By Hassan Mehmood (Saudi Arabia)
Surely the essence of credit and debit cards is not lost on you because, being a conventional banking customer, you might have used these from time to time and might have even upgraded from a debit card to a credit card. The working mechanism for both is practically the same, but in terms of credit cards, the bank actually helps you to buy stuff by crediting your account to a certain limit.
So even if you don’t have the surplus amount that is required to buy a product or service, the bank will cover for you until the end of the month, and you would have to pay the balance you owe to the bank every month. This is how a typical credit card works, whereas, in terms of debt, you can only use the sum of money that is actually present in your account; the bank is not going to help you by lending you some money and then charging you every month.
MasterCard and Visa are two different financial services that are presently active in the banking game, providing millions of customers access to their credit and debit card range. You would be amazed to know that there is now a third alternative present and you can use it if you want to. Crypto cards have become a thing of the present, and both MasterCard and Visa are issuing these cards, but it would depend upon your region and the sanctions that are imposed on cryptocurrency in that particular area. A crypto card is going to work similarly to a debit card where you have to add some money or, in this case, crypto within that account that is linked to the card if you want to spend it.
You can have your crypto card issued from either a bank or a crypto exchange depending upon your own preference or the issuers that are currently available in your country. The only thing that is not subtle about these cards is that these are, in fact, crypto cards which means that they are exposed to extreme volatility.
The crypto that you have stored within these cards can lose its value over time as the market continues to fluctuate, and any transaction that you make from the card is taxable, which means the government will be taking their cut for every time you use the card. The incentives are pretty much the same as you receive with credit and debit cards, such as if you use your crypto card for certain transactions and pay for certain services, you might receive additional awards and bonuses in terms of crypto.
Real-World Use Cases of Crypto Cards
Cryptocurrencies and decentralization are not old concepts. A decade has passed since the launch of Bitcoin as the flagship cryptocurrency, and since then, many other cryptocurrencies have been inaugurated on their individual blockchain systems. People have come across a great deal regarding the use of cryptocurrencies and decentralization. In the very beginning, the whole concept was frowned upon, but as the momentum continued to build towards improving the financial system of the world and cryptocurrencies did play a vital role in it, people and financial enterprises are now more accepting of cryptocurrencies along with decentralization.
It is now not considered a medium where people can just invest their money; it is something that can be used as a store of value for buying other products and services or transferring value from one person to another. The very intention behind the creation of Bitcoin was for it to be used as a global financial element where digital payments could take place in a much more streamlined manner. Crypto cards just help people to interact with cryptocurrencies on a better note.
The very aspect of buying crypto from exchanges in the first place and going through all the tedious tasks of acquiring crypto can be just rooted out if you use crypto cards. With the help of these cards, people can use cryptocurrencies in their daily life, and if they like, they can just convert to crypto for their financial needs as these cards can help them to buy products services, convert their crypto into fiat, and even the other way around.
The incentive system, as explained earlier, is pretty much the same as is with other debit and credit card facilitators. When you use the crypto card at certain venues, you are going to receive prizes and cashback awards in crypto credited directly to your crypto card. This incentive has helped crypto card issuers to sell multiple crypto cards over the past few years, and even still, the sale volume is increasing pretty intensely.
How do Crypto Cards Work?
As explained earlier, a crypto card works the same as a debit card which means that you need to credit your card with some crypto if you want to use it. Now when you make a purchase using your card, the protocol in charge of carrying out the transaction will convert/thaw your crypto into standard fiat. Whatever the present rates are, your crypto will get converted accordingly, and the vendor in question will receive fiat cash and not crypto.
This is extremely important for you to understand because many out there believe that they will be receiving crypto in their accounts, but that is actually not the case. When it comes to applying for a crypto card, you can do so by reaching out to either Visa or MasterCard facilitators. These companies are providing people access to crypto cards but not in a direct fashion, but these cards are being provided to partner companies who wish to apply for a license with either of these entities.
Crypto cards are only available via the partner companies affiliated with Visa and MasterCard. The crypto cards that you will receive from either of these facilitators will be universally accepted and could be used to pay for any product or service that you want to acquire. Some of these cards are also going to provide you with valuable cash back and certain rewards for the money that you have spent with the card. Most of these card lineups are credit cards which means that you would have to perform a credit check for the sake of applying for one.
As explained multiple times before crypto card is not going to pay any dedicated vendor in crypto. There is a proper mechanism for that. Your crypto card is linked to a potential wallet containing different cryptocurrencies; it could be anything like Bitcoin, Ether, or even XRP. Once you initiate the request for a certain transaction, the algorithm present within the card gets activated, and it primarily converts the crypto that you have onboard that is present in your crypto wallet into Fiat alternative, and that money is paid to whatever vendor or retailer you are buying products or services from.
Now you might be wondering what about the exchange rates? That is an extremely good question because, as it happens, crypto is an extremely volatile entity which means that the prices are going to dribble in a matter of days rather than weeks, so whenever you are putting down a request for a certain transaction, crypto is present in your wallet would be converted into Fiat currency representing the most recent rates for that particular cryptos conversion into Fiat for that specific date. There is an upside to owning a crypto card as you can use the card for ATM withdrawals, but you might have to check this with your service providers beforehand.
Major Differences Between a Crypto Card and a Debit or Credit Card
There are only a few minor differences between crypto cards and credit and debit cards. These differences are not in terms of their working principle, which remains the same across the board but in terms of a value proposition that is used for the sake of conducting transactions.
When it comes to making the use of available finances within the account, all these cards work the same; whenever you have to pay for something, the same mechanism comes into action across all these different types of cards, and that is something all of these have similar with each other. The difference arises in terms of the financial value that the cards are using. In the case of credit or debit cards, these use fiat currencies pertaining to a particular region or a country.
Whereas, the crypto cards are going to use cryptocurrencies. The range of cryptocurrencies can be exceptional as, at the same time, a card could load up multiple cryptocurrencies such as Bitcoin, Ether, or XRP. All of these will be funneled down into distinctive classes with appropriate balances that the user will have complete access to. To amount some differences between credit and debit cards, you must know that a debit card is preloaded with a dedicated fiat currency. As for the credit card, you pay the outstanding balance at the end of each month.
There is a practical limit in place extending to which the bank is going to cover all your expenses, and once the limit is crossed, the card will be terminated. Crypto cards are mostly prepaid, which means that you would have to stock up cryptocurrencies in them for making the whole thing work. You must have some crypto in your crypto card before making it work. You can’t use fiat currencies to load up your crypto cards, but when it comes to paying for certain services and products, the crypto that is already present in your crypto wallet linked to the crypto card will first get thawed or transferred into a fiat counterpart and only then would be used for a certain transaction in question.
Talking about crypto credit cards, you must be aware of the processes and preliminary checks that you might have to complete before getting access to one. You might have to undergo a credit check beforehand by a certain crypto exchange or a partner that is licensed by Visa or MasterCard before you can have access to a credit card. Other than that, ‘know your customer’ and ‘anti-money laundering’ policies must also be checked by the user so that the exchange knows the user is legit and is not involved with money laundering or any other such demeaning activities.
The credit crypto card gives you access to a certain extent of finances that is also the way with a regular credit card, and at the end of each month, you have to pay for the outstanding balance that you owe on your crypto credit card and that can be done with fiat currency. Make sure that your credit scores are in range, if not phenomenal, to get accepted into signing up for a crypto credit card.
Benefits of Using a Crypto Card
There was a clear and distinctive setback present when it came to using crypto for everyday purchases. People were only interested in the idea of decentralization and investing in cryptocurrencies for the handsome returns they would be able to get their hands on in the upcoming future; this is just about it. With the advancements in technology and the provision of crypto cards, it has become flexible to use crypto for everyday purchases, using it for purchasing products and services from all retailers and vendors around the globe. And that, by far, is the most astounding benefit of owning a crypto card.
Earlier in the days of decentralization and cryptocurrency becoming more prominent, you could only use crypto for payments if the vendor in question was, in fact, accepting that crypto. For example, if a vendor was accepting Bitcoin and you had Ether, then you had to convert your Ether into Bitcoin, and the process was just so tedious and overcomplicated. Crypto cards allow you to tap into whatever crypto you have stored in your crypto wallet at the moment and then use that crypto for the sake of making the transaction. The main mechanism involves the conversion of crypto into Fiat currency, and the vendor or retailer in question gets paid in Fiat and not crypto, meaning that they might not even accept crypto, but you would be making your purchase using your cryptocurrency.
There are certain cashback rewards when you use crypto cards for the sake of making transactions, and this can also be linked with other benefits associated with decentralization. There are multiple crypto card providers out there, and for each and everyone, the rewards and cashback are a bit different and unique; that is why make sure that whatever facilitator you move forward with has a potentially riveting set of benefits for you.
Last but not least, another great benefit of using crypto cards is that you would get to benefit from the extreme volatility of these cryptocurrencies. Don’t get the wrong idea; volatility simply means the change of the asset’s value over time, which means that it might fluctuate to a higher-end which means it might increase, or to a lower end, meaning it might decrease. Therefore if the crypto that you currently own has a lower value, then chances are that in the future, the value could increase, and with it, the overall return on investment for you would also increase in parallel.
This is something to think about; if you don’t use crypto for everyday purchases, you can make a small investment into your crypto card, such as linking a crypto wallet with your card that has multiple cryptocurrencies in it. You don’t have to use the crypto card for purchases or anything; just wait it out, and when in the future the prices go up, the value of your crypto would also increase, and that is an extremely elementary thing to have.
Risks Associated with Crypto Cards
There is a downside to owning crypto cards which means that the crypto that you have loaded onto the card might fluctuate in value; the same thing that was explained earlier as a benefit can become a disadvantage if the value starts to decrease and you begin to lose the potential price volume on a crypto asset. This means that whatever crypto you are holding at the moment in your crypto card might fluctuate in value and, with it, the final Fiat balance of your account as well. It also means that you might not have a certain amount of Fiat money in your account as you think because the rate of crypto is continuously changing and with the overall value of the account.
You would have to consult with the exchange rates of the present when it comes to different cryptocurrencies; only then you would be able to come around with a potential estimate of the net worth of your account. Another disadvantage is that whenever you make a transaction using your crypto card, you would be incurred with a transactional fee, and sometimes it is taxable.
This means that no matter how minimal or exaggerated a purchase you made with your crypto card, the government is going to take its cut via taxes. You can avoid this problem altogether by using stable coins instead of traditional cryptocurrencies because their value seldom changes and is relatively more In Sync with the present Fiat currencies rather than the crypto alternatives.
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