Last updated on February 17th, 2022 at 09:53 am.
Bitcoin is one of the rapidly growing industries in the world.
However, it’s not yet recognized as an official means of payment in most countries, despite the rapid growth in value and popularity, as well as recognition by some large IT companies.
This creates at least one serious problem for its owner. That’s the need of converting bitcoin into dollars or any other “real” money before paying for goods and services.
Today, we’ll talk about some crucial aspects of exchanging bitcoin into real money.
We’ll analyze that by using as an example of the conversion of cryptocurrency into US dollars, the most stable and universal means of payment. Just remember that if you convert your cryptocurrency and realize a profit or loss, then it must be reported when you file your taxes as a capital gain or capital loss respectively.
Hopefully, this will fulfill the gap of information on how to exchange bitcoin (or some other crypto money) into real money.
How to Exchange Bitcoin for Real Money?
How Cryptocurrency Works?
Using bitcoin as an example, the ancestor of the entire direction is the easiest and most correct way to consider the general principles of how electronic money works.
It is based on blockchain technology, or a chain of data blocks, that contain records of all confirmed transactions for the transfer of coins from one account to another.
The coins during the exchange do not “turn” into another currency.
They simply go to the crypto wallets of a person or a company that offers to convert bitcoin into dollars, while real money is remitted from a regular bank account.
But let’s go back to the basic technology issue.
Transactions are confirmed automatically. For this, two types of keys are used, including an open key, which represents the number of the wallet from which the payment is made, and a closed one, or a secret digital signature that confirms the user’s intention to make a transaction.
After entering the chain, the data can no longer be changed.
Meanwhile, the up-to-date copy of the blockchain is stored on every device that has access to it.
This is necessary for additional verification of the account balance and the number of funds before making a payment or transfer.
To make sure that users do not manually add a couple or triple of zeros to the number of funds on their wallets, all data in the blockchain is securely encrypted.
Another interesting fact.
Processing data on keys, confirming transactions, inserting them into the blockchain, and several other procedures require huge computing power.
This is where mining comes to the rescue.
Mining is the provision of power from one personal device (computer or server) for operation in a shared distributed computing system that serves the blockchain.
And precisely for the fact that the user makes available his equipment resources, the system pays him a reward – a share of the cryptocurrency.
This is exactly how Bitcoin mining takes place in a fully automatic mode, that is, the gradual replenishment of the miner’s crypto wallet with money that is created “out of thin air”, or generated by the system itself.
Incidentally, a decentralization of the system and the absence of a single regulating body for cryptocurrency prices are considered some of the main advantages of cryptocurrency in general.
Simply because the external factors, such as government orders, spikes in prices for precious metals or oil, simply cannot affect its value.
That’s why an increasingly greater number of people seek to keep their savings in a crypto wallet rather than in a specific bank and then convert cryptocurrency into US dollars or other conventional money in case of necessity.
Exchange Bitcoin: Cryptocurrency Into US Dollars via Credit
Another, but far from the most obvious way to convert BTC to USD is a loan in cryptocurrency. Loans are provided by services within specialized Internet projects.
The way they work may be slightly different.
Firstly, the services are divided into those that work exclusively with cryptocurrency, and those that allow you to convert cryptocurrency into US dollars and other “real” money.
In the first case, by depositing one currency, for example, Ethereum, you can get a certain amount in other coins at a low annual interest rate.
It varies between 8-13% on average, depending on the total amount and term of the loan. You may get your coins back only after returning all of the borrowed funds.
In the second case, fiat money is issued directly against the security of cryptocurrency.
Secondly, they differ in the principles of lending.
- Most of the services work on the P2P principle, that is, they play the role of intermediaries between private investors who are ready to issue a loan from their funds and borrowers who want to convert bitcoins into dollars, euros, pounds, or even rubles. Among the largest such services are BTCpop, Bitbond, Stemfund, and Loanbase.
- Some online platforms extend loans from their account against cryptocurrency collateral. First of all, these are Nebeus, CoinLoan, and Russia’s Cryptobroker.pro. They all work with bitcoins.
By the way, regardless of the principle on which the platform operates, to convert bitcoin into dollars, you will need almost the same list of documents: passport scans, certificates of income and residence, and, in some instances, several other papers.
The disadvantages of this method include:
- the likely denial of a loan in case of non-compliance;
- the need to pay interest on a loan
Exchange Bitcoin: Direct Bitcoin Sales to People
At the very beginning, we mentioned that you can replenish your crypto wallet with the first coins not only by way of mining but also via a simple purchase.
It is logical that this also works “in the opposite direction” – you may convert cryptocurrency into US dollars through direct sale.
On the one hand, it is extremely simple.
It’s enough to agree with the recipient about the amount, make a direct transfer of cryptocurrency from your crypto wallet to the buyer’s wallet, and receive real money from him, in cash or on a card.
The main advantage of this method of exchange is the absence of commissions since transfers between wallets are free from commission fees for most cryptocurrencies.
Besides, it’s not necessary to convert bitcoin into dollars.
Instead, you may immediately request the currency of the country of your location: euros, pounds, rubles, hryvnia, and any other currency, thereby avoiding any losses during the conversion.
However, this conversion method cannot be considered optimal for at least two reasons:
- All obligations between the parties are recorded only in words. If something goes wrong, it will not be possible to recall a transaction in bitcoins, as the payment processing algorithm is simply devoid of this function.
- Beginners may find it hard to find someone from their team who would like to buy coins for real money, while it is not safe to convert cryptocurrency into US dollars through unfamiliar people in the network.
Bitcoin into Dollars Through Special Exchanges
The largest cryptocurrency exchanges like Binance allow not only trade in coins of different types, but also a conversion of cryptocurrencies into US dollars and other fiat money.
True, such withdrawal is often possible not for all cryptocurrencies, but only for the most basic ones, such as BTC, ETH, or XRP.
In other cases, you will first have to convert the altcoin into one of the main types of currency and only then exchange the coins for real money.
For greater convenience, exchanges often provide direct links to partner services where you can exchange less popular currencies.
There is also an alternative option, which is access to the exchange through a broker, who can also take on the conversion.
It would seem that this is the ideal option to convert bitcoin into dollars, given that it is the exchange that plays a decisive role in the turnover of any cryptocurrency.
But not everything is so simple, as any exchange takes a commission for deposit operations or, more often, for withdrawals, and the smaller the exchange itself, the higher the amount of the fee.
Also, each intermediary takes its conversion fee, which may have a significant impact on the final amount.
Today, some of the mentioned cryptocurrency methods already allow you not only conveniently convert or exchange bitcoin into dollars and vice versa, but also use it directly as a means of payment for goods and services.
However, the issue of the optimal conversion of cryptocurrency into US dollars will lose its relevance only when the virtual coins are put on a par with conventional notes, familiar to most people.