this fee if you hit a certain threshold of annual crypto expenditure.
Analysing the pros and cons of crypto debit cards
Crypto holders can easily move funds from a crypto wallet to debit cards and spend them like a fiat currency, thus avoiding the hassle of dealing with a crypto exchange for everyday transactions.
Crypto debit cards carry a lower fee in comparison to traditional debit card fees and there are incentives and options to waive these fees as well. In addition to physical crypto debit cards, some companies provide virtual cards that users can rely on for online purchases.
The value of cryptocurrencies is not fixed and can fluctuate regularly. This can make things challenging for consumers as to when and where they need to spend the cryptos.
There are few options as not every crypto debit card supports every cryptocurrency.
Some geographical restrictions may apply as different regions have different policies regarding cryptocurrencies.
One of the companies that invested in crypto is Visa, which allocated a huge sum in crypto-linked Visa cards in the first half of 2021.