Custodial vs Non-Custodial Crypto Cards Explained

What are crypto cards?

Crypto Cards are payment cards that enable users to directly spend their crypto at real-world and online merchant stores. Instead of converting your crypto to fiat and withdrawing to your traditional bank for spending, you can use crypto cards to instantly pay for goods and services at checkout points.

In a nutshell, crypto cards are similar to your regular payment cards; the only difference is, they work with crypto instead of your native fiat currencies. Some crypto cards like Coinbase Card, Crypto.com Visa, and Binance Visa Cards also work at ATMs and can be used to directly withdraw cash at supported ATM machines.

How Crypto Cards work

Crypto cards work by automatically converting crypto assets to fiat. At the final execution, your payments are made in fiat. When you make payments using a crypto card, the cards connect to a crypto wallet, converts an equivalent amount of crypto to fiat to process your payments.

In terms of payment structure, Crypto cards may be:

Crypto Debit Cards: Debit crypto cards are pay-per-use payment cards. They convert your crypto to the fiat equivalent of the amount you wish to pay at checkout.  

Crypto Credit Cards: Like classic credit cards, crypto credit cards enable you to borrow funds to pay for goods and services and settle your loan in crypto. Crypto credit cards may offer significant rewards and cashback.

Prepaid Crypto Cards: Unlike the pay-as-you-go debit cards, prepaid crypto cards require you to pre-load your card before you transact. You may ‘recharge’ the card with your spending budget. The card automatically converts the loaded amount to fiat at the prevailing rate to enable spending.

Types of crypto cards

Your crypto card is either custodial or non-custodial. Let’s explain each type; 

Custodial Crypto Cards

Custodial Crypto Cards are crypto payment cards provided and managed by a centralized institution or provider. The institution handles the custody of your funds and payment processing. Custodial cards offer convenience; the provider handles the core of the operation while you enjoy seamless crypto payments. However, most custodial crypto cards require KYC verification and may have significant usage restrictions according to the provider and regional regulatory policies.

Some popular custodial crypto includes:

• Binance Visa Card: Issued and managed by Binance Exchange, it offers up to 2% cashback.
• Coinbase Card: Issued and managed by Coinbase exchange. Offers up to 4% in crypto rewards for U.S. users.
• Crypto.com Visa Card: Issued and managed by Crypto.com Exchange. Offers up to 8% cashback depending on the amount of CRO token staked.
• Gemini Credit Card: Issued and managed by the Gemini Exchange in the US. It offers up to 4% back in various cryptocurrencies.
• Nexo Card: A hybrid card (credit/debit) available in the EU/UK. It allows users to spend or borrow against their crypto holdings held in Nexo’s custodial wallet.

Non-custodial crypto cards

Non-custodial crypto cards allow you to connect your wallet to the card and spend crypto directly. It doesn’t require you to send funds to a controlled wallet or perform KYC verification. Non-custodial wallets are also known as self-custody wallets. Like other self-custody solutions, users maintain control of their wallet keys. The card provider does not have access to your transaction records.

Some popular non-custodial crypto cards include;

• Gnosis Card: Issued by Gnosis Pay. Offers 5% cashback. Gnosis Card is popular among investors outside the US.
• Ether.fi Card: Issued by Ether.fi. The Ether.fi card allows holders to spend against deposits held in Ether.fi protocol. It also offers 2-3% cashback.

Differences between custodial and non-custodial crypto cards

Here are the key differences between Custodial and Non-custodial crypto cards

Which crypto cards should you use?

Choose the crypto card that works for you according to the following factors:

Stance on Privacy and Self-Custody

Custodial crypto cards (like ones provided by Coinbase, Binance, and other centralized institutions) require personal data and may have access to your transaction records. Non-custodial cards, on the other hand, only require a wallet connection. If you are big on privacy and self-custody, then Non-custodial crypto wallets may be best-suited for you. However, ensure that you understand basic crypto concepts like private key management and how to interact with decentralized finance platforms.

Supported assets

Crypto cards only support a limited set of crypto assets. This is due to price stability and liquidity. Check if the card you wish to use supports the crypto asset you hold. You can convert to supported crypto assets, but if this isn’t an option for you, you may explore card options that directly support the crypto you own.

Location and regulatory policies

Crypto Card usage is restricted in several countries (including North Korea and Russia), while usage may be limited in several other regions. Countries like the US and European nations have heavy regulations for crypto payments and crypto card usage. As a user, it is advised to only use cards that are approved by the regulatory bodies in your region. Also note taxation policies related to crypto cards in your country.

Passive rewards

Data from contemporary crypto card options shows that custodial crypto cards offer higher rewards than non-custodial cards. This may have a significant influence on your choice of card. Review the cashback percentage (up to 10% for custodial and 1-5% for non-custodial) and other available reward programs. However, keep in mind that the security of your funds and good UX are always more important.