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How to earn free cryptocurrency with a crypto debit card and what to know before signing up

By on February 9, 2022 0
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David and Manuel Cáceres del Castillo each started using a crypto debit card last year, intrigued by the new technology and inspired by the fact that their native El Salvador became the first country to accept Bitcoin as currency. legal.

The brothers are among a growing number of people using crypto rewards cards: Visa recently shared that $2.5 billion in payments were made by customers using crypto-linked Visa cards in the first fiscal quarter of the company.

“Crypto rewards card” is a generic term that could refer to crypto credit cards or prepaid crypto debit cards. David and Manuel opted for the Crypto.com Visa Card, a prepaid crypto debit card that’s linked to your bank account and earns rewards on your purchases.

David and Manuel Caceres del Castillo
David and Manuel Cáceres del Castillo started using crypto debit cards last year to earn crypto rewards on purchases they were already planning to make.Courtesy of David and Manuel Cáceres del Castillo

The Cáceres brothers had heard about crypto investing from YouTube influencers and a friend who followed crypto more closely. But knowing how volatile crypto can be, they didn’t want to jump into the deep end just yet. “All the YouTubers say they’re not financial advisors, and they say don’t sell your house to put money into crypto,” David says.

So they opted for a crypto debit card as a lower-stakes first step towards crypto investing. This approach allowed them to participate in this new investment but without derailing other financial priorities. The Crypto.com card allows users to earn $1 to 8% in crypto rewards, which is similar to some of the best cash back cards available.

“For anyone who works like me or Manuel, it’s like an advantage. It’s a step-by-step process,” says David. “When you’re not sure, you should take it step by step.”

While crypto rewards cards offer a way to get rewarded on everyday purchases with crypto, it’s important to first know how you want crypto to fit into your overall financial plan. And opting for a crypto rewards card means skipping a cashback credit card that rewards you cash, which you can use for travel, big purchases, or even crypto. Free crypto is also still very volatile, so think about how and if it makes sense as an investment.

Here’s what you need to know before signing up for a crypto debit card, plus some first-hand advice from Manuel and David Cáceres del Castillo.

How do crypto debit cards work?

Crypto debit cards offer crypto rewards on everyday purchases made with the card. Unlike crypto credit cards, prepaid crypto debit cards like the Crypto.com Card and other Visa debit cards from popular exchanges like Binance and CoinBase do not require credit verification. In addition to earning free crypto, these cards are designed to make it easier to spend your crypto on everyday purchases (although there are good reasons why you should probably refrain from buying things with crypto ).

To register, you must first ensure that the card is legal in your locality. New York, for example, requires all virtual currency platforms to acquire a BitLicense before operating in the state. A product may be legal a few hours away across state lines, but not in the state where you live. When you apply for your crypto debit card, you’ll need to enter your address, which will help determine your eligibility.

Second, you will need to link a bank account to transfer money to and from the card. You will transfer US dollars from your bank account to the card’s corresponding crypto exchange and then load the crypto to your card. You will need to think carefully about which coin to use, taking into account the transaction fees and the volatility of the coin you want to use.

In this step, Manuel, who lives outside of Baltimore, and David, who lives in Helsinki, Finland, choose to fill their cards with stablecoins, which are pegged to the value of a fiat currency such as the American dollar. Examples of stablecoins include USD Coin (USDC), Tether (USDT), True AUD (TAUD) – pegged to the Australian dollar – and more.

“If you want to use your card daily, you will use stablecoins,” says David. This helps you stick to a regular budget, because other cryptos are so volatile that it’s almost impossible to know in advance how much you’ll need of each currency. (That’s why it’s generally not advisable to pay your mortgage with Bitcoin.)

Once you’ve chosen a stablecoin, you can set up your card for automatic recurring transfers from your bank. This method works well for people with regular paychecks and predictable monthly bills who accept debit cards as a method of payment.

The Cáceres brothers pay their grocery, electricity and water bills with their Crypto.com cards. Other bills like mortgages and car payments won’t always accept debit cards without additional transaction fees and therefore might not be worth it in the long run.

“I receive my salary in my bank account as usual,” says David. “And then I move our calculated budget every month for things like housing, groceries, for example.” David says he spends about $600 on monthly groceries. “So I buy $600 in USDC stablecoins right away. From there, I move it to the card.

What are the risks of using a crypto debit card?

Crypto scams and thefts are rampant right now, due to a combination of the newness of crypto, the increasing amounts of cryptocurrency circulating around the world, and the new infrastructure that systems are built on. It’s a prime environment for what William Quigley, one of the original co-founders of Tether and co-founder of the Wax blockchain, calls “Olympic-level scammers” to test their skills and get away with. all the new money circulating in the crypto market. . Scammers stole over $14 billion worth of crypto last year.

Pro tip

Be sure to check your crypto card’s insurance policy in case of a hack. Also, use a card that lets you transact in stablecoins for more predictable monthly transfers.

Even Crypto.com, a mainstream crypto exchange, was recently hacked and lost around $30 million. The breach exposed 483 digital wallets, but the company says no customer funds were lost. The incident, however, illustrates why investors with lots of crypto should always use good digital wallet hygiene (no sharing passphrases or passwords), back up large amounts of crypto using cold storage and find out about the insurance policy for any crypto debit card or credit card before opening one.

Traditional banks, by comparison, have FDIC insurance to cover losses if your bank fails. Unknown to many is that FDIC insurance does not cover loss or theft; this protection generally comes down to the bank’s individual insurance policies. Banks are covered by federal policy to cover customers for fraud, but the responsibility rests with the customer to report errors in a timely manner.

Likewise, you should know the ins and outs of any insurance protection or coverage you receive with a crypto debit card, and what responsibilities you have.

What are the benefits of using a crypto debit card?

The benefits of using a crypto debit card are constantly changing and evolving. Basically, customers can earn crypto rewards on their daily spending. The Crypto.com Card, for example, offers a fleet of tiered rewards cards that give back at rates ranging from 1% to 8%.

To qualify for higher reward percentages, you must be willing to buy the company’s native cryptocurrency, CRO, and keep it on the Crypto.com wallet app for at least six months. This process is called “staking,” and it allows for greater circulation and increases the demand for currency, thereby increasing the value of the blockchain ecosystem. The longer and higher amounts you bet, the more rewards you get.

“The lowest is 1% cashback, then the next levels go up and up and up,” David explains. At the highest tiers, users can even get free Spotify, Amazon Prime, and Netflix subscriptions, plus discounts on Airbnb and other purchases.

Something to keep in mind: Altcoins can be even more volatile and unreliable than Bitcoin or Ethereum, so it’s even more important not to buy more than you can afford to lose in case the coin loses. finally all its value.

Do you have to pay taxes on crypto earned with a crypto debit card?

Yes, you will need to record the value of the crypto you earned in US dollars and report that income on your tax return.

Centralized crypto exchanges like Kraken, Gemini, and Binance currently report trading activity to the IRS, though this hasn’t always been the case, according to Lisa Bragança, former SEC arm chief and investment attorney. There are not yet consistent requirements as to what exchanges must report. Regulators likely want to increase tax reporting responsibilities for any crypto platform where decentralized finance (DeFi) activity takes place, and this would include activities such as staking (holding) crypto on a rewards card. in exchange for monetary benefits.

And Bragança thinks the exchanges will comply: “As these exchanges seek to obtain more authority, they seek this kind of legitimacy.”

Conclusion: Are Prepaid Crypto Cards Worth It?

Each crypto debit card works differently and each has its own rewards structure. Do thorough research before signing up. Consider processing fees (like you would for a debit card). Ask yourself if the rewards suit your lifestyle.

If, like the Cáceres brothers, you’re still interested in earning and learning more about crypto by paying bills with a prepaid card, remember to take it easy. Cover the necessities of your household budget, taking care of your long-term investments, housing payments and emergency fund first.

After that, a crypto rewards card can be an accessible way to familiarize yourself with decentralized finance while earning rewards.