Since the dawn of personal computers, we have used analogies to map the digital world onto the physical one. Your computer stores data within files, which are organized in folders. When you open a file, a window pops up and when you close all the windows, you can see your desktop. For cryptocurrencies, we use similar analogies: your money is stored in a wallet, which technically isn’t a wallet, but a pair of keys, which technically aren’t keys, but hexadecimal numbers.

For the process of obtaining and spending cryptocurrency, we use the analogy of a highway. There are On-ramps that help you get onto the crypto-highway and off-ramps that help you get off again. In between, there are only digital assets. In other words, when you receive cryptocurrency in exchange for something that is not a digital asset, you are using an on-ramp. When you spend cryptocurrency in exchange for something that is not a digital asset, you are using an off-ramp.

Peer to peer exchange and ATMs

Both on- and off-ramps are integral parts of the crypto infrastructure. For example, one way to obtain digital assets is to work for a blockchain enterprise that pays salaries either in part, or fully in a cryptocurrency. If that is the case, the company is on-ramping its employees and most of the employees are perfectly fine with this, since they want to trade or hold digital assets anyway.

A problem arises though for vendors who accept cryptocurrency as a payment method, since they usually want to get off the highway again as fast as possible. In this process, the vendor is acting as an off-ramp for you and you are the on-ramp for the vendor, who will need to find an off-ramp again.

Another option to get on or off the highway is to directly interact in person with a local trader. This has worked for a long time using LocalBitcoins or similar listings as a matchmaking service. Due to regulatory issues, the option to meet personally is not available anymore in many countries. Instead, most offers use SEPA use some online service as means of fiat payment. Of course this requires trust that the trader won’t scam you.

Another gateway for fiat-to-crypto transactions are crypto ATMs. The word ATM in the traditional sense is a bit misleading, as they don’t allow you to withdraw money as cash from your bank account. Instead, you insert cash into the machine and the ATM sends crypto to your wallet, acting as an on-ramp. Depending on the type of the machine, there might also be an option that allows you to send crypto to the ATM, which then ejects cash, making the ATM both an on-ramp and an off-ramp.

Needless to say, neither local traders, nor crypto ATMs can provide a satisfactory off-ramp solution for vendors. First of all, these are often not available in the trader’s location as they tend to concentrate in crypto hotspots, such as big cities. Even if they are readily available in the vendor’s area, their liquidity is very limited.

Centralized Exchanges

The largest gateways for this are centralized exchanges that allow you to trade between fiat and crypto. As anyone who ever bought or sold cryptocurrency on such an exchange can tell, this is a long and tedious process. As by international anti-money laundering (AML) laws, the operators of these services must verify the identity of their users through a Know Your Customer (KYC) check, just like any bank has to do. Although the process of verifying identities has been greatly facilitated by external service providers in the past years, it can still take a few hours up to a few days to get verified.

Next comes the verification of your bank account. For this purpose, the exchange either sends you a small amount of money or requires you to send a small amount to them. Depending on how you intend to use the exchange, you might be able to skip this step for now, but expect your banks to need at least another day to process the transaction.

Once you are fully verified, you can send fiat money and exchange it for crypto, or cash out your holdings to your bank account. Every time this involves a SEPA transaction, the money will take at least one day to arrive. At least, if you use a credit card or another instant payment provider to send fiat to the exchange, it will appear instantly on your balance, but this option typically comes at higher transaction fees.

Crypto Debit Cards and Custodial Services

Currently, the most viable way to use cryptocurrency for everyday payments is to use a crypto debit card, since there still aren’t many vendors who accept crypto. Here you send crypto to a custodian who issues a card that lets you access your money from any point of sale that accepts common credit cards, such as Visa. When you make a purchase using your debit card, the custodians exchanges the corresponding crypto amount into fiat in order to pay the vendor. This allows you to efficiently make purchases with your crypto money and frees the vendor from the burden of having to find an off-ramp.

Like every provider of custodial crypto services, the operator who issues debit cards are subject to KYC/AML regulation. The upside is that you can access your crypto balance instantly at points of sale and most regular ATMs. Additionally, most providers offer fiat deposits in some way. Thus, the issuers of crypto debit cards can offer an instant on-ramp (buying crypto with a credit card) and an instant off-ramp (paying with the card, or withdrawing cash).

When using custodial services, always remember that you are giving control over your money to the custodian, as the custodian controls the private key that secures your cryptocurrencies. Since custodial service providers accumulate large amounts of money on the wallets they manage, they are a lucrative target for hackers.

Therefore, you must pay utmost attention to choose a trustworthy custodian with a high level of security. At CoinZoom, we have partnered up with BitGo, the world’s leader in Digital Wallet security, to serve as our institutional qualified custodian. BitGo enables us to store approximately 98 % of our customers’ crypto balances in cold-storage wallets, which are additionally secured by multi-signature capability.

This means that any losses due to security breaches are limited to the remaining 2 % of the funds, which are held in hot wallets to facilitate trading. Furthermore, BitGo is insured against security breaches, insider theft, and loss of keys, covering losses of up to $100 Million.

On the fiat side, we store all of our customers’ balances on segregated custodial bank accounts. CoinZoom does not have access to these balances, unless authorized by the proper owner for the purposes of trading or transfers. For US residents, individual CoinZoom USD wallets are insured by the Federal Deposit Insurance Corporation for up to $250,000. In the case of lost or stolen debit cards, CoinZoom users are protected by Visa’s Zero Liability Policy.

In addition to our bank level security, CoinZoom wallets can be funded with a wide variety of payment methods, supporting multiple local fiat currencies. Afterwards, fiat balances can be traded on our exchange for a vast array of cryptocurrencies, which can then be spent using the CoinZoom Visa Card. Visa cards will become available soon for US-based customers with other countries following in the near future.