What does off-ramping Bitcoin mean?
In crypto, off-ramping means converting digital coins and tokens like Bitcoin to fiat currencies like the U.S. dollar. During off-ramping, crypto investors convert virtual currencies into fiat. Alternatively, when they turn fiat currencies into crypto, it’s called “on-ramping.”
Both on-ramps and off-ramps are financial service providers that help execute trades between fiat currencies and digital assets. In addition to crypto exchanges, these include peer-to-peer (P2P) crypto trading platforms, crypto ATMs, and fintech apps that support crypto (e.g., PayPal and Cash App).
Why withdraw crypto?
People need cash for daily purchases and emergency expenses. While every case is unique, most crypto investors choose to withdraw crypto to enjoy the liquidity and relative price stability cash provides. A few countries and businesses accept crypto directly, which means anyone holding crypto needs to first convert it to an accepted form of currency. Although large cryptos like BTC are more liquid, they aren’t as fluid or widely adopted as fiat. Also, the crypto market is well-known for its wild price swings. When transferring crypto to cash, people can easily pay bills or buy groceries without worrying about the extreme volatility of assets. Here are a few of the most common scenarios investors convert their cryptocurrencies into fiat:
- Purchase everyday items: Although some countries like El Salvador accept BTC as legal tender, a few nations and companies accept crypto as payment. But, if you’re looking to purchase from a company that doesn’t support crypto as a payment medium, you first need to off-ramp your chosen tokens.
- Earn profits: During crypto bull markets, it’s common for investors to sell some or all their coins to reap profits.
- Cut losses: Alternatively, some crypto investors may sell their digital assets at a loss if they feel there’s more downward price pressure on the way.
What to consider before withdrawing crypto
Knowing how to convert crypto to cash may seem straightforward, but there are many special price implications to remember. Here’s what you need to know before turning your bitcoins (or altcoins) into cash:
- Transaction fees: Most off-ramps charge fees for processing transactions and issuing withdrawals. Ensure that you know the fee structure on your preferred platform.
- Tax implications: A few countries facilitate crypto trading without paying taxes. If you profited from your crypto investment, you might need to pay long- or short-term capital gains. Alternatively, you may get a tax reduction if you sell Bitcoin or altcoins for a loss. Be sure to track your crypto transactions and seek guidance from tax professionals before withdrawing crypto.
- KYC requirements: To comply with anti-money laundering (AML) and counter-terrorist financing (CTF) laws, crypto off-ramps often ask for personal ID. In addition to sending your name, phone number, and email address, you may need to send a picture of a government-issued ID.
- Compatibility: Remember, not all crypto platforms accept every digital currency––since there are thousands of cryptocurrencies, you need to verify your exchange, P2P site, or ATM accepts your preferred token. Also, be sure the platform you use is licensed to operate in your country and provides your desired fiat currency.
- Security: Crypto projects have fallen victim to many scams and Ponzi schemes in the past, which is why you must use a credible and highly reputable platform.
Now that you know the key things to keep in mind before you begin off-ramping, learn how to do it.
How to off-ramp Bitcoin
In the early history of crypto, it was challenging for traders to find reputable on-ramps and off-ramps for their digital assets. However, as the crypto market cap began to climb, more companies started to offer easy ways to transfer between crypto and cash. Today, traders use these four ways for on-ramping and off-ramping:
Centralized crypto exchanges (CEXs) aren’t the only place where you can off-ramp crypto, but they’re the most common option. CEXs are similar to stock brokerage websites, but they offer crypto assets rather than equities. CEXs have become major trading hubs in the crypto ecosystem since they can seamlessly and legally handle fiat-to-crypto conversions.
In fact, most CEXs employ market makers who supply their exchanges with cryptocurrencies for a smooth trading experience, such as Binance and Coinbase, which tend to have the highest liquidity in the crypto industry.
On the contrary, decentralized crypto exchanges (DEXs) in DeFi (decentralized finance) deal with cryptocurrencies only. While crypto investors can swap their digital assets for stablecoins, they can’t withdraw these digital tokens directly to their bank. Today, crypto investors still need to transfer their stablecoins to a centralized platform to convert them to fiat currencies like the euro or U.S. dollar.
Before the rise of CEXs, P2P websites were the primary way investors engaged in cryptocurrency. Websites like LocalBitcoins.com would allow users to transfer fiat currency for a set amount of BTC while holding the crypto in escrow until each buyer could prove they sent the requested cash to their BTC seller. To this day, many P2P sites like LocalBitcoins and LocalCryptos offer ways to exchange crypto for fiat.
These exchanges also have become popular in countries such as Kenya where traditional ramps don’t service the population well.
Private OTC trading desks
Over-the-counter (OTC) trading desks are virtually identical to P2P trading platforms. Both allow two parties to directly transfer crypto. These desks typically employ an unbiased third-party intermediary for extra trust. However, OTC trading is most closely associated with large institutions or high net worth crypto investors (aka whales).
Many CEXs, such as Gemini, Kraken, and Binance, offer white-glove OTC trading services to accredited clients, which means these companies add an additional layer of security to transactions, ensuring utmost safety. In most cases, there’s a high minimum to execute an OTC trade, and clients may receive reduced fees and price negotiation privileges.
Crypto ATMs are electronic machines that work like traditional ATMs, except they deal with crypto-to-fiat conversions. They’re a convenient option and usually only grant access to a few major cryptocurrencies like Bitcoin, Litecoin, and Ethereum. If you’re depositing crypto to a crypto ATM, scan a QR code to send your crypto and receive your fiat.
Bitcoin ATMs, for example, are becoming an increasingly common site in convenience stores, gas stations, and supermarkets. They require users to already have a self-custodial crypto wallet. Interestingly, roughly 63,000 Bitcoin ATMs exist in the U.S. alone.
How to off-ramp Bitcoin on a debit card
Crypto debit cards have yet to become commonplace, but they’re a viable option for off-ramping. Often, these debit cards link with a CEX account and allow users to spend crypto as they would spend fiat. They manage all crypto conversions on the back end, so the vendor will receive fiat.
Many CEXs like Binance, Coinbase, and Crypto.com offer crypto debit cards in select regions.
How to off-ramp NFTs
NFTs (non-fungible tokens) are cryptocurrencies, but you can’t liquidate them on CEXs as you would BTC or ETH. That’s because each NFT represents a unique blockchain address. Since you can’t trade NFTs one-for-one on the spot market, you need to use an NFT-specific website as an off-ramp.
Similar to sports memorabilia or fine art, traders often put NFTs up for auction on markets like OpenSea, Rarible, or SuperRare. Every NFT market has different policies, but some allow users to receive funds in either crypto or fiat.
Until more nations legalize cryptocurrencies, users will need ways to transfer between digital assets and fiat. Fortunately, there are now many ways to withdraw BTC, ETH, and other altcoins. While regulated CEXs are the most accessible option, P2P platforms, Bitcoin ATMs, and even crypto debit cards are viable alternatives.
At Worldcoin, we hope that everyone will be able to reap Web3’s benefits. To help accelerate the transition toward a trustless crypto economy, we aim to put a share of our crypto in everyone’s hands for free. We’re also airdropping DAI stablecoins to anyone who downloads our app. Subscribe to our YouTube channel to learn more.