From Crypto to Cash: How To Insert Your Digital Coin

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    This article provides information for educational purposes. NerdWallet does not offer any advisory or brokerage services, nor does it recommend any specific investments, including stocks, securities, or cryptocurrencies.

    Cryptocurrency, the blockchain-based digital currency that has attracted interest from investors and financial services companies alike, has a challenging problem. It can be difficult to actually spend this currency like normal money. But there are new services on the horizon that could help people use Bitcoin and other digital coins in more common ways for their daily finances.

    Learn how to use these bank-like cryptocurrency services, along with their benefits and barriers, here.

    What is cryptocurrency banking?

    The term Crypto banking could be viewed as misleading as the exchange firms and firms that offer these services are technically not banks, but it generally refers to the way consumers can manage their cryptocurrency balances. At this stage, this type of banking mostly just allows people to keep their money in a digital wallet or spend it as if they were spending traditional money.

    Benefits of cryptocurrency banking

    Currently, the main advantage is this type of banking business Debit cards in cryptocurrency. They allow you to use your digital coin balance like any other currency for everyday purchases or withdraw it for cash instead of keeping it as an investment.

    Before these debit cards were available, you could only spend your cryptocurrency at retailers who accept it directly or sell it for dollars. Now financial technology companies are working with charter banks and / or debit card issuers to offer these cards. That means your digital funds will be accepted wherever there are a lot of regular debit cards.

    Barriers to cryptocurrency banking

    Perhaps the biggest obstacle to lending and spending cryptocurrencies is their volatility. Investing in them is the same barrier: in order to hold cryptocurrency, you have to accept that “if your coin falls, you could lose a lot of money,” says Francisco Alvarez-Evangelista, research fellow at Aite-Novarica Group, a Financial services analytics company.

    Many banks rely on the stable value of currencies to lend, borrow, or earn interest, but it is not currently possible to do these things with cryptocurrency in a way that is as stable or secure as traditional currency .

    And in order to spend your digital coin, you have to accept the risk that its value could increase after it is spent, as your transactions are based on the real value of your coin at that moment. For example, if the value of your cryptocurrency doubled after buying a $ 5 sandwich, it means that it is effectively costing you $ 10. But it could also go down in value, which makes previous purchases a good deal.

    Another obstacle to consider is that regulators are still evaluating cryptocurrency fintechs. The US Securities and Exchange Commission recently announced that it may sue Coinbase, one of the most famous publicly traded companies, for offering a new loan product, and Coinbase has since canceled the product launch.

    Consumers should also be aware that using a cryptocurrency debit card is considered a taxable event by the Internal Revenue Service as the cardholder is technically selling cryptocurrency while making 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.

    How To Try Cryptocurrency Banking

    In order to take advantage of these type of banking services, you must first Buy cryptocurrency, like 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 buying and selling cryptocurrency easier, even in small quantities, and store it in a digital wallet.

    If you want to easily spend your balance, you need to open an account with a company that offers cryptocurrency debit cards and uses the type of digital currency you own. For example, Coinbase has a special debit card that customers can use to spend all Coinbase assets and earn cryptocurrency rewards, but there is currently a waiting list for new customers. Another company, BitPay, offers a prepaid Mastercard debit card that customers can use to spend their digital currency. There are others, but it’s not a widespread banking offering.

    Going forward, cryptocurrency could have the potential to be a source of peer-to-peer credit, allowing individuals to quickly and securely transact loans with one another, according to research by CB Insights. It’s a huge area of ​​untapped potential, but right now the world of cryptocurrency banking is limited to a small pool of players with some very new products and services.

    This article was written by NerdWallet and originally published by The Associated Press. The author did not hold any positions in any of the above securities as of the original date of publication.

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