Bitcoin has become increasingly popular as a speculative instrument, but its acceptance by merchants as a means of payment is lagging. To make spending easier for bitcoin holders, a number of bitcoin exchanges and bitcoin wallet services offer cards which let you use your bitcoin to pay at POS terminals or to withdraw cash at ATMs. You can request a free PDF comparison of the costs and features of bitcoin cards at the foot of this article.
What is a bitcoin card?
A bitcoin card is, in fact, a regular prepaid card – much like those offered by many Swiss issuers. Card accounts are denominated by official currencies like the euro, U.S. dollar or British pound. They are issued by regular prepaid card issuers. When you use a bitcoin card to pay, you are not paying in bitcoin but in the either the fiat currency which denominates the card or the local currency of the country you are in, when this is different to that of your card account.
What sets bitcoin cards apart are third-party services provided by bitcoin service providers. These services typically include the exchange of bitcoin to the official currency which denominates the card account and in many cases, the provision of a bitcoin wallet.
Some service providers require you to use their bitcoin wallet in order to use your bitcoin card. In this setup, you transfer bitcoins to the service provider’s wallet (or hold bitcoins in that wallet). You can then order transfers of bitcoin to your card account. When you do, the service provider exchanges the relevant amount of bitcoin to the fiat currency of your card account at its going rate, and credits the card account with the corresponding amount of fiat currency.
Some services (like Xapo) automate this process so that bitcoin is automatically withdrawn from your wallet and exchanged to the card currency as you use your card, saving you the effort of loading your card account. Holding a wallet and prepaid card account offered by the same service provider generally allows for more seamless integration between your wallet and card account.
Some cards do not require users to hold a specific bitcoin wallet. You can transfer bitcoin from any wallet, and the service provider exchanges it for fiat currency which it credits to your card account. Some service providers allow you to transfer both bitcoin and fiat currency to your prepaid card. These cards work well for bitcoin users who do not want to use a bitcoin wallet offered by a service provider which offers bitcoin cards.
What do bitcoin cards cost?
Like other prepaid cards, bitcoin cards are subject to an array of fees and charges. The fees you pay depend on both the issuer (bitcoin cards offered to residents of Switzerland are primarily issued by Gibraltar-based Wave Crest Holdings), and the bitcoin service provider.
Significant card fees include:
1. Issuing and delivery fees: Unlike Swiss prepaid card issuers, many bitcoin card issuers charge one-time fees to issue and deliver your bitcoin card.
2. Annual fees: Some bitcoin cards have annual or monthly card fees. These are not exceptionally high compared to those of Swiss prepaid cards.
3. Foreign transaction fees: Bitcoin prepaid cards are typically denominated by either euros, U.S. dollars, or British pounds. When you use your card to settle charges in other currencies (Swiss francs, for example), you may pay a foreign transaction fee. Many bitcoin cards have much higher foreign transaction fees than those charged by Swiss card issuers.
4. Currency exchange spreads. As with Swiss credit cards, prepaid cards and debit cards, currency exchange spreads apply when you use your card to pay in a currency other than its denominating currency. If you use a euro-based bitcoin card to pay in Switzerland, for example, the issuer’s euro to Swiss franc exchange rate will apply.
5. Cash withdrawal fees. When you withdraw money from your card account at an ATM, you are charged a cash advance fee. Most bitcoin cards even charge a cash withdrawal fee when you withdraw money in the same currency which denominates your card account. Many charge a higher fee for cash withdrawals in other currencies.
6. Loading fees. Some bitcoin cards charge a fee when money is transferred or “loaded” to your card account. These loading fees are similar to those charged by many Swiss prepaid card issuers.
7. Bitcoin to fiat currency exchange spreads. Bitcoin is sold to obtain the fiat currency which is loaded into your card account. The bitcoin service provider which services your card uses its own exchange rate, which generally includes an exchange spread. This spread adds another potential cost.
8. Bitcoin transfer fees. Unless you use a card from your bitcoin wallet provider, you will have to transfer bitcoin to your card service provider before it can be exchanged and loaded onto your card. When you transfer bitcoin from one account to another, you may have to pay a mining fee. This is a fee (in bitcoin) offered to bitcoin miners as an incentive to process your transaction. Mining fees must be accounted for when calculating the full cost of using a bitcoin card.
What are the advantages of bitcoin cards?
The primary advantage of bitcoin cards is that they automate part of the process of converting bitcoin to a widely accepted fiat currency. This is especially true in the case of cards which are directly linked to a wallet. When you use the right bitcoin card, you can conveniently pay or get cash just like you would with a debit card or prepaid card.
Another advantage is that (some) bitcoin card providers allow you to obtain a card without completing a verification process. This can be advantageous if you are looking for an anonymous payment solution (for online payments, for example). However, the limits on spending for unverified accounts are typically very low (see comparison), which greatly limits their usefulness for anything but small transactions.
What are the disadvantages of bitcoin cards?
Bitcoin cards generally do not provide additional benefits such as rewards and complimentary insurance coverage which come with many Swiss credit cards. Because bitcoin cards are not currently offered by Swiss issuers, cardholders do not benefit from Swiss consumer protection laws or depositor protection guarantees. Depending on the card you use, customer support (in the event that your bitcoin card is blocked or dysfunctional, for example) may also be difficult to come by.
Are there alternatives to bitcoin cards?
When merchants accept bitcoin as payment for goods and services (only around 100 Swiss merchants do), making a direct transfer from your bitcoin wallet to theirs is the cheapest solution. You only pay the bitcoin transfer fee (mining fee) when you make a direct transfer.
Essentially, you can accomplish the same task by selling bitcoin on an exchange or in person and then loading the money you get for it onto a Swiss prepaid card. This is less convenient as it requires more effort and know-how on your part, and you may not sell your bitcoin instantly.
However, the inconvenience can save you money – particularly if you expect to use the card to make payments in Swiss francs because by using a Swiss prepaid card you avoid the foreign transaction fee. You may also obtain a better price for your bitcoin by selling it yourself as opposed to exchanging it at the rates offered by bitcoin service providers.
Using the money gained from the sale of bitcoin to pay for purchases in cash or using a debit card or credit card may save you even more money because you avoid the loading fees charged by most Swiss prepaid cards. You can use the private account comparison and credit card comparison on moneyland.ch to compare the fees of Swiss debit cards and credit cards.
As with credit cards, checks or wire transfer services, it is important to look at bitcoin cards as a service – offering convenience for which you pay fees. For Swiss bitcoin holders, convenience is the only real benefit of bitcoin cards.
But there are isolated situations in which using bitcoin cards can work out cheaper than using a Swiss debit, prepaid, or credit card. Understanding the main fees and charges of bitcoin cards can help you determine whether or not they can help you save based on the kind of transactions you make.