The marketplace for Bitcoin, Ethereum, and other cryptocurrencies is exploding, and the value of these ‘coins’ is increasing exponentially. Bitcoin recently edged above $3000 – a new all-time high – per BTC, pushing, its market cap over $50 billion. Investors have had to face massive levels of volatility, watching coin values increase exponentially, and then decrease again within days.
However, as the market continues to move, the overall acceptance of Bitcoin and other currencies is becoming increasingly widespread. The larger the market space, the more users are willing to take the plunge and try out investing in the cryptocurrency world.
Investments are traditionally relatively non-liquid, while currencies are liquid. The complexity with cryptocurrencies is that they act as both a currency and an investment (store of value, like gold). Because of the dual nature of cryptocurrencies, there have been some questions as to their usefulness as a liquid currency. Unlike cash, cryptocurrencies are difficult to spend, and require exchanges and fees to be functionally useful.
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New solutions have emerged to move cryptocurrencies into the mainstream and allow them to be used more as a currency option than an investment. Because of the very complex nature of transacting over the blockchain that cryptocurrencies are built on. Each transaction requires a portion of a ‘block’, and each block takes time and fees to be paid to miners who are processing the block. This means that transactions require exchanges who can manage them, and this forces cryptocurrencies out of mainstream use.
Solutions have included suggestions to make exchanges simpler or to have cryptocurrencies accepted at retailers directly via other methods. While this is a potentially viable solution over the long term, it does not help those who are holding cryptocurrencies now.
Cryptocurrency Debit Cards
Another solution that has been considered is a cryptocurrency debit card. The card would link to an account where the cryptocurrencies are being stored, and the user would be able to spend the currency in different places where credit cards are accepted, while still managing their cryptocurrency balances. The system is a means of providing liquidity to the cryptocurrency market while also allowing the store-of-value incentive to remain intact.
The first difficulty with this system is the problem of volatility. Because of the relative volatility of cryptocurrencies in the marketplace, a true debit card would need to be hedged against fiat currencies like dollars or euros. Hedging allows for a user to choose which currency the debit card should access for any given sale, and would allow users flexibility to control their purchases based on market timing with the cryptocurrency values.
A second issue arises with partnerships. Cryptocurrency cards are, by definition, anti-bank. The whole principle of the distributed ledger of blockchain technology is that a centralized bank is no longer necessary for processing. Therefore, a viable debit card would require a partnership with a larger banking institution which is accepted worldwide like Visa or Mastercard. Online transactions would also require other partnerships, allowing for businesses to accept and use the cryptocurrency debit card digitally.
New players have been entering the market, seeking to put together a system that allows for use in the cryptocurrency debit market. These businesses are seeking to bridge all the above difficulties and produce a card that would allow users to access their crypto-wallets for expenditures. Many have already established partnerships with larger firms that allow for widespread usage physically, and relationships that allow for digital use as well. The massive growth in the market has led to a desire from users to be able to spend their currency in this way, and as the market continues to rise, this will continue to be a desire.
These groups have also produced useful store of value options so that the cards can access other fiat currencies like dollars and euros, allowing users to choose which currency is best for a given transaction.
This also produces a simple and clean way to spend Bitcoin or other cryptocurrencies without using an exchange as a third party intermediary. Debit card providers can offer wallets where the card would have immediate access, making the payment process smooth and simple. Spending cryptocurrencies would rapidly become simple and easy, increasing liquidity, and protecting store of value functionality.