Are crypto credit cards the future?

As big market players like Visa and Mastercard partner with crypto companies, crypto credit cards are becoming more mainstream with their enticing attributes.

In July, Visa launched a crypto-linked credit card with BlockFi that enables recipients to earn 1.5 per cent back in bitcoin on every purchase they make; a 3.5 per cent bitcoin rewards rate for the first 90 days; and they can also earn 2 per cent back in bitcoin on every dollar spent over $50,000 annually.

Cardholders can earn bitcoin for every transaction they make. Their bitcoin rewards are transferred to a cardholder’s BlockFi Interest Account (BIA) where rewards can earn crypto interest, meaning even more bitcoin, according to a BlockFi spokesperson.

BlockFi said they plan to “allow cardholders to pay their balances using Stablecoins” in the future, reports GOBankingRates.

Last week, BlockFi said that within 90 days of launching the first credit card to give Bitcoin as a reward to cardholders, credit card spend is currently pacing toward over $2 billion in annualised spending based on growth projections, according to an announcement.

The rewards can be appealing, given Bitcoin’s recent surge and it being the best performing asset so far this year, beating both stocks and commodities.

“In August, BlockFi cardholders who were paid out rewards at their 3.5 per cent intro rate earned an effective rate of over 4.25 per cent, while customers earning the standard 1.5 per cent back were earning a 1.8 per cent effective rate due to Bitcoin’s recent price appreciation. With the intro rewards rate of 3.5 per cent, cardholders can earn an additional $100 in Bitcoin in their first three months. For comparison, if someone had earned $100 of Bitcoin in 2017, it would be worth over $4,000 in Bitcoin today.”

Rival Mastercard also said it is launching a crypto card with Gemini. The card will enable holders to earn up to 3 per cent on dining, 2 per cent on groceries and 1 per cent on other purchases, according to Gemini’s website. Rewards will be in Bitcoin or any crypto on Gemini, and there will be no annual fee.

Gaurav Gollerkeri, general manager of payments at BlockFi, told GOBankingRates that crypto cards “are consistent with the experience folks have with traditional rewards-based credit cards.”

“It’s been a great addition to our retail product suite for our current clients, but also has attracted new folks who wouldn’t classify as crypto-fluent. Folks know how to use a credit card and to pay it off monthly, but we’re encouraging new behaviours with traditional products. It’s a new entry point for BlockFi to encourage greater discourse around the exciting world of crypto,” he said.

However, one differentiator from traditional cards using fiat currency, is that cryptos are taxable.

Shehan Chandrasekera, CPA head of tax strategy at CoinTracker.io, a platform helping customers calculate cryptocurrency taxes, told GOBankingRates that “the IRS treats cryptocurrency as property. As a result, whenever you spend your cryptocurrency to buy a good or service, that creates a taxable event for you. You have to track the cost basis and market value at the time of spending to come up with your capital gain amount.”

He added, however, that he sees people using them despite the tax burden, using tools such as CoinTracker to track taxes easily.

Several experts told CNBC that while it is probably unlikely that the IRS is going to come after you for a penny, it does mean that you are technically not complying with the law if you make a penny’s worth of gains when you buy a coffee and fail to track that as a gains event.

Another differentiator involves rewards. Blockchain News reports that rewards on certain credit cards might be limited to the card issuer’s selection of cryptocurrencies. “The Tomo Credit Card, for example, only offers reward points in Bitcoin, Ethereum and Litecoin. On the other hand, the Upgrade Bitcoin Reward Card exclusively offers Bitcoin rewards. Be sure to check the range of cryptocurrency rewards a credit card offers before signing up for an account,” it said.

In July, Visa said that consumers spent more than $1 billion worth of crypto on goods and services through their crypto-linked cards in the first six months of the year. Visa powers both cards that allow consumers to easily convert crypto to fiat and spend it as well as cards that allow them to spend fiat and earn crypto as a reward, according to CoinDesk. It also has partnerships with Coinbase and Circle.