The opinions in the community are divided as to whether it makes sense to spend cryptocurrencies by debit card or not. In the following article I would like to show you the advantages and disadvantages and I discuss the question why you should spend cryptocurrencies at all if they increase in value with a sample calculation.
1. Why spending cryptocurrencies by debit card?
Even though Bitcoin has been in existence for over 9 years now, there are very few companies that accept Bitcoin or other cryptocurrencies as a payment method. The main reasons are:
- High price fluctuations
Today you get a T-shirt worth $25 for 0.003 BTC, in three months maybe just a cup of coffee or a new smartphone. This is above all a problem for entrepreneurs, as they depend on calculations and thus on stable prices. - High transaction fees
especially at Bitcoin. It doesn't make much sense to buy a cup of coffee for $3 if the fee is $10 or more. - Long transaction times
Who wants to wait 10 minutes at Starbucks till the transaction is confirmed? - Lack of acceptance
Many people do not yet know what Bitcoin & Co. is or how it works. - Lack of infrastructure
This is a logical consequence from all other points. Since Bitcoin & Co. have not yet established themselves as a means of payment, there is a lack of an infrastructure such as credit card devices.
Points 2 & 3 are of course only applicable for older cryptocurrencies, especially bitcoin. But these are the most common currencies and currencies like STEEM or Nano (formerly known as Raiblocks) no longer have these problems, but they are not yet established enough.
The price fluctuations cannot be changed for now, but the remaining points are solved by using debit cards.
2. Advantages and disadvantages of debit cards
Advantages
- Cryptocurrencies are exchanged directly into Fiat money, which happens in a fraction of a second.
- and this without or very low fees.
- There is no change in the company's acceptance of crypto currencies, but it doesn't have to, because they receive Fiat money.
- And the infrastructure for debit cards already exists.
Disadvantages / Challegenes
- It is only a temporary solution, if cryptocurrencies become established once in a while you don't need them any more. But it could take decades before this happens.
- You don't really pay with cryptography, because they are only exchanged for Fiat money at the time of purchase.
- And precisely this process is still being handled centrally by companies such as TenX. This requires confidence that these companies a) provide the service 24/7 and b) offer a good exchange rate.
3. Why should I pay with crypto currencies at all?
This was my biggest question when I read for the first time that it was now possible to spend Bitcoin & Co. by debit card. Why should I spend them if they have only increased in value over the long term? I have a part of my money, which I don't need for daily payments, invested in cryptocurrencies. But you should consider the money you spend on bills, rent, food & Co.
Let's assume you would spend $1000 per month on everyday things. If you now invests $100 of it - in equal parts - in Bitcoin and Ethereum and leave the remaining $900 in Fiat money you would not have had $12000 at your's disposal in the year 2017 but up to $16281 and this with manageable risk, since you leave 90% of your money still in Fiat.
A calculation example
Assumptions
- 6% fees to exchange Fiat for crypto. From $100, $96 remain.
- Prices always on the first day of the month
- No purchase fees for the use of the debit card (as used by TenX)
On January 1th, 2017 you would therefore have to pay $50 (effective $47) each for
- 0,04896 BTC at the price of $960 and
- 5,7669 ETH at $8.15.
At the beginning of next month, Bitcoin rose to a minimum of $977 and Ethereum to $10.79. This corresponds to a loss at Bitcoin of about $2,17 (0,04896 BTC * 977 $/BTC = $47,83; $47,83 - $50 = $-2,17) and a profit at Ethereum of about $12,22. Taken together you would have had $10,05 more available this month.
In these examples, it is fair to say that we assume that the money will not be spent again until the end of the month. However, assuming that you pay the rent or something similar, this is still suitable for a simplified calculation example. Seen over a long period of time, this inaccuracy is also put into perspective.
In addition, the profits are not taxed in the example. Depending on the country in which you live, this would mean a minimization of the profit, but nevertheless it is still worthwhile as we will see now.
Assumption: You spend the profits directly
So you start every month with a new $100 and spend the gains and convert them into Fiat money.
(turn smartphone to see the whole table with gains/losses.)
| Month | Worth in $ BTC* | Worth in $ ETH* | Profit |
|---|---|---|---|
| January | 47,83 | 62,22 | $10,05 |
| February | 57.01 | 68.69 | $25,70 |
| March | 42,40 | 148,21 | $90,61 |
| April | 57,46 | 75,65 | $33,11 |
| May | 85,44 | 134,18 | $119, 62 |
| June | 48,78 | 58,66 | $7,44 |
| July | 51,48 | 36,68 | $-11,84 |
| August | 83,73 | 82,30 | $66,03 |
| September | 41,98 | 36,16 | $-21, 86 |
| October | 72,41 | 46,73 | $19,14 |
| November | 75,66 | 74,11 | $49,77 |
| December | 59,08 | 76,86 | $35,94 |
| --- | --- | --- | --- |
| Total | $123.27 | $300.46 | $423.73 |
* At the end of the month, according to https://coinmarketcap.com/
You would only have been in the red for two months with just under $34 and you would've made a profit of $423.73 at the end of the year. You can do better than that:
Assumption: You always spend a maximum of $100
So if you have made a profit of + $20 for one month, you invest this money in the next month. Here it makes less sense to calculate in Fiat, because it is about reinvesting coins.
(turn smartphone to see the whole table with gains/losses.)
| Month | BTC | ETH | Worth in $ (BTC/ETH)* |
|---|---|---|---|
| January | -0.00221874 | 1.13295086907 | -2.17 / 12.22 |
| February | 0.00369361 | 2.31825890283 | 4.38 / 36.56 |
| March | -0.00341662 | 4.29317200683 | -3.65 / 213.5 |
| April | 0.00229415 | 4.61358790988 | 3.0 / 369.27 |
| May | 0.01721060 | 4.98197592594 | 40.89 / 1138.38 |
| June | 0.01671599 | 5.01234963581 | 41.22 / 1429.52 |
| July | 0.01726354 | 4.95252812061 | 46.63 / 1102.43 |
| August | 0.02427381 | 5.03539827265 | 116.81 / 1962.8 |
| September | 0.02240774 | 4.98925068557 | 96.31 / 1496.28 |
| October | 0.02579247 | 4.97829688899 | 170.8 / 1484.53 |
| November | 0.028199559 | 5.02957150107 | 300.61 / 2364.9 |
| December | 0.02887725 | 5.06450100396 | 386.96 / 3894.09 |
| --- | --- | --- | --- |
| Total | 0.028877 BTC | 5.0645 ETH | $4281.05 |
* At the end of the month, according to https://coinmarketcap.com/
As you can see, the whole thing paid off in 2017, but this was also a great year. But even if 2018 turns out to be only half as good, it is worthwhile to convert some Fiat money into coins and spend them with a debit card. Of course, there is a risk of bad months, so in the example we have only exchanged 10% of the available money in crypto. So you can also catch one or two bad months and don't have to check the course every day to know if you have enough money to go to the cinema in the evening.
Do you have a debit card or would you get one? Have you ever paid anything with Bitcoin & Co. before? What were your experiences?
4. [Nerd mode on] - Python source code
I've written a small Python script for the calculation. This can be found in the github repository - calculate.py. Clone it and you can even customize / add some variables like fees, prices or used cryptocurrencies.
