November 11, 2017    4 minute read

Crypto Debit Cards: Niche or Novelty?

The New Chapter    November 11, 2017    4 minute read

Crypto Debit Cards: Niche or Novelty?

A long-standing barrier against cryptocurrency’s use in peoples’ daily lives has been the difficulty of actually exchanging digital tokens for real goods and services, particularly in regard to face-to-face transactions. New companies are emerging with a potential solution to this problem: crypto debit cards. These are exactly as the name suggests, a debit card which is loaded with cryptocurrency and is accepted anywhere you would normally use a debit card.

With ever-increasing prices and demand for cryptocurrencies, more and more users are looking for ways to cash out on their digital treasure. Unfortunately for those flushed with coin, very few businesses currently accept cryptocurrency as payment. Crypto debit cards allow the buyer to pay with crypto and the seller to receive fiat as they normally would with any other debit card. Several businesses now offer these cards, mostly with limited benefits or supply. These could be trial runs to garner consumer feedback and test software architecture.

A Step in the Right Direction

An important factor to keep in mind is if transactions are still being processed by a centralized third-party then many of the benefits inherent to cryptocurrency are not utilized. Consumers are still stuck with limits imposed by providers, payments take time to settle, and sellers still get hit with a transaction fee. However, any advance in the ability to use cryptocurrency is a win!  Yes, it may still be slower and yes there may still be fees, but it also helps further the long-term objective.

The diffusion of innovations is a theory that seeks to explain how, why, and at what rate new ideas and technology spread. For ages people have been figuring out ways to use existing infrastructure to skip past the struggles of early adoption, accelerating the mainstream use of these new technologies. Crypto debit cards do exactly this, instead of replacing the hardware at the merchant level, changing payment system etc, they simply replace a plastic card. As vendors begin to see more crypto-currency debit cards being used and they still receive their money, they will begin to accept that the currency, itself, has real value. Once vendors are confident in cryptocurrency they will be looking at trading directly as a future step, removing any barriers and hefty transaction fees.

Keith Steva, former Director of PayPal, seemed optimistic in a recent conversation as to where the technology is headed, noting “If crypto debit cards can be used to exchange easily into fiat currency and is one of only a few mechanisms to do so without sale of the currency, I would indeed expect it to be popular. Key is simplicity, people like things to be simple.”

Future of Payment Technologies

What about payment methods such as NFC? Big businesses are entering this market space with excitement growing around Apple. Cryptocurrency is highly adaptable and can easily be integrated into these payment technologies. If Apple were to add cryptocurrency functionality to Apple Pay, iPhones would essentially become an encrypted cold wallet in your pocket.

Apple uses a dedicated chip for transactions and verification from secure enclave (i.e. your PIN or fingerprint) would be required to “unlock”, or decrypt your private key and verify the transaction. This type of system is much more secure than an unencrypted RFID or NFC chip. Even if a sophisticated hacker were to physically steal your phone, they would still have little luck getting to your coins.

However, while waving your smartphone or watch may feel more futuristic when purchasing goods with digital coins, Keith was also quick to mention the long-term demand driving these crypto card companies will be more focused on the advantages of cryptocurrency itself and less so by the physical technologies used to execute the transactions, such as debit vs NFC.

Conclusion

Cryptocurrency is here to stay and is undeniably going to play a significant role in shaping the future of money and trade. Crypto debit cards are giving a glimpse into tomorrow’s payment ecosystem. Some early adopters are enjoying the benefits of not only going cashless, but also almost entirely “fiat-less”, skipping the need to sell portions of their crypto hoard for fiat currency in advance to cover everyday transactions.

As more businesses and individuals join the ecosystem, demand for crypto debit cards and other related financial services will follow. Businesses and investors must separate the technology from the underlying payment pipeline. It would be wise to consider the best means of achieving widespread adoption of face-to-face cryptocurrency payments while retaining the ability to adapt to future technologies and competition.

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