Paying with Cryptocurrencies in 2021

April 12, 2021

I thought I’d pay a friend with Dogecoin instead of the typical Vemno / Cash App I’ve been using for payments between people for the past few years. Dogecoin is everywhere, Elon tweets about it monthly. I’ve been hacking around with bitcoin and cryptocurrencies since pretty early on in 2011 just before Bitcoin broke $1. I remember thinking it would never break a dollar per coin! That would be nuts. The majority of people back then thought it was technically cool but the price would never hold. Woops.

While it was easiest to join a mining pool or wait under a bitcoin faucet back then to get a few bitcoin, those days are long past. I don’t own a GPU farm so don’t plan on getting any useful amount of bitcoin by mining it. So how to get Dogecoin today? I’ve had a Coinbase account for a long time so thought I’d jump on there first. Nope, no support for buying Dogecoin on Coinbase. So after searching around a bit, it looks like Kraken and Binance do support it. Easy!

I get on my Kraken account, do a pile of rediculous verification steps like scanning my drivers license and uploading my fucking bank account information. This was always one of the big turn offs for using exchanges many years back. I’d be trusting these random sites with my social security number, drivers license, and banking details. Obsurd. I thought cryptocurrencies had something to do with privacy? Well maybe just not at this part or maybe I’m just doing it wrong. So up goes my personal data into the Kraken. Now Dogecoin time?

Nope, Kraken doesn’t do ACH transfers in the US. So I can’t get money into Kraken to buy my coins.

Ok, I decide to try Binance. Head to Binance and log in, but binance.com accounts cannot be created in the US. Oh silly me, I need to use binance.us not binance.com. Cool, so on to binance.us, create an account, give them all my personal data, and I’m in! They do support ACH so I bring in some USD to buy my Dogecoin. ACH is free to deposit, things are looking good. I go to buy the Doge and hit a 0.5% fee on the purchase. What is this? I’m trying to pay with an alternative to free Venmo or Square Cash. And I’m hit with a 0.5% fee? I can’t belive it! Again I thought one of the points of cryptocurrency was that we would have simple digital transactions for almost negligable fees. It hasn’t been simple so far, and 0.5% isn’t negligable. I won’t pay it!

Back to Coinbase. I’ll buy Bitcoin and transfer it to Kraken then convert Bitcoin to Dogecoin. Another 0.5% purchase fee from Coinbase Pro. I guess this is why Coinbase is headed to IPO at up to $100 billion dollar valuation. Good for them but I am so far annoyed at these fees. I’m too annoyed to buy any and still going to try to be cheap and free about this.

BUSD? USDC?

BUSD (Binance USD) is a stablecoin ‘fully backed’ buy US dollars. 1 BUSD = $1 US Dollar. This seems interesting beause apparently I can convert 1:1 for dollars to get BUSD. I get back on Binance.us and try this out. No, it turns out the 1:1 conversion is actually only for PAX, USDC and TUSD into BUSD. If I want to buy with dollars, I’m back on the exchange, and back at my 0.5% fee. Blocked again, but what is this USDC? Can I get some of that then do a 1:1 exchange? Yes! Coinbase does a 1:1 exchange of ACH transfered US Dollars into USDC, which is Coinbase’s stablecoin created by them and Circle. Done, ACH US Dollars transfered into Coinbase Pro, then convered to USDC. Now in the US I could just transfer the USDC directly. But I’m trying to pay someone in a country not support by Coinbase. So I need to get my coins into BUSD. No problem, I’ll send my USDC to my Binance.us account, then 1:1 convert to BUSD. I go to make the transaction. Bam. Pow. Blocked first by what I see is a $12 network fee. Ouch, this is the cost in gas to move something on the ERC20 network. Comeon ethereum! The NFTs are really flowing and this network has massive price flucuations. I looked a few hours later and saw the fee was down to $4. This is a little more reasonable. I think this is how I would move thousands of dollars around if I had that need. But to pay even $4 to move a few dollars is of course, insane. Not going to work this transfer of $50. And then the pow to that initial bam? I can’t withdraw funds for 5 days until the ACH clears. Of course, I’m still dealing with the absurd transfer times of the old ACH system. So even if I was ok with the fees, I technically can’t even move these coins until I’ve waited. Good lesson to always have crypto in the bank? This is not a fast or easy process to move into crypto.

BACK TO DOGE

Ok so this is where I have to cheat a little, I have some old bitcoin laying around in my Coinbase account. I’m going back to plan Doge! But this time, I’ll use my old bitcoin which isn’t locked in ACH jail. I transfer it to Kraken. I convert it on Kraken from Bitcoin to Dogecoin. I transfer the Dogecoin! Success! At this point I just needed to achieve my objective, so I had to eat all of the network and conversion fees that came along with that process.

This is the cost and process breakdown in the end (adding in the assumed purchase of Bitcoin on Coinbase):

$0.25 fee for $50 US Dollars to Bitcoin with 0.5% fee on Coinbase
$1.47 Bitcoin network fee for sending between BTC addresses from Coinbase to Kraken
$0.83 conversion fee on Kraken for BTC to Doge
$0.12 for Doge TO Friend on Kraken (2 Doge)

Total = $2.67

The most impressive part here is the Doge network fees! If you could get your hands a shit load of Doge, the 2 Doge transfer fee is the orginal dream! A few cents per transaction is totally acceptable to keep the network running. But $2.67, a 5.3% tax, is pretty terrible and worse than the excessive 3% credit card fees in ye olde tech finance.

Easiest and cheapest way to pay with cryptocurrency

Like all good things, it depends on your situation. The 0.5% purchase fee for direct usage is going to win at lower dollar amounts, but you need to get your dollars into an exchange with low Doge tranfer fees. While Binance.us was the easiest way I found find to directly buy Doge, they offer a fat 50 Doge transfer fee to move Dogecoins, unlike Kraken’s 2 Doge transfer fee. With an ACH transfer for free (plus waiting 5-10 days), then 0.5% purchase fee, and 50 Doge transfer fee to another address, this turned pretty ugly for Binance.us. It will still work in your favor for lower dollar amounts.

USDC on Coinbase or BUSD on Binance, with the Ethereum gas transfer fees, will certianly work out better for larger dollar amounts because of the avoided 0.5% fee on purchase. You’ll only pay gas. The gas fees do drop below a few dollars at certain times, and the dream is that ETH2 and proof of stake will really drop things.

The story with USDC gets really great if your transfer is to someone else on Coinbase. You should be able to run the entire process for free. Transfer into USDC on Coinbase, move USDC for free and without gas fees over the Coinbase network to another Coinbase user, then move back out of USDC into USD from Coinbase. You can even pay rent for free with cryptocurrency with this technique! This all feels pretty amazing and shows another reason Coinbase is likely to become even more valuable than it is today.



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