What are on-ramp and off-ramp trading in cryptocurrency?


Cryptocurrencies have experienced explosive growth over the past few years. Despite severe market corrections triggered by developments across the globe, new investors continue to pump money into the digital asset. But for those still exploring the crypto market, there is a lot to learn.

For a novice, it might start with a question as simple as how to convert paper money into cryptocurrency and convert it back into real money when they want to exit the market. So let’s try to simplify this process of entering the world of crypto and how a user can get out of it.

ON-RAMP TRANSACTIONS

This transaction involves spending your fiat currency (traditional paper money) to buy cryptocurrency. A transaction on the ramp takes you out of the centralized financial system and into the decentralized blockchain-powered financial system. So how do you make this transition between the two worlds? Here are your entry points:

1. Centralized Exchanges (CEX)

This is the most common entry point for most crypto traders. Exchanges like CoinDCX, WazirX, and CoinSwitch Kuber in India can help you break into the world of crypto. You can either use your debit card, credit card or even your UPI to add funds to your exchange wallet.

Each exchange requires you to create an account if you want to avail of its services. Upon account creation, the exchange creates a crypto wallet for you where your cryptocurrencies are deposited when you make a purchase. A CEX wallet holds and protects your cryptocurrency for you and is called a “custodian wallet”.

Above a certain limit, you must also provide ID, proof of address and your signature (KYC) to authorize high value transactions. Most CEXs allow you to create an account and transact in small volumes without going through the KYC process. Thus, it is not entirely true that crypto transactions can be performed anonymously; your identity is verified beyond one point.

2. Decentralized Exchanges (DEX) with Application Programming Interface (API)

As more users jump on the crypto bandwagon, the ecosystem becomes increasingly decentralized. Yet, most users, until recently, have relied on CEX to enter the crypto markets. This is because DEXs run solely on blockchain technology, and without a central authority, the ramping service is not yet available – where would your fiat currency go in the case of a DEX?

But platforms like MoonPay and Wyre are the answers. These platforms integrate the KYC process with the DEX system by deploying APIs. These APIs allow two unrelated systems to communicate with each other, effectively bridging the gap. All an API does is “plug” KYC documentation into the workings of a DEX, which means the system remains decentralized with the addition of identity verification.

The advantage of using this scaling method is that your purchased crypto is deposited directly into your personal wallet which is completely under your control – a “non-custodial wallet”.

3. NFT Markets

This is the newest and most popular addition to the crypto universe. Non-fungible tokens (NFTs) are selling like hot cakes for millions of dollars. NFTs are blockchain-backed tokens that establish ownership of digital assets through all of the essential data encoded in them. Marketplaces like Rarible and OpenSea have unlocked the scaling up for users who want to pay with credit/debit cards and buy NFTs directly. Beyond a certain limit, this method also requires you to complete the KYC process.

The emphasis on KYC has been consistent in the pace of crypto to prevent money laundering and funding illegal activities.

EXIT TRANSACTIONS

Now that you know how to get on the crypto train, let’s see how to get off. Off-ramp transactions allow you to cash out crypto assets and repossess your fiat currency. Sometimes you can also benefit from services in exchange for cryptocurrency. Here are some ways to offload crypto:

1. Through exchanges

Exchanges offer the easiest way out of the crypto world. On a centralized exchange, you can simply sell your cryptocurrencies, and a proportional amount of fiat currency will be credited to your exchange wallet. Transactions will be charged with a small service fee as the exchange becomes your facilitator in the process. Service fees vary between exchanges, but are not much.

Once your wallet shows your credited amount, you can withdraw it to your connected bank account – a process that now happens instantly. This would previously take over 24 hours, but has been largely streamlined by the exchange developers.

2. Crypto debit cards

You can spend your crypto balance as easily as you spend your money. And yes, it’s as easy as swiping your debit card. The goal of introducing the world to cryptocurrencies was to facilitate the transfer of value instantly, securely and affordably. In 2021, MasterCard partnered with three major financial service providers to facilitate crypto transactions in the APAC region.

3. Goods and Services

This method can only be used in countries where crypto payments are considered legal. At the moment, El Salvador is the only country to have made Bitcoin its legal currency, and regulatory pushbacks continue to follow. Some companies have also started accepting crypto payments. But we’re still pretty far from the mainstream adoption of crypto-payment systems, and experts don’t think this method will be used primarily for skidding just yet.

However, it is advisable to do your research well before entering the world of cryptocurrencies as it is a very volatile market. It is crucial for you to be aware of underlying developments and fundamentals before making investment decisions.


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