Crypto cards, or credit/debit cards based on cryptocurrency accounts, are one of the newest and fastest-growing payment methods around today. They offer several advantages for consumers over traditional card payment methods and open up new avenues to utilise cryptocurrencies for real-world goods and service purchases. Of course, providing an everyday payment mechanism for cryptocurrencies with all the volatility and lack of oversight they engender also brings new regulatory concerns and not every card is created equal. Below, we’ll offer up a quick crash course on the basics of crypto cards, and examine some of their key issues.
The value and benefits of crypto cards
Crypto cards offer much of the same benefits as cryptocurrencies themselves. They are more anonymous than traditional credit/debit cards and pre-paid debit gift cards and allow for transactions online and in brick-and-mortar establishments at market rates, backed by cryptocurrency. Where a merchant does not accept cryptocurrency, the user can execute the transaction by first converting to a fiat currency. This conversion takes place in real-time by the exchange or wallet service, effectively bridging the gap between traditional finance and the cryptocurrency markets.
A host of cards made their debut in 2018 and 2019, and there are now over 30 different crypto cards on the market in various countries. Much like the cryptocurrency markets themselves, interest in crypto cards has largely tracked the growth in volume and valuation of cryptocurrencies as a whole – virtually non-existent several years ago, and peaking in early 2018, though with continued steady presence since then. With the continuing rise of cryptocurrency market capitalisation (from $116 billion in January 2019 among the top 10 coins, to $202 billion as of October), more people will be looking for ways to transact and use their coins for goods and services, and crypto cards will be an increasingly important tool to help cryptocurrencies break into the mainstream.
All crypto cards are largely similar in that they are accepted anywhere major credit and debit cards are and allow for the conversion from one or more cryptocurrencies into fiat currencies, often via an existing exchange account or wallet, or their own proprietary wallet. It should be noted that there are several new and up-and-coming crypto cards that are providing services to a more diverse range of jurisdictions in this rapidly evolving space. For example, Singapore-based blockchain company, TenX, re-launched its cryptocurrency card in early 2019 and is available to users in Singapore, Australia, New Zealand, Hong Kong, Malaysia, and Thailand.
Overview of select major cryptocurrency cards
Why crypto cards are becoming more popular
Growing cryptocurrency markets – There can be no doubt that interest in cryptocurrencies as assets, trading vehicles, and stores of value is increasing. Less than a decade ago, there was only a single cryptocurrency – Bitcoin. Today, there are several thousand, with more than 2300 tracked on CoinMarketCap with a total market cap of approximately $217 billion, down from the highs of over $350 billion in July. Crucially, current trading volumes of between $40-60 billion worldwide, dwarf the $10 billion trading volumes seen only a year ago. The rise of crypto cards reflects this broader rise of cryptocurrency markets which is fueling the need for more payment methods as interest in their utility as a medium of exchange increases.
Rising merchant acceptance – As interest and investment in cryptocurrencies have grown, it’s logical that payment methods and outlets where cryptocurrency can be spent are growing too. Cryptocurrencies have demonstrated that they are no mere fad, and the industry has seen an explosion of new companies getting involved in crypto payments systems to bring about a higher degree of interoperability. Indeed, from October 2016 to the present, global merchant acceptance for bitcoin has gone from 7,666 to 15,493, a 102% increase.
The steady increase of bitcoin merchant acceptance
At the same time, many of the worlds largest companies are now accepting bitcoin and other well-known cryptocurrencies such as ether, litecoin, bitcoin cash, zcash and the Gemini Dollar, and specialist payments firms have had a large role to play in the provision of crypto payments infrastructure. For example, US-based payments startup Flexa has enabled Amazon-owned Whole Foods, Starbucks, Nordstrom, and other companies to accept bitcoin payments.
The transaction bandwidth workaround – As cryptocurrencies can readily be exchanged for fiat currencies and vice versa on most major markets, deploying them with all the convenience of card payments is a crucial step towards their widespread acceptance as a standard medium of exchange. Here, under the rubric of existing credit and debit card infrastructure, merchants can accept cryptocurrency payments without requiring any knowledge of cryptocurrencies or specialist equipment. It also overcomes one of the key weaknesses inherent to early-generation crypto coins, which is their transaction bandwidth. The Visa network, for example, can handle 24,000 transactions per second, compared to a functionally impractical 7 to 40 for early cryptocurrency networks. Crypto cards on existing credit/debit card networks, however, enable a seamless growth in the utility of cryptocurrencies on the back of global credit and debit card systems.
Regulatory considerations
Within the UK, the stage was set for cryptocurrency cards to come into existence based on the Open Banking implementation of the EU's Payment Services Directive 2 (PSD2). Since 2018, this regulation has sought to improve consumer financial protections, make financial management more convenient for citizens, and, crucially for cryptocurrencies, increase competition with retail banks. It is well documented that the dismantling of the retail banking status quo paved the way for a host of exciting data-driven products, service offerings, and fintech innovations, and crypto cards are at the vanguard of new payment products become commonplace and accepted in the UK.
What crypto cards mean for cryptocurrencies going forward
In many respects, crypto cards are a natural extension of the growth in the cryptocurrency markets, and most who participate in the space welcome the utility of integrating cryptocurrency into everyday transactions. It’s reasonable to expect additional cards, with additional features, supporting a greater number of coins, to come on the market in the coming months and years. However, as crypto cards are a relatively recent phenomenon in finance, it is likely that not all countries and jurisdictions will allow them to play out. Even though the risk is principally assumed by the coin exchanges or wallet providers that back the cards themselves, the solvency of these companies is an open question and a high-profile collapse of one or more of them could cause regulatory scrutiny to be intensified. Despite this, the fact that crypto cards operate on debit and/or pre-paid principle rather than credit with conversions to fiat currency happening in real-time, there is minimal risk of coin price fluctuations exposing card issuers or services to any kind of solvency or liquidity issues in making debt payments.
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