Cryptocurrency debit cards are unlikely to bridge the gap between cryptocurrencies and fiat money, as they offer very little in the way of advantages over traditional cards – to say nothing of the problems with cryptocurrencies themselves.
Cryptocurrencies have grown in popularity in the past year, thus many fintech start-ups including Chain2Pay, Paycent, FuzeX, and Wirex have launched cryptocurrency debit cards with the aim of creating more cohesion between cryptocurrencies and fiat money. The cryptocurrency debit cards allow users to spend cryptocurrencies at merchants and retailers. However, the difference between these and regular debit cards is that behind the scenes, payments are automatically routed to partner cryptocurrency exchanges and instantly debited from users’ cryptocurrency balances.
One of the primary benefits for consumers of using cryptocurrency debit cards is that it avoids unreasonably high currency exchange rates for international transactions. This is prevalent when frequent travellers go abroad and need to use their debit card to pay for products and services in the local currency. An additional benefit for consumers in spending cryptocurrencies rather than exchanging currencies for each country is in terms of the lower conversion rates in markets that have high levels of currency volatility.
However, these benefits are unlikely to benefit users in the near future; bitcoin is still unstable and will be limited in its ability to become a viable means of payment or mainstream asset class, exemplified by the peaks and valleys in bitcoin’s price throughout 2018. Indeed, we are now seeing a precipitous fall in the value of not only bitcoin but other cryptocurrencies as well, further calling into question the value of a cryptocurrency debit card as compared to standard payment cards.
The aim of cryptocurrency debit cards is to familiarise consumers with cryptocurrency as a ‘viable currency;’ however, cryptocurrency debit cards will remain a niche market.
Another disadvantage is that many traditional banks refuse to accept customers who have purchased cryptocurrencies, as this raises anti-money laundering concerns because of its anonymity. Recently, US lenders such as TD Bank and PNC Bank have declined to provide mortgages to people who have funded their purchase deposit by selling cryptocurrencies. This will further relegate cryptocurrencies to users for whom the anonymity of transactions outweighs the detriments of volatility, and who will potentially be barred from doing business with retail banks.
While cryptocurrency debit cards may prevent high currency exchange rates for international transactions, they are not the answer to replacing fiat money in the near future. This is particularly due to the small base of cryptocurrency holders (and the even smaller sub-set of those who would be willing to spend cryptocurrency rather than hold or sell it) and banks’ unwillingness to deal in cryptocurrencies or support consumers who have dealt in them. The market is currently hostile to cryptocurrencies, and these cards will not do anything to change that.
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