To exchange fiat currency for cryptocurrency, you need an exchange with a fiat gateway. This gateway allows you to deposit fiat currency through bank transfer, credit/debit card payment or wallets.
What is “fiat” or “fiat currency”?
A fiat currency is a government-issued currency whose value is not tied to any physical commodity like gold or silver. Since Nixon took the USD off the gold standard in the 1970s, all leading currencies are fiat currencies.
The value of a fiat currency is solely determined by the supply of and demand for that fiat currency, the supply being defined by the “money printing” decisions of the issuing central bank.
By the way, the term “fiat” comes from latin word “facere”, meaning to “let it be done” or “it shall be done”, referring to the fact that it cannot be redeemed or converted (but exchanged!).
What is a fiat gateway?
The term “gateway” simply describes a connection between two worlds or spheres. Hence, a fiat gateway would better be called “crypto-fiat-gateway”. It connects the fiat world with the crypto-world. It allows the exchange of fiat currency to cryptocurrency and vice-versa.
For newcomers, the fiat gateway is the entrance gate to the crypto-world. If you have never bought crypto before, you will have to use fiat to buy crypto via a fiat gateway. Many, but not all crypto exchanges, do have fiat gateways (others only allow the deposit of crypto funds like BTC or ETH).
For the provision of the fiat gateway, exchanges usually charge some fee, most commonly a certain percentage of the money transferred. The exchange fee can differ depending on the exchange, the (fiat) currency and the deposit method used.
Ways to buy crypto via fiat gateway
In order to deposit fiat and exchange it for cryptocurrency, you basically have three different options: bank transfer, debit/credit card payment, Bitcoin ATMs.
- Bank deposit.
The most common way to use a fiat gateway is to make a bank transfer to a crypto exchange. Practically all regulated exchanges have classical bank accounts. Once your fiat deposit arrives on their bank account, you will get the bought amount of crypto (with the exchange rate being determined at the time of placing the order!) sent into your respective crypto wallet.
In the Euro zone bank transfers use the SEPA system and are usually free. Outside of the Eurozone, the SWIFT system is used, usually incurring some fees. SEPA transfers are the cheapest option to buy crypto with fiat.
- Credit/debit card payment
Offered by payment providers, debit or credit card purchase of crypto for fiat is the most convenient and instant way of buying crypto. It can be done directly in a crypto app or desktop platform of the exchange by entering the debit or credit card information (card number and CVV code). As payment providers act as intermediaries and incur costs they have to recover through a commission, credit/debit card payments are more expensive than crypto purchase via bank transfer.
- Bitcoin ATMs
Taking your debit card to the ATM and buying Bitcoin? This is possible – at crypto ATMs. Better known as Bitcoin ATMs, these special ATMs allow you to buy Bitcoin directly from your debit card. They are run by intermediaries who charge commission for processing the debit card payment. The BTC are bought immediately and sent directly to a wallet address created in the process to which only you have access. Unfortunately, Bitcoin ATMs are currently only available in big cities and quite rare.