What Is Swap in Cryptocurrency? A Beginners Guide

Swap is a commonly-used term in the cryptocurrency realm. People do it to prevent or cut losses, build an asset portfolio, avail of something that accepts different crypto, and more. However, if you don’t understand how it actually works, we’ll discuss all things crypto swapping in this article to also help you make the most out of this feature.

What Is Swap?

In crypto, swap refers to the process of directly converting a specific currency to its equivalent value in another currency, whether it’s crypto to crypto, crypto to fiat (e.g., U.S. Dollar and Euro), or fiat to crypto

How Does Swapping Work in Crypto?

Unlike the traditional method of exchanging crypto assets, when swapping crypto, you don’t have to deal with any intermediary in the process. For instance, you can directly swap Bitcoin (BTC) for Polygon (MATIC) without using U.S. Dollar or even a stablecoin in between. In addition, swapping usually just takes a few steps, although the actual process may vary depending on the platform you use.

Which Platform Can I Use to Swap Crypto?

There are various platforms available for swapping crypto. These include crypto payment apps like Kasta, crypto exchanges, crypto swapping sites, some financial technology (FinTech) platforms, and more.

What’s the Difference Between Crypto Swap and Exchange?

Some individuals use crypto swapping and crypto exchange interchangeably but they’re not the same. The former allows you to directly convert two types of currencies based on their equivalent values, while the latter allows you to buy and sell crypto at your designated price.

What About Swap Trade?

A lot of users ask about swap trading, but the truth is it doesn’t exist. Again, swapping is different from trading as the main purpose of the swapping is to directly switch from one currency to another, while for trading, it’s to increase earnings.

How to Swap Crypto in Detail

Here’s the step-by-step guide on how you can conveniently swap crypto, using the Kasta app’s Swap feature as an example:

  1.   Log in on the app.
  2.   Search for the crypto you’d like to swap and tap. For instance, BTC.
  3.   Tap the Swap icon.
  4.   Choose the currency you’d like to swap BTC for. For instance, Tether (USDT).
  5.   Enter how much BTC you’d like to swap for USDT.
  6.   Finish the swap by entering your pin code.
  7.   That’s it! Your USDT will reflect in your wallet in a few seconds.

How Much Does Crypto Swapping Cost?

It depends on which platform you use. In the Kasta app, for example, it depends on whether you’ve locked up $KASTA tokens in the app or not. Users who lock up tokens in the app enjoy lower swap rates.

How Long Will It Take to See the Converted Assets?

Again, it depends on the platform you use. For some platforms, it only takes several seconds, while some take a few hours.

Are Swap Fees Tax Deductible?

If your country requires you to declare crypto sales, income, payments, and conversions for taxation purposes, then swap fees are most likely tax deductible. This means the swapping fees you pay can be deducted from the taxable sale price of your crypto gains.

To elaborate, for example, Karen bought MATIC for $5,000 and paid a transaction fee of $50, making her capital $5,050 in total. The value of her MATIC increased by 8% (+$400) in three weeks, so she decided to swap it for the stablecoin USDT to maintain her gains. She used the Kasta app to swap $5,400 worth of MATIC for USDT and paid 2% worth of swap fee or $108.

Having said that, if your swap fees are tax deductible, you can subtract the swap fee ($108) and the transaction fee of buying MATIC ($50) from your capital gains ($400). With that, the taxable capital gain now for Karen is $400 – ($108 + $50) = $242.

The Bottom Line

Crypto swapping has made it easier for users to convert crypto to other crypto, crypto to fiat currencies, and vice versa. You just have to choose a platform that offers the currencies you’d like to swap, and is simple, reliable, and secure to ensure a positive and convenient swapping experience.