What is a Peer-to-Peer Crypto Exchange?
A peer-to-peer Bitcoin exchange is pretty much exactly what it sounds like, an exchange where you can exchange Bitcoin directly with another peer. While every crypto trade you make is from one person to another person, you are rarely ever able to pick who you are trading with, have to send your funds or digital assets to an exchange platform, pay fees in multiple ways, and are limited in the methods by which you can pay. Not only that, but if you are using a centralized exchange, such as Binance or Coinbase, you will need to complete Know You Customer processes in order to be approved to trade on the site.
Peer to peer exchanges require no identity verification, allow you to browse through sellers and see fees for each type of accepted payment method, and do not require you to give up custody of your funds. One of the major advantages of using a peer to peer exchange is that there is no single point of failure like there is for a centralized exchange, because no funds are stored on the exchange, rather the exchange acts as a place where you can find someone looking to buy or sell Bitcoin and begin the process of making a transaction with them.
The anonymous and direct nature of P2P Bitcoin exchanges would lead one to assume that they are more likely to be full of scammers and fraudulent transactions, but as we will see when looking at how these exchanges work, this is not the case.
How do peer to peer exchanges work?
Most P2P exchanges work the same way. You register for the site, which simply requires an email address and password, no identity verification. There are buy and sell offers posted for Bitcoin, and other altcoins depending on the exchange, by individuals either looking to sell their holdings or add to them. Each of the offers has a different rate, different accepted methods of payment, and generally a minimum or maximum purchase or sale amount. As a buyer you simply browse the various offers, find one that suits your needs, and then contact the seller to set up the transactions. As a seller, you simply post what you have for sale, what you will accept as payment and if any extra fees are involved.
Generally, once a transaction is initiated on a peer to peer exchange there are a couple different ways in which the transaction is completed. Some sites require both the buyer and seller to send Bitcoins or some other collateral to an escrow contract, and upon successful completion of the exchange the collateral is released back to the owners. In the event of a conflict the escrow is used to reimburse the affected party. Other sites require the seller to send the Bitcoin to an escrow account and it is only released to the buyer once the seller confirms receipt of payment.
What to look for in a P2P Exchange
The things to look for in a peer to peer exchange are similar to what you would look for in a centralized exchange: security, trading fees, volume, and payment methods.
Because of the direct person to person nature of a P2P exchange, the onus of security falls on you as the user. Yes, there are safety measures in place such as arbitrators and security deposits held in escrow, but you are responsible for looking at a buyer or seller’s profile to determine whether they are a reliable person to deal with.
The non-custodial aspect of making P2P crypto trades means that you are likely to have lower fees than if you were to use a traditional centralized exchange. Most P2P exchanges actually have no fees for buying or selling Bitcoin, you only pay a fee if you advertise on the site, which is not the same as simply posting a buy or sell offer. Because transactions are directly between users, there is no central authority to take a cut. When there are fees it is generally 1% or less, total, and often is only on the seller side. The only time there are generally higher fees is when using an alternative payment method.
This is something that varies not only by exchange, but also by seller. Some sellers may only accept certain methods of payments that are more in line with centralized exchanges, such as bank transfers, credit or debit cards, or crypto. Other sellers may accept completely different methods such as PayPal, gift cards, rewards points, and even goods and services. If you are looking for an out of the box way to buy or sell Bitcoin is makes sense to assess each exchange’s potential payment methods.
The direct nature of a P2P exchange means that there are likely not as many users on the sites and therefore there is less trading volume. If you are hoping to have a buy or sell offer filled quickly on a P2P exchange you will want to check to see which ones generate the most traffic and therefore the most volume, otherwise you may be waiting a long time to make a trade.
Our Favorite P2P Exchanges
One of the most popular peer to peer exchanges on the market today, Paxful boasts that they accept over 300 different payment methods. These methods include PayPal, Western Union, gift cards, rewards points, or even physical assets such as a car. It should be noted that while all these payment methods are possible, they are not always actually available, as a seller has to be willing to accept these payment methods. Started in 2015 and now with over 4.8 million users, transactions secured by escrow, and only 1% fees on the seller side of the transaction, Paxful is a great P2P option.
Started in 2012 in Finland, Localbitcoins is one of the most popular P2P crypto exchanges on the market today. Their longevity in the industry means that they have some of the best volume of any P2P exchange, and they accept many different payment methods including PayPal. There are no fees for buying or selling Bitcoin on Localbitcoins, you will only be charged a fee if you advertise that you are looking to buy or sell, and even then you are only charge 1% of any transaction generated through the ad.
Hodl Hodl is a global P2P Bitcoin trading platform, that allows users to trade directly with each other and they do not hold user’s funds but lock it in multisig escrow. This minimizes the possibility of Bitcoin assets theft and reduces trading time. Because Hodl Hodl does not hold any money, digital or fiat, it is not subject to complex identity verification procedures. This allows trades to happen directly between users’ wallets and without having to submit your identity to the trading platform. There is a maximum fee of 0.6% on a trade that is split evenly between the buyer and seller, meaning a maximum fee of 0.3% to each member of a transaction.
Bisq might be more so considered a decentralized exchange than a P2P exchange. You have to download and run their software, and then you are able to trade on the exchange. It is peer to peer and requires security deposits for transactions to be executed, meaning you have to send an amount of funds that will only be released back to you upon successful completion of your trade. They accept many different payment methods, and the fees are 0.2-0.6%. The main drawback to Bisq is not only that you need to run software to use their services, but there are significant limits placed transaction amounts on new accounts and the only way to increase these limits is to either have a trusted user verify that you are also trusted, or “age” your account, meaning waiting for time to pass; the older your account the more you can do per trade.
Local.bitcoin.com is just like LocalBitcoins, but it is solely for the trading of Bitcoin Cash (BCH), and not Bitcoin. It is a private peer to peer platform where you can find others who are interested in trading BCH for local currencies via a blind escrow smart contract. The fees are 0.25-0.75%. Prices seen on the website already have the fees accounted for, meaning you will receive exactly what is shown.
LocalCoinSwap is a great P2P exchange where you can buy and sell many kinds of crypto assets in a decentralized but safe manner. There are potentially 250 different payment methods available and 25 cryptocurrencies are supported on the exchange. There are no fees for buying or selling on the exchange. LocalCoinSwap uses an escrow service to protect both parties during the trade and makes cryptocurrency trading a fast, secure and private experience as it always should be. There is no identity verification required, but you may need to show ID to certain sellers when using a bank transfer.