Crypto On and Off-Ramps: What Are They For?
|— The process of transferring money between crypto and fiat is known as “on-ramping” and “off-ramping”.|
— This is because the transition from fiat into crypto – and vice versa – is essentially moving value between two totally separate monetary systems, with different rules and dynamics, and entry requirements.
— There are a number of different options for both on and off-ramping – these options are not symmetrical.
— Here we explain exactly how and where to on- and off-ramp, what you’ll need in order to do this, and the implications of both processes.
You’ve heard of crypto on-ramping and off-ramping, but what on earth do they mean? Here, we break it down.
Crypto is a booming ecosystem that’s attracting hoards of new users for a variety of reasons. As an alternative monetary system with its own rules and dynamics, crypto’s learning curve is now affectionately known as “the rabbit hole” by newcomers busy educating themselves on its finer details.
Yet there’s one aspect of crypto you’ll find a surprising lack of detail on – exactly where can you enter and exit the ecosystem? Let’s talk about on and off-ramping.
What does On-Ramping mean?
Ok let’s start by tackling the jargon – when we talk about “on-ramping”, we simply mean using your regular, fiat money (probably your debit card) to buy some crypto. On-ramping sees you leave the traditional monetary system, and enter into the decentralized, blockchain ecosystem instead.
Conversely, off-ramping is when you “cash out” of crypto, converting your coins or tokens back into fiat money, or sometimes goods and services. We’ll come back to that.
Before we begin, let’s dispel one big myth…
Crypto has a long-held reputation for being “anonymous”. Spoiler alert – it’s not.
No matter how you choose to on-ramp into crypto you’ll almost certainly need to provide some basic documentation. This can include photographic ID or proof of address, depending on what platform you’re using and the level of activity of your account. The purpose of this is to provide a means of tracing the source of crypto transactions, part of a wider effort to prevent it being used for criminal activities.
So the first thing to note is that, when coming into crypto, your very first coin or token purchase will be linked to your real world identity. From there, your transactions will be recorded on a (normally) public ledger, meaning that with enough effort and knowledge, every transaction you make within the blockchain ecosystem can be linked back to your identity.
Right – now that’s out the way, let’s get back to the main question.
Your Crypto On-Ramp Options
OK – we’ve established that on-ramping is the process of leaving fiat and entering the blockchain based, decentralized monetary system. So where exactly are the doors between these dimensions? Let’s take a closer look.
By far the most common place for new crypto users to on-ramp is via a centralized exchange (CEX), such as Binance or Coinbase. These platforms allow users to take their first steps into the crypto world by accepting credit card payments in exchange for coins and tokens, and tend to be people’s very first stop on the journey.
How does that work?
Your first step when on-ramping via a centralized exchange is to open an account. This normally requires you to upload a photo of your government ID, a selfie, proof of address and your signature. While you can create an account on some CEX’s without going through KYC procedures, most exchanges limit your access to their services until you’ve provided this detail.
The precise procedure varies between platforms, but the goal is consistent across the board – minimising fraud and money laundering by making wallet ownership transparent.
Once you’ve provided this data and your account is created, you’ll be free to purchase a variety of coins or tokens using your credit or debit card, with your crypto being sent to the platform’s custodial wallet, which was created when you set up your account.
Tada! You just onboarded into crypto. From here you can begin trading.
Decentralized Exchanges with APIs
Up to now, users have normally begun their crypto journey via a centralized exchange. This was partly because the more recent raft of decentralized exchanges simply didn’t have this functionality – with no central pillar, and a service run entirely on blockchain, where does the fiat go once you’ve paid it?
But the crypto ecosystem is constantly expanding and evolving to become more decentralized, and with it, users expect on-ramping options to match.
Here, platforms such as MoonPay and Wyre are answering the call: these services offer a KYC-compliant integration for decentralized exchanges, enabling them to offer fiat crypto purchasing. The APIs vary but have one central theme – they take care of documentation requests and the KYC process, allowing the functionality to be “plugged in” to existing DEXs to give them on-ramping capabilities while remaining decentralized.
The main selling point of this type of on-ramp is that your newly purchased coins will go directly to your own personal wallet, and not a custodial exchange wallet, meaning you’ll have full control over your crypto from the moment you buy it. If that sounds interesting to you, check out the Paraswap buying service, available through Ledger Live – here, you can pay in fiat and receive your coins direct to your Nano.
Seamlessly through Ledger Live
As with any crypto transaction, on-ramping entails a number of considerations that all need to be weighed up, including security, gas fees and the type of wallet your funds are being paid into.
If you’re using a centralized exchange, for example, you’ll need to use their custodial wallet, which means you’re not in control of your funds – and moving them to a wallet that you fully control is another step that requires your time.
This is why Ledger offers seamless on-ramping within the Ledger Live ecosystem, via partners MoonPay, Wyre and Coinify. Here, you can easily buy (and sell) crypto using your regular credit card, in conjunction with your Ledger Nano. Our coins including BTC, ETH and DOT, as well as a wide variety of DeFi tokens.
Buying within Ledger Live offers you frictionless transactions and complete control via your own hardware wallet, meaning ease of use even for first time users. And, as with all API enabled platforms, the service is fully KYC compliant.
Another really interesting recent development is on-ramping through NFT exchanges.
Platforms such as Rarible and OpenSea have made it possible for users to take their first steps into crypto via NFTs, by enabling crypto to be purchased on the platform by credit card (here again you’ll need to undergo a KYC process).
Apart from offering another vector for entering the crypto system, this new on-ramp tells us something about the industry as a whole: increasingly, NFTs – and not cryptocurrency itself – are the point of entry for new users, which speaks to the evolution of the industry from a financial niche to something more culturally mainstream.
Bitcoin ATMs – an Honourable Mention
And finally…we couldn’t not say it.
It’s pretty unlikely that you’ll ever use a Bitcoin ATM, but they absolutely do exist and deserve a mention for being the OG of crypto on-ramping.
Bitcoin ATMs are kiosks connected to the Bitcoin network that accept cash and convert it into Bitcoin; a new wallet is created each time this is done, putting your newly purchased Bitcoin into circulation on the blockchain.
Unlike an exchange, Bitcoin ATMs are the only time when you do not require identification to on-ramp. However, with a restriction on the amount of Bitcoin you can create each time – and the obvious limitation of having to actually locate a machine – Bitcoin ATMs are unlikely to be your go- to.
So to recap, on-ramping into crypto can be done via a centralized exchange, a decentralized platform with a buying integration, an NFT exchange or, in theory, a Bitcoin ATM. In nearly all cases, you’ll need to provide personal documentation to comply with anti-money laundering regulations, and where your coins are paid to depends on what type of platform you’re buying from.
Now, let’s take a look at your options for coming back out of the blockchain-based monetary system.
Off-Ramping From Crypto
OK – so you’ve had your first foray into the world of crypto and you’ve done pretty well for yourself; maybe you’ve made some swaps, staked some tokens, sold an NFT or even become a liquidity provider, and now, you want to cash out to buy yourself a few nice things.
In other words – you need to off-ramp. There are various ways of doing this, so let’s check them out in more detail.
Spend your Crypto on Goods and Services
The simplest way of off-ramping is simply buying goods or services directly with your cryptocurrency.
This might sound straightforward, but the reality is a bit more complex. While cryptocurrencies are accepted as legal tender by a few countries like El Salvador, and even the odd corporation (Travala and Tesla are two companies that are currently ahead of the game), we’re still a long way from mass adoption. So although you’ll find a few places that accept certain coins and tokens as payment, , this is unlikely to be your principal off-ramp for now.
Off-ramp Through an Exchange
As with on-ramping, centralized crypto exchanges provide a vector for converting your crypto back into fiat.
Before you start that process, you’ll need to check that the exchange supports conversions into your chosen fiat currency. Once you’ve established this, you can simply “sell” a given amount of your crypto and have the fiat equivalent paid onto your regular bank card – the transaction will entail a small service fee, which also differs between platforms. It’s worth noting that this process can take anywhere from a couple of hours to a couple of days.
Wait – DAYS?!! Yes, we agree it’s not ideal. Real freedom means using your crypto with the same agility as fiat money – that means instant transactions, reliable payment options and not having to plan ahead just to buy some drinks with your Bitcoin. But with most retailers still not accepting direct crypto payments, and exchange off-ramps still prohibitively slow, the off-ramping process for crypto can be a major roadblock to its utility.
Off-Ramp via a Crypto Debit Card
The central premise of crypto debit cards is to allow you to spend your crypto as easily as cash. In other words – you guessed it – they’re off-ramps. Convenient ones.
The whole objective of crypto was removing the barriers to moving value around – that means being able to spend your crypto when and where you like. This is why Ledger has announced a partnership with London-based fintech Baanx to launch the new crypto debit CL Card, powered by Ledger.
The CL Card, powered by Ledger, unites the utility of traditional money with the freedom and possibilities of decentralized currency, and processes payments instantly – just like a regular debit card. So instead of combing through retailers to find one who accepts crypto, or spending two days checking your bank to see if your exchange funds came through, you can simply load your card and start paying.
So how does it work?
The CL Card, powered by Ledger, is a top-up based card that can be recharged using the balance of your Ledger Nano. The card is connected to a universal payment infrastructure, and converts your crypto to its equivalent value in fiat at the moment of purchase.
Not only does that bring fast and seamless off-ramping to users, it also allows you to benefit from your crypto holdings until the moment of purchase.If this sounds good to you, and you’d like to sign up for our first release, you can register here to join our waiting list. We’re constantly finding new ways to integrate your crypto with your life, and this is just the start.
Here’s to a Crypto Future
So there you have it, you’re now an expert in on and off ramps, so go forth and explore with confidence! Crypto is about freedom – freedom to store the value of what you earn, and spend it how you like. But something that’s worth remembering is that once you’ve converted back into fiat – no matter which of these options you use – you may have incurred a taxable event. This is something all users need to be aware of in order to get the best out of this flexibility.
So stay informed, do your research and enjoy this shift in paradigms to the Web3 era, where big platforms no longer dictate the rules of how you access your resources, and you are back in charge.
Knowledge is Power.
Trust yourself and keep on learning. At the end of the day, storing value is about being able to make purchases – so check out our School of Block episode all about how to spend your crypto IRL.