‘Bank’ your digital coin to spend it like regular money
Cryptocurrency, the blockchain-based digital currency, has a challenging problem. It can be hard to spend this currency like you would regular money. But there are new services on the horizon that could help people use bitcoin and other digital coins in more mainstream ways for their day-today finances.
Here’s a look at how to use these banking-style services for cryptocurrency.
What is cryptocurrency banking?
The term cryptocurrency banking could be considered a misnomer, as the exchange companies and firms that offer the services aren’t technically banks, but it generally refers to the ways in which consumers can manage their cryptocurrency balances. At this stage, this kind of banking mostly just allows people to hold their funds in a digital wallet or spend it like they would spend traditional money.
Cryptocurrency banking benefits
The main benefit is cryptocurrency debit cards. They allow you to use your digital coin balance like any other currency to make everyday purchases or withdraw it as cash instead of keeping it as an investment.
Now, financial technology firms are partnering with chartered banks and debit card issuers to offer the cards, using their partner’s logistical and regulatory framework to automatically sell your cryptocurrency behind the scenes, converting it into dollars and allowing retailers to accept it. This means that your digital funds are accepted wherever many regular debit cards are.
Cryptocurrency banking barriers
Perhaps the biggest barrier to lending and spending cryptocurrency is how volatile it is. It’s the same barrier to investing in it: To hold cryptocurrency, you have to accept that “if your coin falls, you could lose a lot of money,” says Francisco Alvarez-evangelista, a research associate at the Aite-novarica Group, a financial services analysis firm.
Many banks rely on the stable value of currency to lend, borrow or earn interest on money, but it’s not possible, at this time, to do those things with cryptocurrency in a way that’s as stable or safe as with traditional currency.
And to spend your digital coin, you have to accept the risk that its value could go up after you spend it because your transactions are based on the real-world value of your coin as it exists at that moment.
Consumers should also know that using a cryptocurrency debit card is considered a taxable event by the Internal Revenue Service because the cardholder is technically selling cryptocurrency as they make transactions with their debit card. Some card issuers may automatically generate 1099 forms for their customers to use when filing taxes, but the consumer is still responsible for keeping track of their tax liability.
Try out cryptocurrency banking
To start using these kinds of banking services, you must first purchase cryptocurrency such as bitcoin, litecoin or ether. Cash App, Coinbase and Paypal are just a few companies with apps that have made it easier to purchase and sell cryptocurrency, even in small amounts, and store it in a digital wallet.
If you want to spend your balance, you will need to open an account with a firm that offers cryptocurrency debit cards and uses the kind of digital currency you own. Coinbase, for one, has a special debit card that lets customers spend any Coinbase assets they own and earn cryptocurrency rewards, but there is a waitlist for new customers. Bitpay, another company, offers a prepaid Mastercard debit card that customers can use to spend their digital currency. There are others, but it’s not a widespread bank offering.