How to bank your digital coin


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Cryptocurrency, the blockchain-based digital currency that has captured the interest of investors and financial services companies, has a tough problem. It can be difficult to spend this currency like you would with regular money. But new services are on the horizon that could help people use bitcoin and other digital coins more commonly for their day-to-day finances.

Here is an overview of how to use these banking style services for cryptocurrency, along with their advantages and obstacles.

What is cryptocurrency banking?

The term crypto-banking could be seen as a misnomer, as the brokerage firms and companies that offer these services are not technically banks, but it generally refers to how consumers can manage their crypto balances. -cash. At this point, this type of banking mainly allows people to keep their funds in a digital wallet or spend them like they would spend traditional money.

Benefits of cryptocurrency banking

At present, the main advantage of this type of banking services is the cryptocurrency debit cards. They allow you to use your digital coin balance like any other currency to make daily purchases or withdraw it in cash instead of holding it as an investment.

Before these debit cards were available, you could only spend your cryptocurrency at retailers who chose to accept it directly or sell it in exchange for dollars. Now, fintech companies are partnering with chartered banks and / or debit card issuers to offer these cards, using their partner’s logistics and regulatory framework to automatically sell your cryptocurrency behind the scenes. , convert it to dollars and allow retailers to accept it. This means that your digital funds are accepted everywhere that many regular debit cards are found.

Obstacles to cryptocurrency banking

Perhaps the biggest barrier to lending and spending cryptocurrency is its volatility. It’s the same barrier to investing: to own cryptocurrency, you have to accept that “if your coin falls, you could lose a lot of money,” says Francisco Alvarez-Evangelista, associate researcher at the Aite group. Novarica, a financial services analysis firm.

Many banks rely on the stable value of currency to lend, borrow or earn interest on money, but it is not possible, at the moment, to do these things with a cryptocurrency. as stable or secure as with traditional currency.

And in order to spend your digital coin, you must accept the risk that its value will increase after spending it, as your transactions are based on the actual value of your coin as it exists at that time. For example, if the value of your cryptocurrency doubled after buying a $ 5 sandwich, that means it actually cost you $ 10. But the value could also drop, making previous purchases a bargain.

Another hurdle to consider is that regulators are still evaluating cryptocurrency fintechs. The United States Securities and Exchange Commission recently announced that it will potentially sue Coinbase, one of the best-known brokerage firms, for offering a new loan product, and Coinbase has since canceled the product launch.

Consumers should also be aware that the use of a cryptocurrency debit card is considered a taxable event by the Internal Revenue Service because the cardholder is technically selling cryptocurrency when making transactions. transactions with his debit card. Some card issuers may automatically generate 1,099 forms for their customers to use when filing income tax, but the consumer is still responsible for keeping track of their tax liability.

How to try cryptocurrency banking

To start using this type of banking service, you must first purchase a cryptocurrency, such as bitcoin, litecoin, ether, or any other currency you want to invest in. Cash App, Coinbase, and PayPal are just a few companies with apps that have made it easier to buy and sell cryptocurrency, even in small amounts, and store it in a digital wallet.

If you want to spend your balance easily, you’ll need to open an account with a company that offers cryptocurrency debit cards and uses whatever type of digital currency you own. Coinbase, for its part, has a special debit card that allows customers to spend any Coinbase assets they own and earn rewards in cryptocurrency, but there is currently a waiting list for new ones. clients. BitPay, another company, offers a prepaid Mastercard debit card that customers can use to spend their digital currency. There are others, but it is not a very widespread banking offer.

In the future, cryptocurrency could potentially be a source of peer-to-peer lending, where individuals can quickly and securely process loans to each other, according to a study by CB Insights. That’s huge untapped potential, but at the moment the world of cryptocurrency banking is limited to a small group of gamers with brand new products and services.

This article was written by NerdWallet and was originally published by The Associated Press. The author did not hold any position in the above titles at the time of initial publication.

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Chanelle Bessette writes for NerdWallet. Email: [email protected]

The article From Cryptocurrency to Cash: How to Bank Your Digital Coin originally appeared on NerdWallet.


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