In another example of how fiat and digital currencies are converging in the financial services industry, Visa on Thursday unveiled a debit card that lets users buy things with fiat money converted from cryptocurrency stored in online wallets.
The new Coinbase Card is directly tied to a person's cryptocurrency balance in digital wallets managed by the eponymous digital currency exchange.
Visa, one of the world's largest payment processors, said the Coinbase Card allows users to "spend crypto as effortlessly as the money in their bank" and make cash withdrawals from any ATM. The cryptocurrency will initially be converted into British pounds, Euros or U.S. dollars.
"Customers can use their card in millions of locations around the world, making payments through contactless Chip and PIN," Coinbase UK CEO Zeeshan Feroze wrote in a blog post on Medium. "When customers use their Coinbase Card, we instantly convert crypto to fiat currency."
A Coinbase Card mobile app will allow consumers to see spending summaries, transaction receipts and get instant notifications.
Visa brings with it not only its enormous merchant base but high-level security, which includes two-step verification and the ability for users to instantly freeze their card if it's lost or stolen.
"This is big news. I think a lot of companies have failed to try to do what [Visa and Coinbase are] trying to do, so it's not clear it's going to succeed," said Avivah Litan, Gartner vice president of research. "I think it's fascinating Visa signed up for this. It's really good news, because they have the scalability to make it succeed with merchant reach, their network, their fraud analytics."
Two aspects of cryptocurrency that traditionally make it more expensive and slower to use than fiat currency or credit cards isarethe miner fees (money paid to Coinbase to incentivize bitcoin and other miners to confirm transactions) and the confirmation time to clear a purchase.
Blockchain, the electronic ledger technology on which cryptocurrency relies, requires each transaction be verified through a consensus of those using it before it is finalized. The current bitcoin transaction fee is about $2.06.
"It could take an hour for a merchant to know if the transaction's successful," Litan said.
To artificially speed up the transaction, the payment processor (Visa) will likely give instant approval and take on the liability if something goes wrong with the transaction.
While Litan does not believe there's a real market in the U.S. for retail purchases through bitcoin or other cryptocurrencies, she does think the Coinbase Card could see adoption in "other economies." Those could include some African nations, China, Russia or Venezuela, where inflation is extremely high, consumers don't have bank accounts or where they're attempting to hide money from the government.
"I wouldn't discount the need for digital cash. If you look at inflationary countries like Venezuela, it's like 100,000% a year. A dollar today is like a penny tomorrow. Bitcoin is really their only alternative," Litan said. "And maybe Visa is getting into this for micropayments."
Whether successful or not, the Coinbase Card represents the epitome of what bitcoin was originally envisoned being.
Satoshi Nakamoto, a pseudonym for a person or group of people who created bitcoin, established the cryptocurrency as a method of electronic payment – not as a currency to be traded on exchanges for its value.
"Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments," Nakamoto wrote in the paper describing bitcoin. "What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party."
Earlier this year, J.P. Morgan Chase announced plans to launch its own digital token backed by fiat currency. Trials for the new cryptocoin are expected to begin in the next few months.
In the crypto industry, an instrument like JPM Coin is known as a "stablecoin" because it has an intrinsic value, unlike Bitcoin or Ethereum's ETH coins, whose value is based on supply and demand of virtual money. Once tied to a fiat currency, though, intrinsic value is created.
Facebook is also reportedly looking into developing its own cryptocurrency, a move that has the potential to make the social network billions of dollars while also helping to eliminate fake news and bots.
Facebook has reportedly already spoken with cryptocurrency exchanges about selling its cryptocoin to consumers; others believe the social media firm would not tie payments to a strict "cryptocurrency," opting instead to use a stablecoin backed by U.S. dollars and other fiat currencies.
"All these things together may mean people sign up for wallets. This is going to make people more interested in cryptocurrency," Litan said. "If you see more people accepting it..., it will drive adoption. It could fail, but my prediction is it will drive adoption."