During the last couple of years, the popularity of Bitcoin and other Cryptocurrencies has increased considerably, given the large trading volume, capital invested, public interest, and of course supply and demand laws.
With Bitcoin seeing all time highs of over $17,00 at the time of writing ( 12th December 2017 ), chances are that you are considering the idea of either purchasing goods or withdrawing some of the coins that you might have. This is often where new users run into trouble, as there are multiple ways to go about this and people may worry about cashing out large sums of money and want to make sure everything is safe and secure.
Therefore, in this article, we will cover three of the main methods that you can use to withdraw your bitcoin into Fiat currency (or your local cash). These have been generally referred to as the safest and least-costly methods of exchanging your digital currencies into your government-issued currency.
What is Fiat ?
Before we go on, we just wanted to clear up exactly what we mean when we say “Fiat” or “Fiat Currency”. Fiat is currency which is issued by a government but which is not backed by a physical commodity.
The value of fiat money is derived from the relationship between supply and demand rather than the value of the material that the money is made of. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on the faith and credit of the economy.
Definition via Investopedia.
Fiat is seen as risky because it suffers from inflation, when a government decided to “print” more of a Fiat currency, the value of everyone’s money goes down as a result. This is the exact opposite of what Cryptocurrencies aimed to solve.
Cryptocurrency exchanges are the most popular method of exchanging BTC & other currencies into Fiat at this time. While most impose certain limitations on how much you can exchange without a verification, they represent a great choice for those who are just starting out and not withdrawing large amounts. The process is fairly simple, even for novice users.
Once you have created an account, you will have to link it with either a debit/credit card, or a bank account. Afterwards, simply deposit how much BTC you’d like to exchange from your address, choose the currency of choice, and click on exchange. The process can take anywhere between a few minutes to a couple of days, depending on the exchange that you have picked and your bank/card provider.
Coinbase is one of the easiest and safest exchanges to withdraw your cryptocurrencies from, read our review to find out more.
Most exchanges offer affordable fees, yet there are certain disadvantages associated with them as well. The main one is that you cannot get instant access to the funds that you have exchanged. Therefore, if you are in need of money urgently, chances are that you may have to wait a couple of business days before the bank processes the amount and credits it into your account. Once the amount has been exchanged and delivered to the user accounts, bitcoin owners can simply withdraw via an ATM with the use of their cards, or directly from the bank teller.
Services such as LocalBitcoins.com
Services like LocalBitcoins.com strive to create a P2P marketplace, where those who are interested in either purchasing or selling digital currencies, can do so from other people. Most services like these are escrow-based and offer transparent fees, therefore trust issues are basically non-existent.
LocalBitcoins.com serves as an intermediary between the buyer and the seller. Both parts of the arrangement can choose how they’d like to meet and how they would like to transfer the funds in question. From personal meetings where cash and digital currencies are exchanged, to gift cards, Western Union and other methods, anything is possible.
Bitcoin prepaid cards
Bitcoin prepaid, or debit cards have been around for a while. Many believe that these are one of the best ways of exchanging your digital currency into cash, given the wide variety of benefits that they offer. Based on this aspect, bitcoin prepaid cards are normal cards, generally issued by Visa or MasterCard which can be funded via BTC or other currencies.
While the process of getting your own card takes a bit longer when compared to bitcoin exchanges, or local exchange services, they offer numerous advantages, such as: the ability to pay at any POS system, cashing out at worldwide ATMs, instant conversion from BTC to fiat such as USD/EUR/GBP and more. Some of the other benefits include low commissions, free delivery, chip and PIN support, transparent fees and more.
It is important to point out that bitcoin prepaid cards are only accepted in certain countries, and if the provider doesn’t accept your country’s native currency, you’ll have to pay a conversion fee from USD/EUR to your national currency.
Most of the times, getting your very own prepaid card requires users to go through a verification process. With this in mind, users will have to submit a government-issued ID alongside with a proof of address. Generally, there are limits to how much you can withdraw/spend, yet these can be lifted after more thorough customer verification, as per Know Your Customer (KYC) policies, meant to avoid illegal financing or money laundering.
However, in the long run, if you are an avid digital currency owner and user, then prepaid cards may turn out to be the best choice, given the instant withdrawals, the ability to easily top up your account and the fact that you don’t have to wait for days before your BTC is converted in fiat, thus also losing out on positive volatility.
Crypto Loans: You Might Not Need to Cash Out
Since this article was published, there are a number of new companies which will allow you to take out loans and use your cryptocurrency holdings as collateral. They work like so – you deposit your currency into a smart contract where it will be held and you receive Fiat currency to your bank account and you can pay back the loan as and when you need to. This is a nice new option open to people for two reasons – it avoids a taxable event, you are taking out a loan not selling your currency. The other benefit is that it hedges you against rises in the price of your cryptos, with Bitcoin and Ethereum predicted to rise to new levels within the next year, you will not miss out on any potential price rises as they still remain your property.
Paying Your Taxes
It should be noted that in most countries, when you actually withdraw your cryptocurrency to Fiat, you will be creating a “taxable event” so you should be prepared to pay the tax owed under your local laws. Many countries differ on how they handle this, some are completely tax free, others use the Capital Gains model. The amount of time you have held the currency may also matter, making the difference between short-term and long-term Capital Gains.
We have put together a cryptocurrency tax guide to give you an idea of your countries law, it should be noted of course that the best thing is to speak to an accountant in your country which is well versed in crypto taxes as some laws can be vague and you do not want to fall foul of the applicable laws.
Regardless of the withdrawal method that you end up choosing, it is important to carry out your independent research to learn more about the service provider. Do this by reading its terms and conditions, learning more about its fees and reading client reviews. This will help you make a more educated choice, while also keeping your coins, personal information, and cash safe at all times.
From time to time, users may stumble upon companies or individuals advertising services such as ‘Bitcoin to PayPal’, ‘Bitcoin to Cash’ and more. It’s best to conduct exchanges through a certified platform, as this will surely reduce the risk. Last but not least, when exchanging via another service, always use an escrow. Most providers are inexpensive and they act as a great guarantee in case the other person is only after your money and doesn’t intend to carry out a fair trade.