Why Is the Cryptographic Smart Card Doomed to Extinction?

Original Title: Crypto cards don't have any future
Original Author: @paramonoww
Translation: Peggy, BlockBeats

Editor's Note: Crypto cards were once seen as a bridge between the traditional payment system and the crypto world. However, as the industry has developed, the limitations of this model have become increasingly apparent: centralization, reliance on compliance, lack of privacy, overlay fees, and even a betrayal of the core spirit of cryptocurrency.

This article delves into the essence of crypto cards, pointing out that they are merely a transitional solution, not a true decentralized payment innovation. At the same time, the article proposes EtherFi as one of the few models that align with crypto values, demonstrating the possibility of DeFi and TradFi integration.

The following is the original text:

My overall view is that cryptocurrency cards are just a temporary solution to address two well-known issues: first, to bring cryptocurrency to the masses; second, to ensure that cryptocurrency is accepted globally as a form of payment.

Crypto cards are ultimately still cards. If someone truly embraces the core value of cryptocurrency but believes that the future will be dominated by cards, then you may need to rethink your vision.

All crypto card companies will eventually disappear

In the long run, crypto cards are likely to disappear, but traditional cards will not. Crypto cards only add an additional layer of abstraction and are not a purely cryptocurrency use case. The card issuers are still banks. Yes, they may have different logos, designs, and user experiences, but as I mentioned earlier, this is only abstraction. Abstraction makes things more convenient for users, but the underlying processes remain unchanged.

Various public chains and Rollups have been obsessed with comparing their TPS and infrastructure to Visa, Mastercard. This goal has been around for years: either to "replace" or more aggressively "disrupt" Visa, Mastercard, AmEx, and other payment processors.

However, this goal cannot be achieved through crypto cards—they are not substitutes but instead bring more value to Visa and Mastercard.

These institutions are still key "gatekeepers" with the authority to set rules, define compliance standards, and even, if necessary, block your card, company, or even bank.

In an industry that has always pursued "permissionless" and "decentralization," why hand everything over to payment processors now?

Your card is Visa, not Ethereum. Your card is with a traditional bank, not MetaMask. You are spending fiat currency, not cryptocurrency.

Those crypto card companies you love so much have done almost nothing besides slapping their own logo on the card. They merely rely on a narrative, which will fade away in a few years, and those digital cards issued until 2030 won't even be operational by then.

I will explain later how easy it is to create a crypto card now — in the future, you might even make one yourself!

Same Issues + More Fees

The best analogy I can think of is "Application-Specific Sidechains." Yes, applications can process transactions independently and profit from them, which is a cool idea, but it's only temporary: infrastructure costs are decreasing, communication is maturing, and economic issues exist at a higher level rather than a lower one. (If you're interested, you can check out @mvyletel_jr's amazing talk about ASS.)

Crypto cards are the same way: yes, you can top up with cryptocurrency, and the card will convert it to fiat for spending, but the issues of centralization and permissioned access still exist.

It does help in the short term: merchants don't need to adopt new payment methods, and crypto consumption is almost "invisible."

But this is just a transitional step towards what most crypto believers truly desire:
Demand: Pay directly with stablecoins, Solana, Ethereum, Zcash
Not needed: USDT → Crypto Card → Bank → Fiat's indirect path

Adding a layer of abstraction adds a layer of fees: spread fees, withdrawal fees, transfer fees, and sometimes even custody fees. These fees may seem negligible, but they compound: saving a penny is earning a penny.

Using a Crypto Card Doesn't Mean You Are "Unbanked" or Achieving "Banklessness"

Another misconception I've noticed is that people think using a crypto card means they don't have a bank account or have achieved banklessness. Of course, that's not true. Under the guise of a crypto card, there is still a bank, and the bank must report some of your information to the local government. Not all data, but at least some critical data.

If you are a citizen or resident of the European Union, the government will know about your bank account interest, significant suspicious transactions, certain investment income, account balance, etc. If the underlying bank is in the U.S., they know even more.

From a cryptographic standpoint, this has both pros and cons. The benefit is transparency and verifiability, but the same rules also apply to using a standard debit or credit card issued by your local bank. The downside is that it is not anonymous or pseudonymous: the bank still sees your name, not an EVM or SVM address, and you still need to go through KYC.

Limitations Still Exist

You might say, crypto cards are great because they are really easy to set up: download the app, complete KYC, wait for 1–2 minutes for verification, top up with cryptocurrency, and then you can start using it. Yes, this is indeed a killer feature, extremely convenient, but not everyone can use it.

Russia, Ukraine, Syria, Iraq, Iran, Myanmar, Lebanon, Afghanistan, and half of Africa—citizens of these countries cannot use cryptocurrency for day-to-day transactions if they do not have residency rights in another country.

But hey, that's only 10–20 countries that are excluded, what about the other 150+ countries? The issue is not whether the majority can use it, but the core value of crypto: a decentralized network, equal nodes, financial inclusivity, everyone having equal rights. This does not exist in crypto cards because they are not "crypto" at all.

Max Karpis perfectly explains here why the "new banks" were doomed to fail from the start.

Max Karpis believes that "new banks" were doomed to fail from the start because they face multiple structural obstacles: high regulatory and compliance costs, lack of scale and user trust, a business model dependent on third parties and fragile, financial pressures, and profitability challenges. In contrast, giants like Revolut have a huge user base, data advantage, and regulatory moat, allowing them to rapidly replicate innovation and succeed through scale, making it difficult for startups in the new banking sector to survive or disrupt in competition.

The only scenario where I actually used cryptocurrency for payment was when booking a flight on Trip.com. They recently added an option to pay with a stablecoin, allowing you to pay directly from your wallet, and of course, anyone in the world can use it.

Don't use Booking, use Trip for true crypto payments. This is my sincere recommendation.

This is the true application scenario of cryptocurrency and a real cryptographic payment. I believe the ultimate form will look like this: wallets will be specially optimized for the user experience of payments and spending, or (less likely) wallets will evolve into crypto cards if crypto payments are widely adopted in some way.

The Functionality of a Crypto Card is Similar to a Liquidity Bridge (Rain)

I have an interesting observation: the operation of a self-custodial crypto card is very similar to a cross-chain bridge.

This only applies to self-custodial cards: cards issued by centralized exchanges (CEX) are not self-custodial, so exchanges like Coinbase are not obligated to let users think that the funds are under their control.

A reasonable use case for CEX cards is that they can serve as proof of funds, for government purposes, visa applications, or similar scenarios. When you use a crypto card tied to a CEX balance, you are still essentially within the same ecosystem.

Self-custodial crypto cards, on the other hand, are different: their operation is similar to a liquidity bridge, where you lock funds (cryptocurrency) on Chain A (crypto balance) and then unlock funds (fiat) on Chain B (real world).

This "bridge" in the crypto card field acts like a pickaxe during the California Gold Rush: it is a crucial secure channel that connects crypto-native users and enterprises looking to issue their own cards.

@stablewatchHQ has a very accurate analysis of this bridge, seeing it fundamentally as a Card-as-a-Service (CaaS) model. This is the most easily overlooked aspect by everyone discussing crypto cards. These CaaS platforms provide infrastructure for companies to launch their own branded cards.

Related Reading: "The Crypto Payment Card Market: Bridging Digital Assets and Global Commerce"

Rain: How the Crypto Card was Born

In your favorite crypto card, half of it may be supported by @raincards, and you may have never heard of it. Rain is one of the most foundational protocols in the new banking system because it essentially underpins all the core components behind the crypto card. All the remaining companies have to do is slap their logo on it (sounds harsh, but it's close to the truth).

I have created a diagram to help you understand how Rain works and how easy it is to set up a crypto card. Tip: Better quality when zoomed in.

Rain enables companies to quickly launch their own crypto card. In all honesty, Rain's execution ability can even thrive beyond the crypto space. So, no more dreaming that a team needs to raise tens of millions of dollars to issue a crypto card; they don't need that funding — they just need Rain.

The reason I emphasize Rain so much is because people generally overestimate the effort required to issue a crypto card. Perhaps I will write a separate article about Rain in the future because it is truly a highly underestimated technology.

Crypto Cards Lack Privacy and Anonymity

The lack of privacy or anonymity in crypto cards is not an issue with the cards themselves, but rather the issues deliberately ignored by those driving crypto cards, hiding behind the so-called "crypto value."

Privacy is not a widely used feature in the crypto space, and pseudo-privacy (pseudo-anonymity) does exist because what we see are addresses, not names. However, if you are ZachXBT, Wintermute's Igor Igamberdiev, Storm from Paradigm, or others with strong on-chain analysis capabilities, you can significantly narrow down the real-world identity associated with an address.

Of course, the situation with crypto cards doesn't even have the pseudo-privacy of traditional cryptocurrencies because when you activate a crypto card, you must complete KYC (in reality, you are not activating a crypto card, but a bank account).

If you are in the EU, the companies providing crypto cards will still send some of your data to the government for tax or other purposes the government needs to know. Now, you have given regulators a new opportunity to track you: linking your crypto address to your real identity.

Personal Data: The Currency of the Future

Cash still exists (the only anonymous form, except the seller can see you), and it will exist for a long time. But ultimately, everything will be digitized. The current digital systems have not provided consumers with any privacy benefits: the more you spend, the higher the cost you pay, and in exchange, the more they know about you. What a "good deal"!

Privacy is a luxury, and in the crypto card space, it will continue to be so. An interesting idea is that if we achieve truly good privacy, making companies and institutions willing to pay for it (not like Facebook, but with our consent), it may become the currency of the future, even the only currency in a jobless, AI-driven world.

If Everything Is Doomed to Fail, Why Build Tempo, Arc Plasma, Stable?

The answer is simple—locking users into the ecosystem.

Most non-custodial card choices L2 (such as MetaMask using @LineaBuild) or standalone L1 (such as Plasma Card using @Plasma). Due to high costs and finality issues, Ethereum or Bitcoin is usually not suitable for such operations. Some cards use Solana, but this is still a minority.

Of course, companies choose different blockchains not only because of the infrastructure but also because of economic interests.

MetaMask using Linea is not because Linea is the fastest or the most secure, but because Linea and MetaMask both belong to the ConsenSys ecosystem.

I intentionally used MetaMask as an example because it uses Linea. As everyone knows, almost no one uses Linea, and it is far behind Base or Arbitrum in the L2 competition.

But ConsenSys made a clever decision by placing Linea at the core of their card because it can lock users into the ecosystem this way. Users are accustomed to a good user experience rather than what they use every day. Linea naturally attracts liquidity, trading volume, and other metrics, rather than relying on liquidity mining activities or begging users to cross chains.

This strategy is similar to Apple's approach when launching the iPhone in 2007, keeping users on iOS, making it difficult for them to switch to other ecosystems. Never underestimate the power of habit.

EtherFi is the Only Viable Crypto Card

After all this consideration, my conclusion is that @ether_fi might be the only crypto card that truly embodies the crypto spirit (this research is not sponsored by EtherFi, and even if it were, I would not mind).

In most crypto cards, the cryptocurrency you deposit is sold off, and your balance is then replenished with cash (similar to the liquidity bridge I described earlier).

Most Common Crypto Cards

But EtherFi is different: the system never sells off your cryptocurrency but gives you a cash loan and uses your crypto assets to earn a return.

The EtherFi model is similar to Aave. Most DeFi users dream of being able to seamlessly collateralize their crypto assets for cash loans, and this capability has already emerged. You may ask, "Isn't this the same? I can top up my crypto and spend with a crypto card like a regular debit card, so why this extra step?"

EtherFi's Mechanism (Simplified)

The problem is that selling your crypto is a taxable event, sometimes even more easily taxed than everyday spending. In most cards, each of your transactions can be a taxable event, leading you to pay more taxes (again, emphasizing that using a crypto card does not mean going bankless).

EtherFi somewhat addresses this issue because you are not actually selling the crypto; you are just using it as collateral for a loan.

On this basis alone (along with USD with no foreign exchange fees, cashback, and other benefits), EtherFi becomes the prime example of DeFi meeting TradFi.

Most cards try to pretend to be crypto products, but in reality, they are just liquidity bridges, while EtherFi truly caters to crypto users, not merely to mainstream crypto: it enables crypto users to spend locally until mainstream users realize how cool this model is. Among all crypto cards, EtherFi could be the only project that survives in the long run.

I see the crypto card as an experimental ground, but unfortunately, most teams you see are merely using the narrative without giving due credit to the underlying systems and developers.

Let's see where progress and innovation will take us. Currently, what we see is the globalization of crypto cards (horizontal growth) but a lack of vertical growth, which is precisely what this payment technology needed in its early days.

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