Converting Fiat to Crypto - Things You Need to Know
June 10, 2021 (Investorideas.com Newswire) As cryptocurrencies continue to enter mainstream finance, those new to the technology will often get confused by the jargon being thrown around the space.
Some of the words used when dealing with crypto include HODL, FOMO, mooning, and many others. While these words may sound like common knowledge, a newbie can get confused and frustrated by this jargon.
When buying cryptocurrencies, there is one phrase that you will always come across: fiat to crypto. What is that, and how then can one 'convert fiat to crypto'? Let us find out.
What is Fiat?
In simple terms, fiat is the legal tender issued by a country's national government through the Central Bank. Fiat money includes US Dollar, Euro, Chinese Yen, Pound, among others.
A currency is considered legal tender when it can be used to buy and sell goods and services in each jurisdiction. It is not backed by any commodity and its availability is determined by forces of demand and supply.
Unlike fiat, cryptocurrencies are not controlled by any government. As a decentralized medium of exchange, crypto transactions are recorded on a digital public ledger using blockchain technology.
So, what is Fiat to Crypto?
When one uses fiat money to buy cryptocurrencies, the process is referred to as 'fiat to crypto'. Some time back, you could not buy cryptocurrencies using your local currency, most crypto exchanges only allowed crypto to crypto transactions.
However, as crypto adoption continues to explode, there is an abundance of safe and secure fiat to crypto exchanges. Now, you will find crypto trading platforms that allow you to use your credit or debit card.
How to Convert Fiat to Crypto
As a common funding option out there, using fiat to buy cryptocurrencies is now the norm. Most crypto exchanges will provide a seamless experience when using this method and within two business days, your money will have hit the exchange.
Some ways to convert fiat to crypto include:
- Using a Credit/Debit Card - Your bank-issued card is an acceptable way to buy crypto. When using this method, the exchange will require you to verify your name as it is on the card, then ask for the security number at the back of the card. Your credit/debit card should be current since they will ask you to enter the expiry date.
- Peer to Peer platforms - Crypto exchanges such as Binance and Paxful have a peer-to-peer trading experience. In this case, you will log into your account, go to the P2P section, and look for offers. Once you identify a verified and active seller, you can send them your money which will be held in escrow by the exchange. Upon confirmation of receipt by the seller, the exchange will credit your account with the quoted amount of cryptocurrencies. The process is usually fast and safe since it is moderated by the exchange.
Verification Using KYC Method
On almost every fiat to crypto exchange, you will be required to verify your identity before transacting. The verification process may be cumbersome, but it is only done once, then you are good to go.
You may be required to upload a government-issued identity card/passport. For access to advanced features and a higher limit on the platform, the platform may need facial recognition as part of the verification process.
Advanced Know Your Customer (KYC) procedures are some of the ways that crypto exchanges use to prevent money laundering using their platforms.
Factors to Consider When Choosing a Fiat to Crypto Exchange
The following four factors are important to consider before you settle for a particular fiat to crypto exchange. They include:
- Privacy - You need to understand a platform's privacy policy and its commitment to safeguarding it. As earlier mentioned, you may need to provide your personal details as part of the verification process and the remaining private is paramount.
- Trading fees - When converting fiat to crypto, the crypto exchange charges some fees. Depending on the payment method and the crypto exchange that you are using, the fees may vary. The common range is usually 2-5% when using a credit/debit card. You may not incur any charge when using a bank transfer, but the funds may take some time before the transaction goes through.
- Limit - How much does an exchange allow you to purchase? Depending on the trading volume and liquidity on exchange, there may be a limit to how much crypto you can buy. As you settle for a particular exchange, you will also need to understand the platform's withdrawal procedure especially when you intend to transact a lot of fiat.
- Speed - Prices in the crypto world change at lightning speeds and you may miss out on a profitable opportunity due to the slow speed of transactions. The faster an exchange can process a fiat to crypto transaction, the better for you.
- Reputation - A good name is key when picking an exchange. Research and learn about people's reviews of the exchange. Find out if it is regulated or not. How is the platform's customer support? All these factors are necessary to ensure your deposits are safe and easily accessible.
Wrapping Up
You do not have to get stuck with fiat since you do not know how to convert it into crypto. The crypto space is lucrative and strategic use of the available resources can help you achieve great things in the space. Hopefully, you now understand everything about fiat to crypto and will proceed to make an informed decision.
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