For as long as they’ve been around, credit cards have served as a touchstone for financial literacy. These days, many credit cards offer rewards, such as cashback or travel points, to entice new users, and the savviest of them know just how to take advantage of those rewards.
As modern as they are, credit cards haven’t changed much since their invention, and neither has the concept of money. Of course, our understanding of money has shifted in recent years due to the rise of cryptocurrency. Naturally, credit card companies have caught on, which is why some of them are beginning to offer a new crypto credit card.
Is Crypto Card the Same as Credit Cards?
In simple terms, crypto credit cards work the same way as traditional credit cards, with one exception. Instead of the usual purchase rewards, users are given cryptocurrency as an incentive for spending on their cards. Some may even allow users to pay off their credit card balance, accrued in dollars, with their cryptocurrency rewards. However, the way the cryptocurrency rewards are given and “cashed-out” may differ between each credit card company.
About Cryptocurrency
It is a form of digital payment based on blockchain technology spread over a large network of computers all over the world. Bitcoin is the most popular example, but there are thousands of others available in today’s market. The general public’s understanding of cryptocurrency is that it’s cash in virtual form, which is a very simplified way of looking at it. In actuality, a unit of cryptocurrency is a key that allows the owner to transfer units of value within the blockchain.
Traditionally, people were only able to obtain cryptocurrency by mining, purchasing from an exchange, or gifting. With crypto credit cards, users can now obtain cryptocurrency through their everyday spending. For those who pay off their balance each month to avoid interest and late fees, the points accrued from a crypto credit card can serve as an investment, especially if the user chooses a cryptocurrency that appreciates in value.
Benefits and Limitations
According to the experts at SoFi, crypto credit cards can be utilized not only for spending but saving and investing as well. Traditional credit card rewards are often limited when it comes to what can be redeemed and the dollar value of those redemptions. In comparison, crypto credit cards offer slightly more freedom by allowing access to a wide array of cryptocurrencies, allowing the user to choose the type of currency they would like to invest in. For example, the SoFi crypto credit card offers 2% cashback, which can be redeemed for over 20 different types of cryptocurrency, applied as a statement credit, or withdrawn as actual cash.
Due to the relative newness of cryptocurrency, crypto credit cards may also have some limitations. For example, most people will have to pay taxes on capital gains from any asset that rises in value, which does not include credit card points but does include cryptocurrency. Also, obtaining cryptocurrency through credit card spending takes away the user’s ability to time their purchase for when the value of the cryptocurrency is low.
Are Crypto Credit Cards Right for Me?
In short, crypto credit cards have pros and cons, just like any other credit card. They can be a good way to initiate the crypto-curious into the digital world as well as provide seasoned experts with another way to grow their portfolio.
