The Devil’s in the details: fees, murky exchange rates and other issues mar what should be a promising crypto to fiat instrument
This sponsored tweet has been coming up in my feed a lot:
I’ve been very interested in crypto-backed credit cards for some time now, (remember TenX, anyone?) and thought I would take a deeper look at this. And since my wife and I are no longer that interested in hacking frequent flyer miles, I’m very interested in something that advertises six percent back in rewards. So I signed up for a BlockCard account and did some testing with it. Let’s just say there’s a couple hiccups with it.
The Blockcard is basically a pre-paid Visa card. You can deposit funds from 13 different tokens including BTC, ETH, LTC, and others, and while they say you can “stay in crypto” until you need to spend your funds, all deposits are converted to the Ternio utility token, TERN, upon deposit. What is TERN, you ask? That’s what I wondered as well, so I took a look at the whitepaper.
The paper, published sometime prior to the TERN token sale in April of 2018, describes it as “built to transform and ultimately disrupt the $224 billion per year digital advertising approach.” Basically, they’re building a platform to connect advertisers, publishers and users, providing scalability, auditing, and payments. Of course, TERN tokens are used for the payments, and must be front-loaded to participants accounts. According to the whitepaper, Ternio relies on an internal blockchain called Lexicon, a modified version of IBM’s Hyperledger protocol, and the public token, TERN, on the Stellar network. Lexicon purportedly runs over a million transactions a second, and was accepted by Amazon as an AWS Advanced Technology Partner a little over a year ago.
The rest of the whitepaper describes the projected use case for the Ternio netowork, token sale and airdrop and social bounty program. The BlockCard is also described. That said, the Ternio team seems to have dropped their focus on advertising, and now seem to be focused primarily on building a payment network and driving adoption of the BlockCard.
Using the BlockCard
I signed up for an account a few days ago and was immediately struck by the fee disclosure. First off there’s a $5 monthly “subscription” fee if you don’t spend at least $750/ month. Deposits, withdrawals, and point of sale (swipe) transactions are free, but using the card as a debit, with a PIN transaction, will cost you, as will any ATM cash transactions, even declined withdrawals. They also charge ten dollars for a physical card, or you can get a metal one for fifty.
To BlockCard’s credit, they claim that theses fees are required by their banking partners.
I needed to load at least ten dollars on the card to make it usable, so I sent eleven dollars of BTC over from Ethos wallet when I ran into what seems to be BlockCard’s biggest problem. BlockCard undervalued my deposit. I was surprised when the transaction completed and my card only had a total balance of $9.37. The transaction history actually showed the value at a more reasonable $10.71, but it still showed an inexplicable deposit amount of 1.52 BTC (I wish!) instead of the actual 0.00156. This still left me with sixty cents under the ten dollar threshold, so I went ahead and sent a transaction in ETH. There seemed to be less lost on the conversion, $9.98 sent versus $9.85 deposited.
In total, I deposited $20.99 cents to my account (not including on-chain transaction fees), after which my account showed a $17.99. This was quite concerning, but after a few more minutes the balance updated to show $20.56. Less dramatic, perhaps, but still a problem if one is expected to spend $750 a month on the card. That’s a lot of slippage, likely more than a $5 monthly membership charge. On top of all this, the UI for the website seems to be extremely slow to update the conversion. I noticed several times when I logged in and the balance didn’t update for almost fifteen minutes.
A few days after my initial deposit and my balance flipped back to eighteen. I’m not sure if this is the buggy UI or just fluctuation in the price of TERN. The FAQ indicates that the value of TERN is pegged against the USDD stablecoin and is “tied to TERN on the BlockCard ecosystem”, independent of trading on any other exchanges. “As users deposit on BlockCard, the value of TERN increases. As people spend, the value decreases. TERN is never issued at less than $0.008”
This is all very problematic from a transparency standpoint and seems very ripe for abuse, especially since their use agreement allow up to 36 hours for deposits to clear. Without any clear exchange rates as part of the deposit process, users are basically at the mercy of BlockCard to treat them fairly. With no clear indication of the TERN/USDD price, users are left to do the math to make sure they’re not getting ripped off. Even by my own calculations, my current balance is being valued at 0.0069.
So does this mean that incoming transactions are converted to TERN at the 0.008 exchange rate, but then immediately lose value upon being credited to a user’s account? If this is accurate, it seems like a very bad deal for users.
The marketing for BlockCard touts the six percent rewards on spending. While on the surface, this seems like a deal, until you find out that these reward levels depend on staking TERN.
At the base rate of $0.008 TERN/USDD, that’s a minimum of $240 worth of TERN for the bottom tier, and almost twelve hundred dollars required for the top. Granted, one might be able to cut that quite a bit if one is able to acquire TERN at a discount on a exchange, but given the hype that BlockCard is putting on the rewards aspect of their card, it’s disingenuous not to mention the staking requirements on their marketing.
There’s other issues with BlockCard as well that are worth mentioning. For one, I’ve been unable to use the card since I don’t have the option to complete KYC on my account. I’m guessing I have to request a physical card to do that, but I’m hesitant to do so since it’ll cost me ten dollars. I’ll likely reach out to BlockCard for confirmation on this, and just to be fair I’ll give BlockCard’s CEO Ian Kane a chance to respond to this article and address any inaccuracies.
The last issue is related to taxes. Sending depositing crypto to your BlockCard account and automatically converting it to TERN qualifies as a taxable event. Spending the funds on the card does as well. Kane said in a tweet that they plan on adding CSV export for transactions, but for now users will have to copy and paste the details manually.
Finally, I want to be clear that this post is not just meant to be a complete dump on the work that Kane and the BlockCard team have done. They’ve done well so far to put together this link between cryptocurrency and traditional payments system. While I’ve yet to use BlockCard for a payment, it does seem to be one of the fastest ways to spend crypto to fiat. My concerns are mainly with the execution of the crypto components of the system. Using TERN as an intermediary currency, without clear indications of how either deposit or balance calculations are converted, is especially troublesome. And the prospects of their so-called rewards system is completely offset by the staking risk, which is again compounded with the lack of transparency in the exchange value.
For now, I’m going to hold off further judgement on BlockCard until they’ve had a chance to respond.