Transaction limits and understanding why they are important

So you successfully bought crypto and now you want to buy more but you have hit your transaction limit. Why can’t you buy more? There are a variety of reasons for transaction limits, mainly to limit fraudulent transactions but also to comply with regulatory requirements. Let's break this down. 

Credit card, bank account information, social security numbers and IDs are stolen every day. Cryptocurrency isn’t the only place that fraudsters transact, but measures can be taken to ease the financial burden if this happens. Simply put, transaction limits can be put into place to prevent fraudsters from draining victims' bank accounts. 

Certain laws and regulations often require financial institutions to verify the identity of their customers (KYC) and to report suspicious activity, such as unusual or larger amounts of transactions. In order to comply with anti-money laundering (AML) laws or KYC requirements, setting transaction limits can help ensure certain requirements are met. 

Other scenarios include preventing huge transactions from manipulating the markets, affecting platform liquidity, or even for a better user experience by preventing delays in larger transaction amounts that require manual handling.

What is a smart contract?

Smart contracts are simply coded instructions involving documentation on the blockchain network. Just like any contract, there are terms and smart contracts have blockchain technology to enforce and document. As we all know, the blockchain is permanent and cannot be erased. 

Here is a non-technical example of what a smart contract could look like: 

“I will mow your lawn every week for the next month for $20. If I do not mow your lawn, you do not have to pay me. But if I do mow your lawn, you will pay me $20 every week it is completed during the month. This contract will be enforced and documented on the blockchain”

In this example, the smart contract will make sure that the person mowing the lawn gets paid each week they complete mowing and ensure the contract ends at the end of the month. 

Smart contracts can be created without the need for intermediaries such as lawyers. This can be useful to facilitate multiple transactions within real estate, purchases, supply chain management, financial management, healthcare, government and so much more. Smart contracts do not have to be complicated. They can be as simple as winning first place in a game and being awarded a trophy. Odds are, if you are active in the crypto community, you have encountered a smart contract without even realizing it. 

What is a crypto wallet and what does “custody” mean?

To understand custody, we have to start with defining a cryptocurrency wallet and what seed keys are. First, wallets are digital tools that allow us to store, send, and receive digital assets. There are many different types of cryptocurrency wallets available which I have listed below. Attached to your wallet is your wallet address. Think of this as a type of routing number. You need to know your wallet address so you and others can send you digital assets. In order to access your wallet, you are given a seed key (also known as a private key). These are randomly generated words in a certain order. Never give away this information as this is the code to access your wallet. You’ll never be asked for your seed key and if you are, run! This is definitely an attempted hack. 

• Hardware Wallets: these are physical devices that store the users private keys. These wallets are considered to be one of the most secure types of wallets since they are offline and are not vulnerable to cyber attacks. Although, if you lose your hardware wallet, those funds are also lost. Popular hardware wallets include Ledger and Tezor. 

• Software Wallets: These are digital wallets that are stored on a user’s computer or mobile device. There are two types of software wallets: 

• Hot wallets are connected to the internet and typically used to connect to other crypto platforms exchanges or NFT marketplaces. Hot wallets are most susceptible to hack attacks and thus it is recommended to only keep a small amount of crypto balances in these types of wallets. Examples of popular hot wallets include: Coinbase, Metamask and Phantom.

• Cold wallets are offline and because of this are more secure. While more secure than hot wallets, they are still susceptible to cyber and malware attacks because they are kept on a digital device. Examples of popular cold wallets include: Electrum, Armory and Copay. 

• Paper Wallets: It is very rare to come across paper wallets as this is an outdated form of holding cryptocurrency. For the sake of education, paper wallets are exactly what the name implies. It's a piece of paper with the public and private key printed on it. While not necessarily vulnerable to cyber attacks, if any one gets their hands on it, consider those funds long gone. 

• Custodial Wallets: These types of wallets are managed by third parties. They hold your seed (private) key. Software wallets can be custodial wallets and are typically found on exchanges. These are convenient for beginners because you do not have to manage your seed or private key information however, they are less secure because the third party holder technically controls your funds so you are relying on them to secure your key information and not freeze your funds. 

There are many different types of cryptocurrency wallets available. Choosing the right wallet will depend on your own preference and level of experience with cryptocurrencies.

What's a market cap and why should I pay attention to it?

The market cap, short for market capitalization, is a measurement that represents the market value of the cryptocurrency. It is a useful metric in determining the demand and movement of different crypto currencies. A larger market cap is considered a healthy thriving currency, whereas a low one would indicate low success. Market cap is calculated by multiplying the total number of coins or tokens in circulation by the current price of a single unit. So if a cryptocurrency has 10 million single coins in circulation at a $10 price point each, we know the market cap would be $100 million. Not surprisingly, both Bitcoin and Ethereum typically take the first and second place spots for the highest cryptocurrency marketcaps. Coinmarketcap.com is a great place to start your research!

How long does it take for a transaction to complete? ACH, Credit Card, Debit Card and Wire Transfers

Who realized how many different payment options there were? Lets focus on the most common methods including credit cards, debit cards, ACH transfers, and wire transfers. Each of these payment methods has its own unique flow of funds including how long it takes for the transaction to be processed. Here are a breakdown of payment methods

• Credit card transactions are typically processed almost instantly, with funds being transferred from the cardholder's account to the merchant's account within a few seconds. However, the actual settlement of the transaction may show as pending on the bank statement and take a few days to complete. You can expect to receive your cryptocurrency in a matter of seconds.

• Debit card transactions are generally processed more quickly than credit card transactions, as the funds are transferred directly from the cardholder's bank account to the merchant's account. This means that the settlement process is usually completed within a day or two but can take up to five business days. You can expect to receive your cryptocurrency when the transaction has completed on your bank statement. 

• ACH transfers, which are electronic payments made through the Automated Clearing House (ACH) network, can take a few days to process, typically 3 to 5 business days. This is because ACH transactions typically involve multiple intermediary financial institutions. ACH transfers are often used for recurring payments, such as utility bills or mortgage payments, and are generally considered to be a secure and convenient payment method. You can expect to receive your cryptocurrency within 3 to 5 business days once the transaction has completed. 

• Instant ACH transactions can still take a few days to process on your bank statement, but cryptocurrency is delivered instantly to your wallet. 

• Wire transfers are another option for making payment transactions. These are typically used for large or time-sensitive payments and involve the transfer of funds from one bank account to another, often internationally. Wire transfers can take a few minutes to several days to process, depending on the parties involved and any intermediate financial institutions that are involved in the transaction. You can expect to receive your cryptocurrency once the transaction status has completed. 

In general, it's always a good idea to check with your financial institution or payment provider to get a sense of how long a particular transaction is likely to take to process. Remember, banks are only open on weekdays also known as “business days”, Monday - Friday and do not transact on federal or bank holidays. For a list of bank holidays, the Chicago Bank website is a great reference: https://www.chicagofed.org/utilities/about-us/bank-holidays

Why wont my bank approve my cryptocurrency transaction?

One of the main reasons banks block cryptocurrency transactions is because they are concerned about the potential risks associated with these transactions. Cryptocurrencies are relatively new and are not yet fully regulated, which means that they may be vulnerable to fraud, money laundering, and other financial crimes. Banks are responsible for safeguarding the assets of their customers, and they may be hesitant to allow transactions that could potentially expose their customers to these risks.

Another reason banks may block cryptocurrency transactions is because they are unsure about how to handle these transactions from a regulatory perspective. Cryptocurrencies are not yet fully understood by many regulatory bodies, and banks may be unsure about how to comply with the relevant regulations when processing these transactions.

Finally, banks may also be concerned about the volatility of cryptocurrencies. The prices of cryptocurrencies can fluctuate significantly over short periods of time, which means that a bank may be exposed to significant risks if it allows its customers to make large cryptocurrency transactions.

Overall, the decision to block cryptocurrency transactions is often driven by the banks' concerns about risk, regulatory compliance, and volatility. While these concerns are understandable, it is important for banks to stay informed about the evolving landscape of cryptocurrencies and to find ways to safely and responsibly serve their customers who wish to make these types of transactions.

If your transaction has been declined, the first step is reaching out to your bank to confirm you made the purchase. In some instances they will unblock the merchant and allow the transaction to be approved. Some banks might even temporarily block your card until you approve the transaction. Be advised, this might be the steps you have to take for each cryptocurrency transaction but it is in your best interest as banks are doing this to protect you and your funds.

Centralized and Decentralized: Breaking Down the Difference

An easy way to remember the difference between Centralized and Decentralized is to break these down into simpler terms. Centralized meaning, targeted or concentrated and decentralized meaning spread out. Let’s take a closer look.

A decentralized platform (also referred to as DeFi), means it is not controlled by a single entity. Control is spread out and reliant upon a network of computers to verify and record the transactions. Defi is the crux of web3 as it is not necessarily controlled or influenced by any central authority, such as a bank or the federal reserve. 

A centralized platform is controlled by a single entity. This entity has the power to make decisions and has total control over their operations. These platforms are more vulnerable to censorship, interference and control along with being subject to government oversight. That’s not necessarily a bad thing! 

Choosing what type of platform to use depends upon your web3 experience level and the level of convenience you are looking for. Always do your research before participating.

Blockchain Technology: What’s the difference between a swap and a bridge?

I know a swap and bridge sound the same, but I promise they are technically different. At a high level, cryptocurrency swaps allow users to exchange one type of currency for another, while cryptocurrency bridges allow users to transfer tokens or coins from one blockchain to another. Think of it as jumping from train to train (swaps) or being on a train that jumps to different tracks (bridge). Let's dive in a bit further.

Blockchain cryptocurrency swaps allow users to exchange one type or cryptocurrency for another without the need to first exchange the coins for fiat currency. These swaps can be facilitated by decentralized exchanges (DEXs), which operate on a blockchain, or by centralized exchanges that offer swap services. A simple example of this could be buying Bitcoin with Ethereum. 

Cryptocurrency bridges, on the other hand, allow users to transfer tokens or coins from one blockchain to another. For example, a user might have Bitcoin and want to interact with a decentralized application (DApp) that is on the Ethereum blockchain. They can use a bridge to exchange Bitcoin into Wrapped Bitcoin so it is compatible on the Ethereum rails. In this case, they can use a bridge to facilitate the transfer. Here is a break down of different types of bridges: 

• Centralized bridges: These are operated by a centralized entity and require users to trust the operator to securely facilitate the transfer of their assets.

• Decentralized bridges: These are operated by a decentralized network of nodes and do not require users to trust a single entity to facilitate the transfer of their assets.

• Automated market maker (AMM) bridges: These are decentralized bridges that use an AMM to facilitate the transfer of assets between blockchains.

All in all, both types of exchanges can be useful for those looking to diversify their cryptocurrency holding or take advantage of different blockchain platforms.

Know your Customer (KYC) and Know your Business (KYB): Why it is important

KYC and KYB are both common phrases you will come across in the cryptocurrency world. Ever wonder why you need to submit a picture of your driver's license or ID? It’s to complete the KYC process. 

KYC is a process that financial institutions and other regulated entities use to verify the identity of their customers. The verification process is used to assess the customer's potential risks for money laundering or financing terrorism. Completing KYC typically involves collecting information about the customer's identity, such as their name, address, date of birth, social security number, and a photo of identifying documents (driver's license or passport). Depending on the situation, KYC can include details of a customer's financial history and potential sources of funds. Depending on what types of platforms you are using, you might be issued tax forms to file at the end of year as well. 

KYB, on the other hand, is a process that involves verifying the background of a business and its activities. This can include checking the business's registration and incorporation documents, as well as assessing the business's operations and financials to ensure that they are in compliance with relevant laws and regulations.

Both KYC and KYB are important for protecting the platform's users. These are proactive steps in preventing financial crimes and maintaining compliance with regulations.

A quick recap: while KYC focuses on verifying the identity of individual clients, KYB focuses on verifying the legitimacy of businesses. Financial institutions and other regulated entities typically use both processes to ensure that they are doing business with trustworthy customers and partners.

Common Fees Associated with Cryptocurrency Transactions:

Ever confused about the fees associated with a cryptocurrency purchase? Here is a rundown of the fees that are commonly shown at checkout. Keep in mind, depending on the type of transaction you are initiating, you may or may not see these fees in the total price breakdown.

1. Trading fees: When purchasing cryptocurrency on an exchange, the customer may be charged a trading fee by the exchange. This fee is typically a percentage of the total transaction value and is used to cover the costs of operating the exchange and providing liquidity.

2. Network fees also known as Gas Fees or Transaction Fees: Some cryptocurrencies, such as Bitcoin and Ethereum, charge a fee for each transaction that is processed on their network. This fee is paid to the miners who validate the transaction and is typically a small fraction of the total transaction value.

3. Conversion fees: If the customer is using a service to convert their fiat currency (such as US dollars) into cryptocurrency, they may be charged a conversion fee by the service provider. This fee is typically a percentage of the total transaction value and is used to cover the costs of processing the conversion.

4. Withdrawal fees: When withdrawing cryptocurrency from an exchange or wallet, the customer may be charged a withdrawal fee by the exchange or wallet provider. This fee is typically a small fixed amount and is used to cover the costs of processing the withdrawal.

5. Exchange rate fees: Some services that facilitate the purchase of cryptocurrency may charge a fee to account for the difference between the exchange rate they offer and the current market rate. This fee is typically a percentage of the total transaction value and it is used to cover the costs of providing the service.

It is important for customers to be educated and aware of these fees when purchasing cryptocurrency, as they can add up and significantly impact the total cost of the transaction.