DEFINITION of 'ShapeShift'

ShapeShift is a Swiss-based digital asset exchange service formed in 2014 by Erik Voorhees. ShapeShift is primarily designed to help websites accept cryptocurrencies as payment through its website and through its API.

BREAKING DOWN 'ShapeShift'

Interest in cryptocurrencies is often associated with their rapidly appreciating values, with coins such as bitcoin experiencing exponential growth. What is sometimes lost is that the cryptocurrencies have a practical side, rather than solely being speculative investments. They can be used to purchase goods and services, often online. While much focus has been placed on the buying and selling side, some companies, such as ShapeShift, have focused on ways to use the cryptocurrencies they already have.

Using ShapeShift does not require the creation of an account or exchange of personal information, since transactions are made between e-wallets. The platform is not used to buy or sell cryptocurrencies; instead, it is used to exchange one cryptocurrency for another. This means that users do not have to connect a bank account or credit card. The company does not use non-cryptocurrencies anywhere on the site.

As example of how ShapeShift is used, imagine that someone holds bitcoins and wants to exchange them for Litecoins. First, within ShapeShift, bitcoin is selected as the deposit or input – what the investor currently has – and Litecoin is selected as the receiving or output – what the user wants.

Second, addresses are provided for the location of the bitcoin and Litecoin e-wallets. Once the transaction is started, ShapeShift generates a new address where the bitcoins are sent. Once the transaction is completed, the investor will see a deposit in the Litecoin e-wallet. If the order fails, the bitcoin will be sent back to the bitcoin address automatically.

Unlike on a trading platform, which shows the exchange rate for currency pairs offered across multiple exchanges, ShapeShift offers a single exchange rate, which it derives from the exchange rates found on multiple exchanges. Users who see better exchange rates on other exchanges would thus be better off waiting before conducting a transaction. The exchange rate offered is not dependent on the size of the order.

ShapeShift does not charge an exchange fee or service fee. Users pay a miner fee, which covers the cost of including a transaction into a block, which ultimately is coded into the blockchain. The mining fee is denominated in the cryptocurrencies used in the transaction.

In 2017, the company warned users to not use the service for bitcoin transactions below $250, since the mining fee is high at below that threshold. The mining fee is set based on the amount of effort it requires to record transactions in the blockchain, and high interest in bitcoin has created a transaction bottleneck.

ShapeShift also offers several tools designed to help individuals and businesses utilize their e-wallets. ShapeShift Lens is a web browser plug-in that allows users to send cryptocurrency to any bitcoin address, enabling the user to make purchases with altcoin.

Shifty Button provides businesses with HTML code that can be placed on their websites, allowing customers to pay using cryptocurrencies such as Litecoin, Dogecoin, and Ether. ShapeShift will automatically convert these coins into bitcoin. ShapeShift Skeleton enables a website operator to allow users to buy and sell cryptocurrencies directly on the site.

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