Funding Methods

Funding Methods

05:06 04/29/2021

Introduction

When looking into joining a new exchange there are quite a few things that can make or break your experience. Whether it is the amount of coins available, trading fees, or customer service, the one thing that all exchanges have in common is funding methods. In this article we will review some of the most common funding method types such as Crypto-to-Crypto, ACH and wire transfer. Not a lot of people know what an ACH transfer is or what a wire transfer is, most people use them without even knowing what they are. From the world of banking to the world of cryptocurrency, let's talk about some key funding methods that might help you understand the world of monetary transfers.

Let's start off with cryptocurrency transfer methods. You will buy cryptocurrency on one exchange and then fund a separate exchange by transferring that cryptocurrency to the new exchange. This is done quite commonly and for many reasons. Almost all cryptocurrency exchanges have purchase fees, transfer fees, and trading fees. The purchase fee on exchange 1 may be significantly lower than exchange 2. The purchase fee on exchange 2 may be higher, but the trading fee may be much lower than on exchange 1. This allows you to purchase cryptocurrency at a low fee, and then after you make the transfer, trade at a lower fee on a different exchange. All in all, you spend less to buy and trade cryptocurrency.

Automated Clearing House or ACH transfers are different because they are typically between your bank and your cryptocurrency exchange as opposed to a crypto wallet transfer (between wallets hosted by different exchanges). A good example of an ACH transfer is when your employer pays you via direct deposit. Another example is bank-to-bank transfers such as moving funds from one bank account to another. ACH transfers are also typically more direct since they run through an automated clearing house instead of through a card service such as Visa or MasterCard. ACH transfers are also internal only to the United States.

Wire transfers are similar to ACH but operate worldwide. Submitting a wire transfer may also be your only option in some cases due to the fact that wire transfers are almost immediate in most cases. This could be helpful in situations where you are buying a new car or house. Wire transfers operate through networks such as SWIFT or FEDWIRE and are a Bank-To-Bank transfer option. This type of transfer may be helpful when moving your money from one bank to another, or transferring money out of the country. Many cryptocurrency exchanges operate outside the United States and require a wire transfer and not an ACH transfer.

AML & KYC

You may have seen the notice to get verified on various exchanges before funding your account or before trading. This is due to various laws in the United States and elsewhere around the globe. Let's take a second and learn about AML and KYC and what they mean for you.

AML also known as Anti-Money Laundering is a set of regulations and laws that are designed to prevent money laundering or other illegal practices. Money laundering is the act of transferring your money through several steps to make it seem like the money has come from a legitimate source. Cryptocurrency, specifically Bitcoin, has caused some waves in the past when it was used to purchase illegal substances and launder money. Bitcoin has come a long way, but has since put cryptocurrency as a whole under watch by many forms of government.

KYC or Know Your Customer policies are used to support AML laws. KYC allows your exchange and your bank to know exactly who you are and what transactions you are making. The following forms of identification may be required to verify your KYC request:

Identity documents

  • Photo ID document issued by government
  • Passport
  • Driver’s License
  • Voter identification card
  • Permanent Account Number (PAN) card
  • Social security Number

Proof of Address

  • Utility bill
  • Rental agreement
  • Recent bank statement

Many cryptocurrency exchanges do not require you to fill out KYC or AML forms when signing up, but instead, sign them after you have registered. The act of signing these forms after registration is typically called a verification process. This is due to the fact that cryptocurrency was built to be anonymous, and many exchanges are hesitant to move away from that. Legally, KYC is required for transactions as small as a few hundred dollars up to hundreds of thousands of dollars. This means that you can oftentimes get away with sharing less information if you won't be trading at a larger scale, hence the different verification levels many exchanges use.

Questions From Our Community

If cryptocurrency is supposed to be anonymous, why do we have to verify with AML and KYC?

Sending and receiving cryptocurrency is and can be anonymous but when the transfers involve your bank, your bank sets some precautions. AML and KYC also fall in line with federal laws regarding cryptocurrency and money laundering.

Your cryptocurrency exchange typically initiates a transfer and oftentimes will use a middle man such as a service called Plaid in order to securely link both entities.

Summary

Anti-Money Laundering and Know Your Customer policies are here to stay. Knowing how to fund your account is just as important as knowing how to actually perform trades on cryptocurrency. We hope that you have learned something new reading this article.

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