Nature of Crypto Card

What is a crypto card? How do they work and how do they differ from normal credit or debit cards?

"Although on the surface they sound confusing, crypto rewards credit cards are really no different than most traditional rewards credit cards. Just like the majority of credit cards in circulation, the transfers are facilitated through the world’s largest payment processing networks: Visa or Mastercard. So if your crypto rewards card is issued by Visa, your card will be accepted everywhere Visa credit cards are accepted. Depending on their processing network, Crypto rewards cards can also be eligible with the benefits and card protections offered by Visa or Mastercard. You can use a crypto rewards card for purchases just like any other type of credit card. Every time you spend with your crypto rewards credit card, you will be eligible to earn rewards. While some credit cards offer airline miles or cash back, crypto credit cards reward you with Bitcoin and other cryptocurrencies or in some cases, allow you to redeem your earnings for cryptocurrency."

"Crypto rewards debit cards can be used at merchants just like a standard debit card is used, but instead of being backed by a bank account, it is backed by your own crypto wallet. Think of it as more of a prepaid debit card than a traditional debit card.

First, the cryptocurrency is converted into the user’s choice of fiat currency before being loaded to the debit card. Once loaded and ready to use, purchases are processed in that specific currency. Rewards, however, are given as a specific digital coin depending on the debit card."

"Despite running on major processing networks and having the ability to earn rewards in the form of cryptocurrencies, crypto rewards credit cards are actually quite a bit different than the prepaid debit options available.

The main difference is that with crypto credit cards, cardmembers make purchases on credit via the credit line allowed by the issuing institution and are responsible for paying back the balance. Crypto debit cards involve the user using their own funds—if they don’t have the money, they can’t use their card."

"Another essential difference is the proof of stake obligation of many prepaid debit cards. Proof of stake, in its most basic form, is when a crypto holder contributes some of their digital coins to a specific blockchain network in order to support said network. Some debit cards require proof of stake as a term of card membership."

Source: Forbes, last revised on 10 January 2022

"But remember that the crypto cards still function as normal credit cards, so the balances need to be paid off each month or else you’ll have to pay interest or late fees. While you’ll usually buy things and pay off your card in US dollars, some cards allow you to make purchases (and pay off your card) with cryptocurrency that’s in your associated account.

Additionally, the cards affect your credit score the same way as a traditional card, and there may be fees attached to using the card such as annual fees or transaction fees. Make sure to check the terms and conditions for each card to understand what rules apply."

Source: CNBC, last revised on 25 December 2021

FinReg business tip

Crypto cards can be similar to normal credit and/or debit cards, except that they earn rewards in cryptocurrencies. Like a normal credit/debit card, transfers are facilitated through major payment processing networks such as Visa.