What Are Crypto Cards and How Do They Work?

Key Takeaways

A typical crypto card lets you earn crypto rewards or instantly convert your cryptocurrency to fiat currency to pay for goods and services. Both Mastercard and Visa issue crypto cards, meaning you can use your crypto in millions of locations globally.

A prepaid crypto card is similar to a debit card in that it has to be pre-loaded with cryptocurrency to spend. You can get a crypto card from a licensed issuer such as a cryptocurrency exchange or bank. However, crypto cards aren't without risk. Your funds stored on the card can still lose their market value, and any transactions you make with your card are likely to be taxable.

Crypto credit cards work more like standard credit cards with crypto rewards. You can pay your credit card bill with fiat cash but receive crypto bonuses on the money you spend.

Introduction

While much of cryptocurrency's interest is in its investment potential, it still has a use case in transferring value. Satoshi Nakamoto didn't create Bitcoin to make people billionaires. It was, however, designed as a global, digital payments system. One way to achieve this goal is with crypto cards. This payment method is now helping people use crypto and digital assets in their daily lives and even receive crypto rewards as well.

What Is a Crypto Card?

A typical crypto card acts in a similar way to your debit card. You can pay for items or services that accept the card provider. While it might sound like you are paying a vendor directly with cryptocurrencies, this isn't actually what happens. The vendor receives fiat cash into their account and not crypto. Your crypto card takes the cryptocurrency in your linked account, converts this into the local currency you're paying in, and then uses this cash to pay.

Both Visa and Mastercard offer crypto cards with partner companies who apply for a license. These are the two most commonly used payment providers globally, making crypto cards almost universally accepted by retailers. Some crypto cards only offer crypto rewards on the money spent with the card. These cards are usually credit cards that require a credit check to sign up for.

How Does a Crypto Card Work?

As we mentioned, a crypto card doesn't actually pay the vendor with cryptocurrency. It conveniently converts your crypto into cash which you can spend with the vendor through the card.

For example, imagine you have digital currency in your crypto card's funding wallet. At a restaurant, you go to pay a bill with your crypto card. Once you have inserted your card and agreed to the payment, the platform sells the corresponding amount of cryptocurrency and loads the fiat onto the card. The restaurant then gets paid in fiat currency, and you're left with the remaining crypto in your funding wallet. All of this happens within the few seconds it takes to use your crypto card.

You can also use crypto cards for ATM withdrawals if your service provider supports them. The same method above is used to withdraw your physical cash.

What Are the Differences Between a Crypto Card and a Credit or Debit Card?

There are a few minor differences between credit and debit cards and crypto cards. For the most part, they function in the same way when it comes to paying. The most significant difference between a crypto card and a credit or debit card is that you load your typical crypto card with cryptocurrencies. A debit card is pre-loaded with fiat currencies, and a credit card's transactions are paid off later with fiat.

A prepaid crypto card works similarly to a traditional debit card. You must have the funds in your account before you can spend them. You cannot load your cards with fiat cash but only with cryptocurrency. When you make a payment, your funds are converted immediately in your crypto wallet.

On the other hand, crypto credit cards extend a line of credit that lets you purchase now and pay later. Your credit card bill is payable in normal fiat currency, meaning that the crypto credit card is basically a rewards credit card.

To order a card, you will have to be a customer with a company that already provides a crypto card, such as a cryptocurrency exchange or crypto-supporting bank. The process will involve you completing know your customer (KYC) and anti-money laundering (AML) procedures before you can order your crypto card, just like with any regular credit or debit card. With a crypto credit card, you will also need to pass a credit check.

What Are the Benefits of Using a Crypto Card?

The key benefit of a prepaid crypto card is the ability to use your cryptocurrency for everyday purchases. This has traditionally been difficult to do unless a vendor directly accepts crypto. Even then, some coins like Bitcoin can take 30 minutes for a transaction to confirm. The price is also volatile, meaning you may actually pay more or less than expected.

Many crypto cards also come with benefits like cashback rewards or discounts with certain subscriptions. These benefits lure you towards a specific card provider and are similar to those offered with standard debit or credit cards. Make sure to compare what each card offers to find the best benefits for you. Don't also forget to look out for possible exchange fees you might have to pay in the conversion process.

Do Crypto Cards Have Any Risks?

Having a crypto card provides all the same risks as holding cryptocurrency. If you have loaded up your account with Bitcoin (BTC) or Ether (ETH), your account's fiat value will constantly change. This means you may not have the exact amount of money in your account as you think, depending on exchange rates.

You should also remember that in many tax jurisdictions, the spending of crypto is a taxable event. This doesn't matter if you're spending a few dollars on a coffee or thousands of dollars on a car. If you have made any gains or losses on your cryptocurrency before you use it to purchase something with your crypto card, you'll have to pay or write off the appropriate taxable amount.

You can avoid this problem by purchasing stablecoins to use with your crypto card, as the price very rarely changes from its pegged value.

Closing Thoughts

If you have some cryptocurrency that you no longer want to hold, a crypto card makes converting to fiat simple. Without using a crypto card, you'd need to go through the conversion process and transfer the fiat manually to your bank account. This can take days to do, depending on your bank and cryptocurrency exchange. A crypto card really is one of the fastest ways to use your cryptocurrency for purchasing things and is a welcome development in the digital finance landscape. However, always make sure that you keep accounts of what you spend for tax reasons.

FAQ

What are crypto cards and how do they differ from regular bank cards?

Crypto cards are prepaid cards that convert cryptocurrency to fiat currency for instant spending. Unlike regular bank cards that use traditional money, crypto cards draw from your crypto wallet, converting digital assets to local currency at the point of sale. They function similarly to debit cards but are funded with crypto instead of fiat currency.

What is the working principle of crypto cards and how do you convert cryptocurrency into consumable funds?

Crypto cards work like traditional debit cards. Users deposit cryptocurrency into their account, then use the card for payments at merchants. The crypto is automatically converted to fiat currency at the point of transaction, enabling seamless spending.

What are the advantages and risks of using crypto cards?

Crypto cards offer faster settlement, lower fees, and global accessibility. However, they carry risks including price volatility, regulatory uncertainty, and potential security concerns.

What cryptocurrencies do crypto cards support and where can they be used?

Crypto cards typically support major cryptocurrencies like Bitcoin and Ethereum. They function as Visa or Mastercard debit cards, usable at all merchants accepting these payment networks worldwide, including online retailers, physical stores, and ATMs for cash withdrawals.

How secure are crypto cards? How are private keys and funds protected?

Crypto cards employ multi-layer encryption and hardware security modules to protect private keys. Funds are safeguarded through advanced authentication, cold storage solutions, and compliance with industry security standards, ensuring maximum protection against unauthorized access.

What are the requirements to apply for a crypto card? What are the mainstream crypto card products?

To apply for a crypto card, you typically need to complete KYC verification, meet minimum asset thresholds, and sometimes hold specific NFTs or VIP status. Popular mainstream crypto cards include Ledger Nano, Trezor, and various platform-issued debit cards offering crypto-to-fiat conversion features.

What are the transaction fees for crypto cards and how do they compare to traditional payment methods?

Crypto card transaction fees typically range from 1% to 2%, with ATM withdrawals around 2%. Compared to traditional cards, crypto cards often offer lower cross-border fees and competitive rates, though specific costs vary by provider and transaction type.

What is the legal status of crypto cards in different countries? Are they regulated?

Crypto cards face varying regulations globally. Some countries embrace them with clear frameworks, while others restrict or ban them. Compliance requirements differ significantly by jurisdiction, making it essential to verify local regulations before use.