Moving from the old world of physical currencies into the new realm of crypto is a daunting barrier for many users. It’s often the first big transaction a user makes, so it’s natural that many people have concerns and questions.
In this edition of RhinoLearn we’re going to take you through the process of moving from traditional, or fiat money into crypto, so you can approach the ‘big leap’ with confidence.
There are four key ways of turning fiat into crypto. They are:
- Peer-to-peer lending exchanges
These provided pretty much the sole outlet for crypto purchases when digital currencies began to go mainstream back in the mid-noughties.
Back then, buyers and sellers would enter the exchange and be matched with one another. So if you wanted to sell one bitcoin, you would be matched with a person willing to buy that one bitcoin.
The system was protected by escrow accounts — third-party vaults which allow two transacting parties to deposit the money or assets they wish to exchange, before releasing them once both sides are happy.
Here’s how an escrow works when you move from fiat to crypto.
- You make your trade request, for example: ‘I want to buy X amount of bitcoin’.
- When a bitcoin-seller is matched to your request, the bitcoin is automatically deducted from their wallet and goes into an escrow account.
- You send them the money via bank transfer.
- Once they acknowledge that they’ve received the money, they tell the escrow account to release the bitcoin to you.
Peer-to-peer exchanges are still around today, and they have been reinforced with Know-Your-Customer (KYC) checks, which require both buyers and sellers to submit their identity documents, their mobile number and email address. This means you can be sure your trading partner is legitimate and isn’t going to scam you.
In this scenario, you reach out to a trading partner (or they reach out to you) directly and you conduct a private transaction.
- You contact your partner and make a request (for example ‘I want to buy X amount of bitcoin for cash’).
- The pair of you meet up to carry out the exchange. You hand over the money, and your trading partner shows you they’ve sent you the funds on their phone or laptop.
This is great if you know the person you’re dealing with – perhaps you’ve traded with them before or they’re a personal friend. However, if you don’t know the person, it’s probably the most dangerous of all four methods: there’s the chance you could be robbed when you go to carry out the exchange.
So we’d definitely advise caution before going down this route.
- Centralised exchanges
Centralised exchanges (or CEXs) such as Coinbase, Binance and FTX have made it easy for loads of different users to enter the crypto scene. These centralised parties have integrated with banks to provide easy access to crypto assets.
In this case, instead of trading peer to peer, you trade peer to exchange. It works like a traditional currency exchange, only you’re getting digital assets at the end.
- You deposit the fiat money into the exchange’s bank account with a specific reference number.
- Once the exchange has received the funds, they’ll automatically credit your account, so you’re ready to go.
- Now you can carry out swaps and trades into your desired cryptocurrency.
- Once you’ve received your crypto, you can withdraw it into your own wallet or make further trades and swaps.
- On-ramp services
As its name may suggest, this type of service provides a ‘ramp’ into the crypto world (there are also ramps that go the other way, from crypto to fiat, and they’re known as ‘off-ramps’).
This method is extremely simple.
- You link your card to a particular on-ramp service.
- You send them funds.
- The money is deducted from your bank.
- You receive a set amount of crypto in exchange (you’ll see the exchange rate before you make the transaction, don’t worry!)
In fact rhino.fi has integrated with Moonpay, one of the biggest on-ramp service providers.
With this integration, users can go straight from the fiat world onto our exchange, which is hosted off the main Ethereum blockchain (and thus avoids the high fees).
To find out more about our integration with Moonpay, click here (LINK TO MOONPAY BLOG).
So, in summary:
- There are loads of different ways you can transfer fiat to crypto.
- Each of these methods has different pros and cons, so you can choose the one that’s right for you
- Some methods are riskier than others, particularly over-the-counter exchanges. If you go down this route, be sure you know who you’re dealing with.
- rhino.fi offers a particularly easy method of moving fiat to crypto, using ramping services.
Ok, now you know all the ways you can go from fiat to crypto, stay tuned to RhinoLearn for more advanced tips and guidance about how crypto trading works. If you want a more advanced introductory guide, check out our explainer on the metrics to look for when evaluating a new crypto project.