There are a lot of companies interested in issuing cryptocurrency cards. These are mainly exchanges, but there are quite a few startups that have chosen introducing the cards supported by digital assets to the masses as their primary activity. Here are a few examples:
- In 2015, the Bitfinex exchange announced a partnership with Blade Payments and announced the release of debit cards for its customers.
- In 2016, BitPay processing service, in partnership with Visa, presented its own Bitcoin debit cards.
- In 2017, TenX, a startup from Singapore, launched an ICO and raised 245,000 ETH to launch a project to issue cryptocurrency bank cards.
- On July 10, 2018, the Litecoin Foundation bought about 10% of the shares of the German WEG Bank to create a litecoin card, which never appeared at that time. It took the creators of LTC a whole year for the issuance of plastic cards to become possible again. On June 18, 2019, the official Twitter account of the Litecoin Foundation published information about a partnership with the Bibox digital asset exchange and the Ternio blockchain company. Within the framework of cooperation, issuing physical debit cards will be implemented, allowing you to pay for goods and services using cryptocurrencies.
- In the summer of 2018, representatives of the Coinbase exchange announced that they would issue a crypto debit card in six European countries: Spain, Germany, France, Italy, Ireland and the Netherlands.
However, despite many announcements, not all projects succeed.
According to many developers, the creation and mass introduction of cryptocurrency debit cards is hampered by various problems that exist in the digital industry.
Necessity of introducing cryptocurrency cards
As you know, demand creates supply. Companies would not take try to create crypto cards if there was no need in them. But how much does society need them?
We asked experts whether they considered it appropriate to introduce and use crypto cards, in particular, if we talk about Russia.
Ilya Churakov, Founder of the business community of digital projects DAO Consensus, believes that society needs crypto cards. He says,
“The introduction of cryptocurrency cards is very expedient and very necessary, especially in Russia. They need to be implemented and used, because they provide more opportunities for Russians to work in international markets. Crypto cards are as safe as classic cards”.
Marat Mynbaev, an expert in fundamental and technical analysis of the crypto market, a professional investor and crypto trader, says,
“I think that cards in general will not be needed in the near future, even those tied to cryptocurrency. Each person will soon have their own cryptocurrency wallet, which will be used to pay at the cash desks of stores, just like it is happening now: you can pay for goods in a store through a PoS terminal in a contactless way, and on the Internet you can simply link the wallet to the payment system.”
Roman Nekrasov, Co-Founder of LAZM, believes that crypto cards are in demand by those who receive income in cryptocurrencies or already have investments in crypto and do not want to withdraw funds to fiat. According to the expert, over time, there will be more and more such people, so the development of crypto cards is justified and expedient.
Roman Nekrasov notes, however, that the development of this area is hindered by the inability to pay for goods and services directly in cryptocurrencies because you need to convert them into fiat. Payment cards are usually used for some small everyday expenses: to pay at the grocery or clothing store, buy tickets for a plane or to the theater, but now there are few such stores that would accept cryptocurrencies as a means of payment.
In Russia, this is completely prohibited by law since only the Russian ruble is recognized as the currency. It is impossible for Carrefour to get payment with cryptocurrency. Therefore, crypto cards usually work as follows: the crypto card issuer enters into a partnership with a payment service that can officially issue VISA or Mastercard system cards. The user deposits a crypto account, and from there, when transferred to the card account, the money is converted into a fiat currency, most often US dollars, sometimes euros.
For the user it is a crypto card (replenished with cryptocurrency), and for the store it is a regular VISA or Mastercard payment card, from which fiat money is withdrawn in outlets. In Russia, this is not very advantageous, because when paying with such a card in a store, there will be a conversion from dollars or euros to rubles, and not at the most favorable rate. The margin is not so significant if there is a strong need for depositing cryptocurrency.
Another detail that the expert notes is that for all crypto cards, there are fairly low spending limits per day and month. Usually this is a couple of hundred dollars / euros per day and no more than 5,000–10,000 thousand per month. However, these expenses are more than enough to cover everyday expenses, such as buying food and household items.
Chen Limin, CFO and Head of Trading at ICB Fund, comments,
“In Russia, the emergence of cryptocurrency cards with the existing paradigm of thinking of the financial authorities and law enforcement agencies is unlikely. The Bank of Russia has repeatedly made it clear that the means of payment in Russia is the ruble in cash, non-cash, and in the future in the digital form. The regulator will not allow a large-scale project to convert cryptocurrencies into rubles.
“The option of double conversion through other fiat currencies is available, but this entails additional expenses, and it is only possible for residents of mainly European countries and the UK, where residents can take advantage of the offers of fintech companies and Bitcoin exchanges. But it may not work if there is no agreement between the issuing bank and the organization acquiring in the outlet. Theoretically, after the launch of the digital ruble, it will be possible to pay with payment cards if they are linked to a wallet intended for shopping on a smartphone, but whether it will be in demand is a good question.”
Artem Shuvalov, an analyst at the Bitexcard project, thinks that crypto cards, or credit / debit cards based on crypto payments, are one of the newest and fastest growing payment tools. Wherever people use cryptocurrency, it is advisable to introduce cryptocurrency cards. According to the expert, the transition to crypto cards will give users more independence in terms of cryptocurrency transactions.
In Russia, there are a lot of different ways to replenish accounts and pay by bank transfer. For example, QIWI and Yandex Money, but these companies have high fees and do not work with cryptocurrencies, which implies additional costs for transferring funds from cryptocurrencies to fiat currencies, and vice versa. Crypto cards would cover all the needs of users in transfers and transactions, in fiat and cryptocurrency. In Europe, for example, such services already exist. We can mention multiple use cards from Crypto.com and Bitexcard single-use cards.
Tatyana Maksimenko, the official representative of the Garantex cryptocurrency exchange, says,
“I think crypto cards have their target audience. Judging by the emission of crypto cards in the world, this is not limited to just one million people, and these are people who, for some reason, want to see a card replenished with cryptocurrencies in their wallet. However, there is an important nuance: in fact, there are no true crypto cards now. All products on the market involve replenishing a card account with cryptocurrencies either with preliminary conversion into fiat money or with conversion into fiat at the time the card is used for payment. So far, it has not been possible to exclude fiat from using crypto cards. This is because outlets, online stores, simple retail stores do not accept cryptocurrencies as a means of payment. They want to have fiat.
“The use of crypto cards is not a matter of expediency, it is a matter of supply and demand. If a person receives a salary in Bitcoins (this happens very often among developers), logically, it is more convenient for a person to get a crypto card in order to replenish a card account with Bitcoins.
“Only a few crypto card issuers work with the Russian market, it seems at the moment only one crypto card issuer is available to Russians. And there will be a replenishment in the crypto with instant conversion into euros. That is, you get just a payment card in euros. If they pay in stores in Russia, they will still have to pay a fee for converting euros into rubles—not a very cheap scheme. This is explained by the inability to work with a Russian bank for direct conversion crypto / rubles.”
Alexander Voskoboynikov, Founder, Manager and Co-Owner of the companies "Bunkerbuk", "Tizer" and "ChaChaChai", says,
“Cryptocurrency cards have been issued for the second year already, and there are already over ten issuing financial organizations in the world. There are such cards as Bitcoin Rewards, Obsidian, Coinbase Card, BlockCard, Binance Card, Amon, etc. They support VISA, Mastercard, Union Pay and others. Thus, the question of their relevance is solved: there is a demand for them and the offer is being formed very actively.
“It should be noted, however, that a full-fledged cryptocurrency transaction will be completed only after the consent of the receiving party. At least for this reason, new acquiring and settlement systems are required.”
Cryptocurrency Cards: Luxury or Necessity?
Some banks have announced a boycott to the digital industry. All over the world, cryptocurrency companies receive refusals to open bank accounts. The fact is that financial institutions are afraid of additional problems associated with compliance with regulatory requirements. Yet, in some countries there are no problems with this, and the state, together with regulatory authorities, is crypto friendly, which gives developers of cards for digital assets a wide field for their activities. This contrast complicates the use of crypto cards, since such a device will be meaningless if it can be used in one country and not in another.
There are also competition problems when large financial institutions do not let fintech startups enter the market that have ideas for the introduction and distribution of digital coins, as well as the creation of crypto cards. Monopoly in the market hinders the emergence of new products in the cryptocurrency industry.
In connection with these events, there is an opinion that the time for crypto cards has not yet come, since in many countries, the legal framework for digital assets is just being formed. Moreover, only a few financial institutions around the world work with cryptocurrencies, which significantly limits the possibilities and geography of using crypto cards.
We asked the experts if they adhered to this position or had a different opinion on this matter.
Roman Nekrasov agrees with this, saying,
“The time for crypto cards has not really come yet, as can be seen from the statistics: there are many more owners of cryptocurrencies than issued crypto cards. This is because so far, cryptocurrencies are viewed more as an investment for profitability, and not as a means of payment. And this, in turn, is because there are few places where you can pay with cryptocurrencies in stores and most of the existing crypto cards involve converting to fiat currencies, and not truly crypto card accounts. And few people get paid in cryptocurrencies, although in some areas this is a fairly common practice, for example, among freelance IT developers who work with orders from around the world. Russians generally have almost no opportunity to issue a crypto card. As far as I know, the leading issuers of such payment instruments do not work with Russian residents.”
Tatyana Maksimenko takes a different view, saying,
“The time for crypto cards has come a long time ago, but the conditions for their mass distribution have not been formed. A crypto card is still a gimmick for connoisseurs. Not every crypto owner has crypto cards.”
Alexander Voskoboynikov emphasizes that legal regimes are always formed due to the need to regulate already existing phenomena. According to the expert, now cryptocurrencies around the world are experiencing rapid growth, and cards are just a convenient tool for using them. The possibilities of their use are narrower than we would like, but they are rapidly expanding, including through the use of cards and even cashbacks.
Marat Mynbaev is rather pessimistic about crypto cards. He says,
“My view is that it is not worth wasting time on this invention, as this will entail certain expenses and such cards have certain disadvantages: they can be stolen, you can lose them, certain limits can be imposed on them and you will probably have to pay for their use. In the case of a wallet, there are no such problems. So why waste resources on something that won't last long anyway? It is better to immediately deal with a more convenient tool, a cryptocurrency wallet. States are interested in this, and in different countries they are already beginning to adopt laws that regulate cryptocurrency in one way or another.”
Chen Limin emphasizes that, for banks, cryptocurrencies are an additional risk that they do not need. The initiative of the Basel Committee on Banking Supervision to start a dialogue regarding the use of cryptocurrencies may bring closer the day when such transactions become legitimate for banks. At the same time, the Biden administration, judging by the latest signals regarding the revision of the legacy of the former head of the OCC (the Office of the Comptroller of the Currency), which allowed banks to work with cryptocurrencies and crypto startups to receive licenses from trust banks, may start creating a level playing field for competition between fintech companies and lenders, which may limit or completely freeze the emergence of new cryptocurrency card projects.
The expert adds,
“Such steps could theoretically be supported in the UK and the EU. It is also necessary to take into account the ongoing developments to create national digital currencies that ‘do not need’ competition. Therefore, the question of whether and when cryptocurrency cards will become a mass phenomenon and go beyond the ecosystems of crypto exchanges will remain unanswered. We can only say for sure that cards that support payment in fiat-pegged stablecoins can get the green light. But even in this case, the approval of regulators is more likely to be expected after the emergence of a regulatory framework for stablecoins and building equal competitive conditions between issuers of stablecoins and banks. Regulators were spooked by the threat of the Facebook digital currency, Libra, later renamed Diem.”
Artem Shuvalov says,
“Of course, the development of the cryptocurrency industry in each country is occurring at a different pace. Not so long ago, there were no cryptocurrencies at all. Restructuring the financial structure is not a matter of minutes. In some countries it is already possible to use crypto cards, and in some it will be possible in the near future. For example, in June, El Salvador completely legalized cryptocurrency payments and, accordingly, crypto cards. But there are also countries where cryptocurrency is completely banned, such as Turkey.”
The security of cryptocurrency cards
Based on user experience, the following recommendations for the safe use of cryptocurrency cards can be given:
- Check if the selected crypto card works in your country before ordering it;
- Carefully read the client’s agreement when opening an account and comply with its terms;
- Do not send a large amount to your account until the identity verification process is completed;
- Check the exchange rates provided by the company and compare them with the rates on other platforms;
- Check that you have all the necessary documents before passing the KYC check;
- Find out about all the fees charged by the service: for transfers from crypto to fiat, payments in outlets, money withdrawal, fees for the inactivity of an account or card;
- Regularly check the available limits for the card because they may change;
- If you use a crypto card infrequently, remember to make at least one payment or transaction every six months;
- Try to avoid unusual large transactions abroad. Use secure passwords and two-factor authentication;
- Don't keep all your money on one platform;
- Do not give your card password or PIN code to third parties;
- Do not use crypto cards for illegal activities, purchasing or selling illegal goods or services;
- Keep in mind that crypto cards may not be accepted by all merchants and prepare alternate payment methods.
We also asked the experts what they thought about the security crypto cards. Is a personal identification (KYC) procedure sufficient to ensure the safety of personal data and funds?
Artem Shuvalov believes that crypto cards are absolutely safe, and users' assets, as well as their personal data, are safe:
“When you go through KYC, you leave the gray zone of anonymity, but KYC prevents people from countries under sanctions and market participants with a dubious reputation from entering the market for assets, eliminating the risk for others to receive potentially distressed assets. Crypto cards will be just as safe to use as debit bank cards: users, in fact, go through the same security checks. The data is stored on secure servers. Of course, leaks are not ruled out, but they also occur in popular banks.”
Roman Nekrasov thinks that the security of crypto cards largely depends on the integrity, reliability and level of security systems of the project that issues them and the payment service that issues cards and keeps card accounts. According to the expert, now even the owner of a bank card issued by the largest bank in the country cannot be completely sure of the safety of personal data.
Tatyana Maksimenko says,
“Crypto cards are usually issued by projects not independently, but in partnership with payment services that have experience in issuing fiat payment cards. If, when replenishing a crypto card, an instant conversion into fiat is carried out, then a partner bank is also needed which creates a card account for the user in some currency (usually dollars or euros). The usual KYC procedure and everything that is provided for the banking sector and payment services will be enough to ensure security. I repeat and emphasize that in fact, the crypto cards currently on the market are regular payment cards that are issued by traditional participants in this market (banks, payment services authorized to issue VISA and Mastercard cards).”
Chen Limin emphasizes that in terms of security, cryptocurrency cards are no different from those in fiat, while they carry the risk of account blocking due to suspicion of violation of anti-money laundering requirements, revision of local legislation, or, for example, termination of cooperation with the payment system / operating bank, which has previously occurred to the owners of such cards. According to the expert, we can expect KYC checks to become more complicated. Tightening of legislation and monitoring compliance with AML / CFT is a global trend, and due to the suspicious attitude of the authorities towards digital assets, closer attention will be given to crypto cards.
Marat Mynbaev says,
“Here, in fact, everything is the same as with regular cards. The KYC procedure is quite adequate, and the rest of the security rules must be observed by the user himself, and they are the same as when using a regular plastic card.”
Alexander Voskoboynikov supposes that users can use cryptocurrency cards without fear that their funds or personal data will be stolen. He says, “The security of cryptocurrency cards at the moment is not inferior to that of conventional bank cards. The KYC system in its current form allows you to successfully identify the user and ensure the protection of transactions, as it includes basic user data, a passport photo and video. As long as there are no programs that allow replacing parts of the image and voice with a high qualtiy, these measures can be considered exhaustive.
“The bulk of the theft of both money from bank accounts and cryptocurrencies occurs as a result of password compromise and psychological tricks. Therefore, the KYC system is, first of all, a tool to ensure the safety of the community and the funds on a crypto wallet.”
Advantages and disadvantages of crypto cards
The advantages of crypto cards are obvious. The main ones are convenience and speed of use. But few people know about the shortcomings of such devices. Let's consider them in more detail:
- Verification difficulties. This is a very complex and long process, and it cannot be bypassed.
- The language barrier. All data requested by the provider to confirm payments or verify transactions is to be provided in English.
- Lack of fast customer support. Transactions are often delayed or completely frozen, while support is not very responsive.
- Problems with mobile applications. Various technical failures can lead to incorrect operation of the application, which creates a lot of problems and inconvenience for the user.
- Unexpected changes to the terms of service. Although the contract for the services is signed, its terms may change. This is because of the high volatility of cryptocurrencies and the rapidly changing market situation.
- The card may not work everywhere. Not all countries are crypto friendly.
- High and unexpected fees. Despite promises of no hidden fees or restrictions, users of cryptocurrency cards often face a high total cost of service.
- Card or account blocking. The owners of some crypto cards complain about the unexpected blocking of the card or account without explanation.
We also asked experts about the advantages and disadvantages of crypto cards.
Ilya Churakov, Founder of the business community of digital projects DAO Consensus, says, “An advantage, of course, is the ability to keep your funds in digital assets, to be calm for their safety, for they cannot be blocked.
“Among the disadvantages is volatility, the possibility of price changes for the assets, which affects the final asset, also higher fees for the use of cryptocurrency cards.”
Artem Shuvalov, an analyst at the Bitexcard project, emphasizes that crypto cards allow users to pay for purchases with cryptocurrency, even if the seller does not accept such payment. The card instantly converts the cryptocurrency into the necessary fiat money. This is the advantage of this tool.
The expert also highlights the pros and cons of crypto cards for holders, saying,
“The main advantages are that the card can be accepted anywhere in the world where it is possible to pay with Visa or MasterCard, and this is almost everywhere. You can use different currencies and make transactions without waiting—everything happens in a matter of seconds.
“The big disadvantage of crypto cards is that the fees for any transactions will be higher than if you used a regular bank card. There are not many partner banks that support cryptocurrency payments because the risks for them are much greater than the practical benefits. You will also have to go through KYC, and I think this is a very big disadvantage because anonymity is one of the main advantages of using cryptocurrencies.”
Tatyana Maksimenko, an official representative of the Garantex cryptocurrency exchange, believes that the main drawback of crypto cards is the absence of the entire value transfer cycle in cryptocurrencies and the need to convert to fiat (albeit automatically and instantly and imperceptibly for the crypto holder himself). But this is because cryptocurrencies are not so tightly embedded in retail. Few stores accept them as a means of payment: they themselves do not want to, and many regulators do not allow it.
Chen Limin, CFO and Head of Trading at ICB Fund, comments,
“For the ability to use cryptocurrencies in everyday payments, you often have to pay increased fees for issuing, transferring and withdrawing funds converted into fiat at ATMs. These are the risks of card blocking and the credit risk of its issuer. In the future, there will also be such an aspect as taxation. However, card issuers, primarily cryptocurrency exchanges, have begun to offer generous cashback in cryptocurrencies, including ‘real-time’ one, offer moderate or no fees, which cannot but arouse interest in them from cryptocurrency investors.”
Alexander Voskoboynikov, Founder, Manager and Co-Owner of the companies “Bankerbook”, “Tizer” and “ChaChaChai”, believes that, to a certain extent, the loss of user anonymity and, as a result, the spread of government regulation in this area is a disadvantage. Another disadvantage is the transitional legal status of cryptocurrencies, which may result in state sanctions against their users.
The undoubted advantage of crypto cards, according to the expert, is the possibility of convenient use of cryptocurrencies for everyday needs, as well as their conversion to fiat money and vice versa at minimal cost. At the same time, it is important to understand that cards are just a way to adapt cryptocurrencies to a rapidly aging, but still relevant infrastructure. In the future, there is a high possibility of new mechanisms appearing, probably based on blockchain and smart contracts.
Marat Mynbaev, an expert in fundamental and technical analysis of the crypto market, a professional investor and crypto trader, says,
“I have already said about the disadvantages, and the only thing that can be considered an advantage is that you do not need to manually convert cryptocurrencies, you can do it inside the account and then pay for goods and services. But in any case, you pay a fee for this procedure. And the disadvantages outweigh the advantages by far.”
Andrey Khodosok, Founder and SEO specialist of investonomic.ru, a magazine about money and investments, a crypto enthusiast, believes that cryptocurrency cards can be used for instant settlement with digital assets: in a restaurant, hairdresser’s, when paying for goods and services on the Internet, etc. In his opinion, here one can draw an analogy with any other currency cards (in USD, EUR): when paying with such a card, the foreign currency is first converted into the Russian ruble and only then payment is made. Crypto card payments in the territory of the Russian Federation follow the same principle: to complete a transaction, the digital currency is converted into the ruble.
The expert emphasizes that users should pay attention to some details, saying,
“First of all, this is the security of such transactions. For instance, using a ‘cold’ blockchain wallet to store your cryptocurrency and withdrawing funds, you follow all the security rules, without neglecting the necessary procedures, and the safety of your funds is maximal. If your cryptocurrency is located in a third-party service where funds are automatically blocked when paying, the safety of your cryptocurrency is rather doubtful. It is important to understand: at the moment when you replenish the card with cryptocurrency, you, in fact, transfer your funds to the service that maintains this card, and now the conditions for using the card are not much different from those offered by traditional banks.”
Andrey Khodosok notes that another detail associated with crypto cards is the mandatory completion of the KYC / AML procedure, which is quite difficult for participants in the cryptocurrency market. In the end, the cost of cryptocurrency cards and their maintenance are usually quite high, and it is much more advantageous to use the services of an exchanger and, having exchanged crypto for fiat money, pay with a regular bank card.
“Summing up this topic, I want to say that cryptocurrency cards, in my opinion, do not solve any important problems and do not provide any advantages, and using this financial instrument is generally disadvantageous and inconvenient. Most likely, this is a hype that will end in the foreseeable future.”