Cryptocurrency was initially developed as a means of payment in lieu of traditional banking institutions. Now, bitcoin has gained widespread acceptance to the point where Mastercard, the almost 50-year-old credit card business, is offering its consumers access to cryptocurrency digital wallets, cryptocurrency-branded debit and credit cards, and even cryptocurrency-based loyalty rewards programs. These features are part of Mastercard’s relationship with Bakkt, a platform for buying and selling digital assets such as cryptocurrency, launched on Monday.

Mastercard Partners with Bakkt for Blockchain Rewards

Banks and financial institutions that issue Mastercard credit and debit cards can now allow clients to pay down their balances and earn loyalty points using bitcoin, the cryptocurrency supported by the Bakkt platform. As part of Mastercard’s deal with Bakkt, merchants such as restaurants and retailers will be allowed to accept bitcoin in lieu of the usual loyalty points offered by credit cards. Simultaneously, these Mastercard customers will have the option of converting their existing rewards points to bitcoin and storing them in a Bakkt digital wallet.

This provides an on-ramp into the crypto investment market for the over 2.8 billion Mastercard holders in circulation. While those who convert or accumulate rewards points in cryptocurrency will still be taking a risk, as the value of cryptocurrency is largely determined by the volatile crypto market, Mastercard’s offerings will make taking that risk a little easier and less daunting than signing up for a crypto platform separately.

This is not Mastercard’s first foray into cryptocurrencies. There are already a number of Mastercard credit and debit cards available for cryptocurrency users. Mastercard debit and prepaid cards offered by Uphold and BitPay enable customers to quickly convert their cryptocurrency holdings to fiat currency, while a Mastercard credit card offered by the cryptocurrency company Gemini enables customers to earn cryptocurrency rewards based on their spending activity.

Mastercard also launched its first-ever non-fungible token, or NFT, in September as part of a credit card loyalty competition. The NFT is an animated ball signed by soccer coach José Mourinho. Now, Mastercard’s plan to integrate bitcoin functionality into its payments network implies that even more people will be exposed to, and rewarded with, cryptocurrency. Mastercard stated that this recent expansion will affect the company’s more than 20,000 financial institutions, including banks and credit unions.

Mastercard to roll out cryptocurrency rewards next year?

Mastercard stated that additional information on when these new capabilities will be available to customers will be revealed at a later date.

“As brands and merchants seek to appeal to younger consumers and their transaction preferences, these new offerings provide an unprecedented opportunity to meet growing demand for crypto, payment, and rewards flexibility,” Nancy Gordon, Bakkt’s vice president of rewards and payments, said in a statement.

The statement comes after credit card firms gradually overcame their initial reservations about cryptocurrencies and sought methods to profit from its growing popularity. Visa consumers spent more than $1 billion in bitcoin in the first half of 2021 using credit cards issued by the corporation in collaboration with three separate cryptocurrency platforms: Circle, BlockFi, and Coinbase. Other credit card providers have indicated that they may soon begin selling cryptocurrency as well. Late last year, American Express invested in FalconX, a cryptocurrency trading platform; at the same time, Discover Financial, the parent company of Discover Card, began hiring people to develop cryptocurrency capabilities as well.

Credit card companies are only one example of how established financial institutions are making it easier for everyday consumers to buy and utilize cryptocurrency. Coinbase – a platform for buying and selling cryptocurrencies — became the first cryptocurrency business to go public in April, allowing individuals to invest in bitcoin without having to purchase any specific coin. Bakkt, the platform developed in collaboration with Mastercard, went public earlier this month as well. And only last week, the first cryptocurrency-related exchange-traded fund, or ETF, began trading. An ETF is a portfolio of assets that is linked to the future price of bitcoin. Paypal, Venmo (which is owned by Paypal), and Square all enable cryptocurrency-based transactions, and Square is considering expanding its bitcoin mining business, which involves utilizing a large amount of computing power to generate new bitcoins.

Another indication that bitcoin is going to stay is the increasing investment in new fraud and security technology to monitor cryptocurrency-related credit card schemes and crimes. Unlike traditional currencies, digital assets such as bitcoin are not controlled or governed by any single authority, and their cryptography makes them considerably more difficult to monitor and reverse. As a result, crypto is susceptible to theft and is favored by money launderers. Mastercard acquired CipherTrace, a cryptocurrency business funded by the Department of Homeland Security that bills itself as the “world’s first blockchain forensics team,” only days before announcing its cryptocurrency expansion. Paypal has also been looking for cryptocurrency expertise to work on security challenges such as money laundering and counterterrorism.

Cryptocurrency has grown in popularity, notably among criminals, to the point where the US Marshals Service, the government agency responsible for managing confiscated assets, has hired a cryptocurrency bank to keep all of the cryptocurrency recovered during criminal investigations. These incidents serve as a reminder that, while credit card issuers work to increase bitcoin adoption among regular credit card customers, cryptocurrency has hazards.

Nonetheless, the majority of bitcoin investors do not appear to be complaining that some of the world’s largest financial services are gradually becoming more crypto-friendly. After all, it’s difficult to deny that the growing push to mainstream cryptocurrencies has had the unintended consequence of increasing the value of their existing cryptocurrency investments.