Crypto Cashback Cards? Pros And Cons of Digital Currency Rewards

• Author: Bryan Miller
• Posted: 2024-05-18

In recent months, financial institutions that offer reward debit and credit cards have increasingly advertised cryptocurrency "cashback" rewards for cardholders who spend certain amounts, shop through specific retailers and perform other tasks. These cards can be incredibly useful and valuable to some people and in specific scenarios, but should everyone start using them?

Read on to learn more about the various ways cryptocurrency might help your finances, and the very real ways it might cause you harm:

The Basics

Before you learn about the pros and cons, you need to know a bit about how cryptocurrency rewards work. The debit and credit cards perform the same at the point of sale and online. As long as the card is issued by a standard processing network recognized by the merchant like Mastercard or Visa, you can make signature, PIN and contactless purchases with ease. These cards provide you with the same types of balance access and protections.

The main difference between standard rewards card and cryptocurrency ones is that you receive cryptocurrency as a reward into a digital wallet account or points to reimburse for crypto instead of cash or points to use toward gasoline, travel or other rewards. Once you have your crypto, you then use it to buy products or services through merchants that accept that particular digital currency or cash it out for an exchange to non-digital currency.

The Benefits

Cryptocurrencies are encrypted and used on decentralized networks, which makes it more difficult for thieves to steal them without serious hacking or access to a digital wallet accountholder's private encrypted key. Instead of a bank or government backing the currency and transactions, users on a network verify each other's transactions via a digital ledger system known as a blockchain. Transactions are copied and distributed to more than one computer connected to the network at the same time, which means that the only way to alter them is with multiple users verifying any alteration.

As you've probably heard in recent news, some cryptocurrencies like Bitcoin and Ethereum's Ether are currently worth a lot when exchanged for non-digital currency. With this in mind, some people have purchased crypto as an investment or found themselves suddenly richer because of the receipt of a past crypto gift.

Although this money has also become increasingly accepted through traditional retailers, it's often used by people on blockchains and elsewhere with businesses that focus on digital products and services. Gamers and people who love virtual worlds, for example, benefit greatly from cryptocurrency card rewards. They can use their crypto rewards to directly purchase upgrades and in-world items without spending other currencies to purchase crypto first.

The Problems

Cryptocurrencies are notoriously unstable. Their value can plummet with just the smallest market or other changes in the world. They're more similar to stocks than non-digital currencies in this way. Unlike other currencies, they don't have any backing to help their value remain stable. If you acquire a rewards card that features crypto from a little-known platform and network, your rewards probably won't have much value attached to them either.

Additionally, many card programs require that you invest some of your crypto back into a blockchain. This is called a "proof of stake" in which some of your digital wallet tokens become inaccessible in support of the network. You also often have to pay fees to use, sell or exchange crypto.

If you lose the private key to your digital wallet, which is essentially the passcode to unlock your account, you likely won't ever access your money again. You're completely locked out of your account. The original purpose of crypto was to create a digital method for transferring funds safely without any central regulation or ability to trace the identities of users. As a result, there are no private key backups, identity checks or even insurance to help users regain access or make up for the lost digital currency tokens that become inaccessible, respectively.

Things to Keep in Mind

When you use crypto, you risk the loss of any money inside of your digital wallet to hackers, bad faith merchants, real-world trends and social whims that cause devaluation or private key loss. You're essentially gambling with real world money in a virtual space where anything can happen to it. Once you lose that money, you have no protection from a regulatory body to regain your lost assets. If you save $10,000 in crypto and experience a hack or lose your private key, you've lost the crypto. You also lose the typically higher amount in non-digital currency gained from an exchange.

If you still want to receive cryptocurrency rewards instead of cash or other options for your debit or credit card, choose a token like Bitcoin or Ether. These currencies are more stable and have a high value at the moment. To further protect yourself and your investment, exchange at least half of your crypto rewards into non-digital currency whenever you receive them and place the money into a more stable investment or savings account.