Take a look at how to use these banking-style services cryptocurrency, as well as their benefits and constraints.
What is Cryptocurrency Banking?
The term cryptocurrency banking may be considered a misnomer, as the exchange companies and firms that offer these services are not technically banks, but it generally refers to the ways in which consumers can access their cryptocurrency balances. can manage. At this stage, this type of banking allows most people to keep their funds in a digital wallet or spend it like they would with traditional money.
Advantages of Cryptocurrency Banking
At this point in time, the main advantage of this type of banking is cryptocurrency debit cards. They allow you to use your digital coin balance like any other currency to make daily purchases or withdraw it as cash instead of keeping it as an investment.
Before these debit cards were available, you could only spend your cryptocurrency at retailers that chose to accept it directly or sell it for dollars. Now, fintech firms are partnering with chartered banks and/or debit card issuers to offer these cards, using their partner’s logistical and regulatory framework to automatically sell your cryptocurrency behind the scenes, convert it into dollars and allow retailers to accept it. This means your digital funds are accepted wherever you have multiple regular debit cards.
Barriers to Cryptocurrency Banking
Perhaps the biggest obstacle to lending and spending cryptocurrency is how volatile it is. It’s the same obstacle to investing in it: To own a cryptocurrency, you have to accept that ‘if your coin drops, you could lose a lot of money,'” said Francisco Alvarez, a research associate at Aite-Novarica Group. Evangelista says. , a financial services analysis firm.
Many banks rely on the stable value of currency to lend, borrow or earn interest on money, but at this time it is not possible with cryptocurrency to make those things as stable or secure as traditional currency.
And in order to spend your digital coin, you must accept the risk that its value may increase after you spend it, as your transactions are based on the real-world value of your coin as it exists at the time. it happens. For example, if your cryptocurrency doubles in value after buying a $5 sandwich, that means it effectively cost you $10. But the price can also go down, making the previous purchase 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 is going to potentially sue Coinbase, one of the best-known exchange firms, for offering a new loan product, and coinbase The product launch has since been canceled.
Consumers should also be aware that using a cryptocurrency debit card is considered taxable, as the cardholder is technically selling the cryptocurrency as they transact with their debit card.
How to Try Cryptocurrency Banking
To start using these types of banking services, you must first purchase cryptocurrencies such as bitcoin. litecoin, Ether or any other currency you wish to invest in. Many apps have made it easy to buy and sell cryptocurrency, even in small amounts, and store it in a digital wallet.
If you want to spend your balance conveniently, you will need to open an account with a firm that offers cryptocurrency debit cards and use the kind of digital currency that is used.
Coinbase, for one, has a special debit card that lets customers spend any Coinbase assets they own and earn cryptocurrency rewards, but there is currently a waiting list for new customers. bitpay, another firm, offers prepaid MasterCard debit cards that customers can use to spend their digital currency. There are others, but this is not a comprehensive bank offering.
In the future, cryptocurrency may have the potential to be a source of peer-to-peer lending, where individuals can process loans to each other quickly and securely. This is a huge area of ​​untapped potential but for now, the world of cryptocurrency banking is limited to a small pool of players with few new products and services.
(This article is syndicated by AP from The Conversation)