How Do Crypto Credit Cards Work?
What is a crypto card, and how does it work?
The number of crypto cards and crypto rewards programs is growing. Over the years, many banks, digital credit/debit card providers, and crypto exchanges took inspiration from the “traditional” cash back and rewards structure (i.e., airline miles, points, loyalty schemes) to build reward programs, which pay out in cryptocurrency.
Crypto reward programs work like any credit card rewards scheme. But, instead of earning points, cash back, or miles, one can earn the cryptocurrency of their choice, for example, Bitcoin, Ethereum, EGLD, or Dogecoin.
One can choose between a crypto credit card or a debit card, depending on user preference.
Crypto Reward Credit Cards work similarly to regular credit cards. One borrows money from the credit card issuer and pays it back towards the end of the month. Once a transaction is made, the user gets a percentage of the spend in rewards; most crypto reward cards offer between 1% and 3%. Credit card transactions are paid in fiat currency (i.e., USD, EUR, GBP), and rewards are either paid directly in crypto, in the token of your choice, or you receive cash back, which you can then decide to invest in the token of your choice.
Some crypto credit card rewards programs, like the Venmo Credit Card, allow users to opt-in to the crypto rewards program but have a limited choice of 4 coins, which can be paid back in rewards.
On the other hand, Crypto debit cards are connected directly to a crypto wallet, such as Crypto.com or Binance. Debit cards can be pre-loaded with crypto, and the balance is drawn against purchases. Crypto kept in the wallet can also be automatically converted to fiat for each transaction. As with regular debit cards, one will need an adequate amount of funds in their account to make a purchase.
For example, the Crypto.com Visa Card is a prepaid reward debit card. Depending on the amount of CRO (Crypto.com’s native token), one stake determines the number of rewards you get back on your cards and how many other benefits you have. The highest tier card requires staking $350,000 of CRO, rewarding you 5% on purchases and other perks such as lounge access, Netflix discounts, and more. One can also choose the $0 stake card, which gives no rewards but allows you to spend your crypto as fiat currency when making purchases.
Pros and cons of crypto cards
No matter the credit or debit card, there are always pros and cons when choosing whether a type of rewards system is right for you. The space of cryptocurrency is different from “traditional” rewards programs as they are classified as an “asset” and can grow or shrink over time depending on market conditions. Here are a couple of points about what makes a crypto card good and some things to look out for.
How to choose a Crypto Card?
- Can you take up more credit
- Remember, capital gains taxes might be applicable
- Is the card issuer the preferred merchant in your region? For example, most crypto cards work with Visa or MasterCard.
- Does it support the cryptocurrencies you want to invest in?
- Are there additional fees, the percentage of rewards, and other perks and benefits
Bottom Line
More start-ups, established crypto companies, payment providers, and banks are looking into providing crypto options as rewards. If you are considering getting a crypto card or if your current card provider offers an opt-in solution for crypto rewards, make sure to evaluate if all these options make sense for you.