My DEFI diary — day 2: finding the on-ramp

This series is a look back at the last few months as I’ve made my way into the crypto space, and particularly into the DEFI space, as a complete newbie. I aim to catalogue the moves I’ve made, the tech I’ve experimented with, and the mistakes I’ve made along the way. I include some details around fees and logistics, hopefully to be useful to others wanting to follow in my footsteps.

19 April 14:19 — I deposited R15,000 (around $1,000) into a newly created account on Luno, a South African based centralized exchange. In the crypto world these exchanges that will take fiat in exchange for crypto are called ‘on-ramps’. I did an EFT from my bank account, so fees were minimal. I was interested to learn that R15,000 was actually the maximum that I could deposit into Luno, at least until they had verified my ID.

I split that initial amount in half and bought 0.2167 Ether (ETH) and 0.008545 Bitcoin (BTC). I then had the option to put some of that into savings accounts as well, to earn interest on my crypto — somewhere in the range of 4% per annum. This, in a sense, was my first contact with the world of DEFI — DEFI stands for decentralized finance, and is an ecosystem within the crypto world where the major pieces of the traditional financial world are being built from scratch.

However, having my crypto in Luno was still very much part of the centralized financial world. As a centralized exhange (or CEX), Luno holds my crypto for me. What does this mean? It means that they are much closer to a traditional financial institution, in that they have a large pool of crypto assets, and when I open and fund an account with them, they carve out a portion of those funds which are then ‘mine’.

The upside of this is that I don’t have to remember my own private key — I just have to remember my login and password to my account, much as I do with my online banking credentials. And if I really did forget my password, I could always contact Luno, prove who I am, and get a new one. This is called a ‘custodial’ arrangement — Luno are acting as ‘custodians’ of my crypto assets.

The downside of this is that I don’t really fully own my crypto assets, at least not in the way Satoshi Nakamoto envisioned when he first designed Bitcoin. There’s a saying in the world of crypto: ‘not your keys, not your coins’. If one wants to be fully true to the spirit of crypto in this sense, then one holds one’s own private key, and you can then hold your assets in your own ‘non-cusotodial’ wallet.

I found this second approach much more appealing, so as we’ll see in the next installment I soon moved my crypto out of Luno and into something called Metamask — more on that to come…

Got any questions or comments? Pls post below — keen for this to be a two way conversation!