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Crypto's Craigslist: LocalBitcoins Makes Millions Where Bitcoin Is Needed Most

$27 million.

That’s how much revenue LocalBitcoins is now generating annually off a business that started back in 2011, all with an investment of just a few thousand dollars. One of the longest-running and most controversial bitcoin companiess, the decidedly low-fi website now has roughly 20 employees worldwide and 4 million registered accounts.

And reflecting the global tide, 40 percent of those users have signed up in the last six months.

All that is according to Nikolaus Kangas, the CEO of the company, who started the venture with his brother Jeremias at a time when there weren’t many options outside meeting up face-to-face to trade bitcoin. But the online portal continues to thrive even as the landscape of polished VC-backed exchanges (and even bleeding-edge decentralized alternatives) matures.

Sure, the peer-to-peer marketplace accounts for only a sliver of worldwide bitcoin trading – last week, it handled $62 million in trades, according to Coin.Dance estimates. This may be less than a top-20 exchange does in a day, but the service is gaining traction in markets that are generally overlooked by mainstream providers.

“We are the most global platform out there,” Kangas said. “Our goal is to improve the global trade possibilities, to serve people who have limited access to financial services.”

And, it turns out, even though LocalBitcoins tends to be more expensive (since sellers set their own prices), the company is much needed.

Indeed, Coin.Dance shows that Venezuelan transactions spiked to a new all-time high this month, as did usage in Tanzania and Peru – all countries that are struggling to recover from banking industry slumps. During the peak week of April 14, LocalBitcoins’ trading volume in these three nations combined was worth roughly $55 million – more than six times the value of U.S. trading on LocalBitcoins in the same week.

And when the Bank of Montreal restricted customers from making cryptocurrency purchases, LocalBitcoins activity in Canada spiked.

It’s these instances that make LocalBitcoins so valuable, even in an environment where growing awareness of institutional traders and their high-value swaps (average transactions on LocalBitcoins are just $450) are stealing the limelight.

And that’s paid off. The peer-to-peer exchange, which charges a 1 percent transaction fee, took in more than €22 million (roughly $27.2 million) of revenues in 2017, more than triple the amount from 2016, according to Kangas.

Despite the market dip since December, when bitcoin’s price peaked at $19,783, he said trading volume has continued to grow.

Nikolaus told CoinDesk:

“If you compare us to those big altcoin exchanges that were making $100 million per day or something like that last fall, we are kind of a small player. But I think we are solving a basic problem of how to buy or sell bitcoin for fiat currency.”

Not always easy

And that basic problem was even more apparent in 2011 when the brothers first started in on the idea.

Nikolas, a Finnish programmer, was fascinated by bitcoin – a new stateless currency meant to take power away from the banks, and maybe even governments. But every website he went to that provided services for Finnish buyers was awful in that they were hard to use. The Kangas brothers wanted to change that.

So having saved up a year’s worth of living expenses and with a few thousand dollars to spend on server fees, the brothers launched LocalBitcoins.

Yet, the journey for LocalBitcoins hasn’t always been easy.

The company has tested several products over the years, including a merchant billing service in 2014, but none of those gained traction like its bread and butter – P2P exchange.

On top of that, LocalBitcoins was the platform in the middle of more than half a dozen criminal cases associated with LocalBitcoins traders. For instance, last year, the U.S. Department of Justice sentenced a father-son duo of LocalBitcoins users, Michael and Randall Lord, to several years in prison for operating an unlicensed money transmission business.

And Reddit is full of testimonies about scammers and hackers exploiting inexperienced LocalBitcoins’ users.

Nikolaus said the team is very concerned about criminal activity on the site and cooperates with authorities to investigate any crimes that use the platform.

Yet, just like Craigslist horror stories haven’t stopped people from using the internet marketplace, instances like these connected to LocalBitcoins haven’t slowed the platform’s usage. In fact, the $27.2 million in revenue LocalBitcoins took in last year was more than triple its profits from 2016.

Even with bitcoin’s recent price dip (after December highs close to $20,000 a coin), Nikolaus said trading volume continues to grow.

Compliance for a non-bank

That said, Nikolaus remains steadfast in its interest in staying on the right side of the law.

“We want to follow all the current regulations and laws, but right now it is quite unclear,” he said.

What is clear, though, is that at least in the U.S. the company has to report certain transactions as suspicious. This includes transactions over $10,000 and any transactions set up obviously to circumvent that limit.

Everything else – complying with local regulations – is up to the buyer and seller.

In this way, LocalBitcoins has set itself up to be only a technology provider and not a complicit party to any unlawful actions users of its technology might participate in. This outsourcing of compliance responsibility is one of the reasons the company has been able to stay afloat, even in the face of competition from well-funded startups.

Because LocalBitcoins facilitates generally trades of smaller amounts, they rarely attract scrutiny.

For instance, when the Investor Protection Bureau of the New York Attorney General’s Office sent an inquiry letter this month to more than a dozen cryptocurrency exchanges, including Coinbase, Kraken, and Gemini – exchanges that function more like banks — P2P platforms like LocalBitcoins were notably absent from the dragnet.

It seems it helps to be local.

For example, Iranian blockchain researcher Ziya Sadr in Tehran routinely uses LocalBitcoins to sell cryptocurrency. Since sanctions keep Iranian banking customers from accessing foreign markets, he told CoinDesk, Iranian traders use LocalBitcoins to find local sellers who accept wire transfers from Iranian banks.

As mentioned before, it’s these kinds of markets, which are cut off from the rest of the world, that need P2P crypto exchanges like LocalBitcoins.

Roman Snitko, CTO of a new P2P exchange called Hodl Hodl, noticed a similar trend on his platform. Russians, who lack centralized exchange options, were some of the first users to flock to Hodl Hodl.

Speaking to this need, then, Snitko told CoinDesk:

“In countries without centralized exchanges, I think P2P trading will play a significant role.”

LocalBitcoins image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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LocalBitcoins User Claims Traders Must Submit ID For ‘Significant’ Volumes, Reddit Reacts

Social media users were rethinking patronage of peer-to-peer (P2P) trading platform LocalBitcoins today, April 17, after a trader produced evidence that personal ID was now required to buy and sell Bitcoin for some trade volumes.

A Reddit thread begun by user u/yellowcuda reproduced a screenshot of the P2P marketplace in which an account holder receives a message demanding ID be submitted due to “significant trading” over the past year.

“Error! Your trade volume has been significant in the past 12 months. Please, verify your ID to continue trading,” the message reads.

LocalBitcoins is one of the oldest functioning ‘mainstream’ Bitcoin trading platforms, based in Finland since June 2012.

Despite introducing new and higher fees last year to cope with fluctuations in Bitcoin network costs, users have traditionally praised the platform for its low-key, yet reliable presence in the industry.

Attempts by Russia to block access to the service in 2016 resulted in a dedicated mirror site Localbitcoins.net opening up, while later on, developers also opted to batch transactions to save on network fees.

However, handing over personal documentation to LocalBitcoins appeared to be a step too far for some traders, who reacted by saying that the lack of anonymity was against the ethos of the non-corporate segment of the Bitcoin industry.

“RIP localbitcoins. Hi, another centralized exchange,” one of the top comments on the thread read.

It remains unclear whether the KYC/AML rules affect all LocalBitcoins jurisdictions, and how much trading activity constitutes a “significant” amount. At press time, Cointelegraph had not received a response from the platform to a request for comment.

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Bitcoin Thief Could Be Caned for $300K Robbery in Singapore

Two bitcoin brokers in Singapore were reportedly assaulted and robbed of nearly $300,000 in cash during an in-person meeting with a prospective seller.

According to an announcement from the Singapore Police Force Thursday, the incident happened on April 8. Following a report to the police, a suspect was later identified and arrested, and is currently being charged with robbery.

If convicted, the police force said the suspect may be facing a sentence between five to 20 years in prison with at least 12 strokes in a caning punishment. The authority has not yet specified whether all the cash robbed from the bitcoin brokers was recovered.

The police force stated in the announcement:

“The police will not condone anyone committing such serious offenses and profiting from the proceeds of the crime.”

The report marks perhaps one of the first known cases of bitcoin related robbery crime in the city-state. It also comes at a time when the surging price of bitcoin in recent years has sparked several armed robberies that have involved the cryptocurrency.

As reported by CoinDesk in January, two similar cases were seen in Canada and the U.K. where criminals were able to force victims to hand over bitcoin at gunpoint.

Robbery image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Adoption of Bitcoin Picking Up Speed in Venezuela, Called “Lifesaving” Currency

Bitcoin is now becoming a constant part of many Venezuelans’ everyday life.

Whether they’re buying food, plane tickets, or even paying employees, Bitcoin is now a common mode of payment for Venezuelans. Frankly, many people in the country rely on cryptocurrencies for survival.

Survival of fittest

Venezuela’s hyperinflation has rendered the national currency, the Bolivar, nearly worthless. Thousands of ordinary people have begun turning to the world of cryptocurrency to salvage what little value remains in their savings..

One Venezuelan, John Villar, knows the struggle of having a his national currency become worthless, so he sticks with Bitcoin for all of his transactions. He said that his situation, choosing digital currency is not a matter of politics but of survival. Bitcoin transactions are relatively swift for anyone with a smartphone: Websites like LocalBitcoin and Colibit function as exchanges where Venezuelans can buy and sell bitcoins using a local bank account.

Government’s move

Cryptocurrencies have become so fashionable that even President Nicolas Maduro has proposed a government-backed version called the Petro. Members of his administration have met with Venezuelan Bitcoin entrepreneurs to determine how such a currency might work. Though few details have been released, many in the Bitcoin world have responded skeptically to the idea. It seems unlikely that Venezuelans will trust a digital currency issued by a government they have little faith in.

In Venezuela, the so-called “crisis currency” is allowing desperate Venezuelans to make potentially life-saving purchases.

Villar had been unable to find several of the medications needed to treat his wife’s multiple sclerosis in Venezuela for the last two years, a story not uncommon in a country whose public health system has been crippled by shortages. Instead, he purchased them abroad with Bitcoin and used courier services to deliver them to Venezuela.

Authorities have largely permitted trading of Bitcoin in Venezuela, though they have heavily fined and detained people who attempt to mine the digital currency. For Villar, the stakes are especially high, and not just for his business. An engineer who once ran a biometrics enterprise, he is staking his financial future on the development of a game involving an alternative cryptocurrency called PepeCash.

A dozen employees operate from a small office filled with computers in an industrial community east of the capital. All receive part of their salary in Bitcoin. His wife, also an engineer, is now largely bound to a wheelchair.

“At this moment, I don’t have a single bolivar.”

Ambassadors from other digital currency projects, such as Dash, have been trying to familiarize Venezuelans with an array of cryptocurrencies. Earlier this fall, Dash sponsored 12 free conferences in the country in order to raise awareness.

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Bulgarian Banks Block Accounts of Crypto Exchanges

Yesterday afternoon several major banks in Bulgaria terminated accounts held by the country’s cryptocurrency exchanges. The banks are also blocking transfers to and from international Bitcoin exchanges. The country’s affected exchanges have temporarily suspended their services.

Crypto exchanges that offer crypto to fiat transactions very much rely on traditional fiat banking. But the anonymous nature of cryptocurrency means that it is riskier to transact in, given that transactions are difficult to reverse.

This week in Bulgaria major banks decided to do away with this risk by force. The swift move to block accounts held by Bulgarian crypto exchanges was evidently a coordinated decision made by Bulgaria’s top banks.

The move was unrelated to any explicit government decision or regulation. Participating banks appear to be trying to mitigate risk by not transacting in Bitcoin or other cryptocurrencies.

Who exactly is involved?

According to a post from the administrator of the Bulgarian Bitcoin forum, the banks closed the accounts of all companies whose activities are related to the purchase or sale of Bitcoin. In addition to Fibank, affected companies mentioned the United Bulgarian Bank (UBB) as one of the banks blocking accounts.

In a post in the same thread of the Bitcoin forum, the alleged managing director of an affected company, Neven Dilkov, wrote that though the UBB also blocked their accounts, not all banks in the country are taking this harsh stance:

“I spoke with Societe Generale and Piraeus separately [and] both banks do not have a problem with companies working with cryptocurrencies.”

Crypt exchanges affected by this week’s crackdown include Cix.bg, Crypto.bg, and Cryptobank.bg. According to their site, the latter is still open for trading but is accepting funds only via ePay.

Plus, in addition to Bitcoin, the exchange as has temporarily suspended trading in Ether due to overloads on the network caused by CryptoKitties.

Bulgarians looking to purchase Bitcoin for fiat can still do so via Coinbase and LocalBitcoins.

Separately, Bulgaria and Bitcoin recently made headlines because of a government raid made back in May. With the recent spike in Bitcoin’s price, the 200,000 Bitcoins seized in May in a series of raids made by Bulgarian law enforcement are now worth over $3 bln.

This sum is a six-fold increase from the time of the raids when the entire seizure was worth just $500 mln. It remains unclear what the Bulgarian government is planning to do with the seized funds.

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Demand Wrecks Bitcoin Infrastructure

The rise in Bitcoin price has been paralleled by a huge increase in demand which has effectively wrecked the Bitcoin trading infrastructure, according to a number of sources. Exchanges like Coinbase have experienced huge slowing, LocalBitcoins has stopped accepting new customer applications, and unconfirmed transactions have skyrocketed.

The price point hit peaks over $18,000, though has since scaled back. Nevertheless, demand continued to increase among exchanges. Coinbase was recently tagged as the #1 most popular app on the iTunes store, per Twitter:

Exchanges down

Nevertheless, while demand was increasing, the power to control the exchange and provide service was slowing. In fact, so many users met with difficulty that it was covered on mainstream media. And the Coinbase Twitter account was awash with tweets of error pages.

But Coinbase wasn’t the only victim. Others fell apart as well. LocalBitcoins even went so far as to stop accepting new clients completely. In a post on the site’s Twitter feed, they made it clear that they were unable to service current clients and could no longer accept new ones.

And it wasn’t just these two sites. All across the Bitcoin landscape, transactions were slow and users were frustrated as the network experienced some of the highest trading volumes of all time. In fact, nearly 300,000 transactions were pending at one point. The Litecoin Foundation was quick to point this out:

Growing up

As adoption increases, the need for scaling to meet the massive growth in demand will only increase. The massive surge in the marketplace certainly means that response times are slow but should provide encouragement to those who are holding existing stock of Bitcoin that the bull will continue to run. Dominik Schiener, co-founder at IOTA said:

“The fact that exchanges are still struggling with scalability issues after years of development and investments into their infrastructure is a clear indication that the demand for cryptocurrencies is increasing exponentially, unexpectedly so for everyone. It is quite unfortunate that the first experience when entering the realm of cryptocurrencies is filled with frustration of congested networks and exchanges with continuous downtime, but this community still has a whole lot of growing up to do before we’re ready for mainstream adoption.”

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Kenyan Police Arrest Bitcoin Traders Due to Alleged Banking Fraud

The Kenyan police have arrested three peer-to-peer Bitcoin brokers Emma Kariuki, Stanley Mumo, and Timothy Gachehe for allegedly trading stolen money through the local trading platform LocalBitcoins. The funds were reportedly stolen by a person using the pseudonym “BADASS20” from the I&M Bank and a Safaricom Pay Bill account.

According to a report by regional media Kenyan Wall Street, the anonymous thief has stolen KEH 10.2 mln (around $100,000) from the financial establishments and used the money to purchase Bitcoins via the exchange LocalBitcoins.

The local police were able to trace the stolen money to various bank accounts, including those owned by the arrested Bitcoin traders.

During the police investigation, the traders claimed that they were not aware that the money used by the anonymous thief to buy Bitcoin was stolen and they were just doing what they claimed as a “normal” trading activity. Based on their chat history on the trading platform, they seem to be telling the truth.

In spite of their seemingly valid defense, the Kenyan Banking Fraud Investigation Unit (BFIU) still arrested the traders and froze their bank accounts. The brokers, however, were able to post bails and were eventually released. They are scheduled to attend a preliminary hearing in December 2017 in advance of a full hearing in January 2018.

State of cryptocurrency trading in Kenya

The digital currency peer-to-peer (P2P) market in Kenya is flourishing despite the warning issued by the country’s central bank in 2015, advising citizens to refrain from transacting Bitcoin and other virtual currencies.

This latest case of banking fraud involving the cryptocurrencies is expected to have a chilling effect on the local virtual currency market. It remains to be seen, however, if this incident will compel the government to introduce drastic measures to regulate the market or the industry players will just consider it as an isolated case and ignore it.

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Michigan Man Charged for Unlawful Bitcoin Exchange

A Michigan man has been charged with running an unlicensed money transmitting business after selling nearly $150,000 in bitcoin online.

According to an indictment released by Detroit TV news services WD-IV Friday, 52-year-old Bradley Anthony Stetkiw ran an exchange through the LocalBitcoins website, conducting transactions at restaurants in the Bloomfield area. Stetkiw is alleged to have sold bitcoin as part of a business venture for approximately two years, at a volume that would make him subject to federal anti-money laundering regulations.

Of the total, the documents, filed with the U.S. District Court for the Eastern District of Michigan, assert Stetkiw sold more than $56,000 worth of bitcoin to federal agents through six meetings.

According to the indictment:

“Operating under the user name ‘SaltandPepper,’ Stetkiw bought, sold and brokered deals for hundreds of thousands of dollars in bitcoins while failing to comply with the money transmitting business registration requirements set fort in Title 31, United States Code, Section 5330.”

Stetkiw is notably not the first LocalBitcoins user to be charged for trading bitcoin.

Earlier this year, Detroit resident Sal Mansy plead guilty to the charge of operating an unlicensed money services business. He allegedly conducted $2.4 million-worth of transactions over a two-year period ending in July 2015.

Other arrests in Missouri and New York suggest actions against independent U.S. bitcoin sellers are becoming more commonplace.

Lady Justice image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

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India Goes Bitcoin: Zebpay Will Add 500k Users Monthly by 2018

Indian Bitcoin exchange Zebpay is adding 200,000 users a month and is eyeing half a mln by the end of 2017.

In an interview with Forbes India, the exchange, which is one of the country’s ‘big names’ in Bitcoin along with Unocoin and Coinsecure, described recent market transformation as “crazy.”

“It is crazy now. But when we started Zebpay we had no idea the price would shoot up,” Zeb Ventures CEO and co-founder Saurabh Agrawal commented. “We were here to build a business model and not play the valuation game.”

In September Zebpay passed 1 mln downloads of its mobile app for Bitcoin trading, just three months after the 500,000 mark in May.

Unocoin has reported similar successes, with Indians increasingly turning to Bitcoin interaction in the face of currency shake-ups and bank bailouts.

On Wednesday Cointelegraph reported that the Indian government would provide aid to its ailing banking sector worth $32 bln, or 1.3 percent of its GDP.

“We are adding 2 lakh users a month,” fellow co-founder Mahin Goenka added. “After two months we will be adding 5 lakh users a month.”

Zebpay only provides trading via its app and doesn’t have an exchange website.

At the same time, alternative trading platforms such as p2p Localbitcoins continue expanding, the week ending Oct. 21 being the fifth busiest for its Indian market since it began operating in 2013. 54.1 mln rupees ($834,000) changed hands over the seven days.

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Will Decentralized Exchanges Replace Peer-to-Peer Exchanges Completely?

The continuous growth of cryptocurrencies is a journey that has had multiple roadblocks along its way. Not only are technical difficulties bound to happen, but there are also several problems that are exterior to cryptocurrencies themselves, including a lack of clear regulatory guidelines and security issues caused by independent, centralized services.

Hacking and regulation

During the course of this year, we’ve witnessed these two major problems disrupt the cryptosphere at a concerning scale. Last year, we saw a hack that cost Bitfinex over $70 mln and, in 2017, the sudden closure of BTC-e. We’ve also seen the power that regulatory entities can have over the crypto ecosystem, with countries like China banning ICOs and even cryptocurrency exchanges altogether.

The lack of regulations and recent attempts to create a regulatory framework that, willing or unwillingly, penalizes companies and individuals in the space may be but a passing problem. However, the security issues that have plagued cryptocurrency trading platforms and online wallets since the inception of crypto are not. From the infamous Mt. Gox disaster to the recent Bitfinex hack, time has shown us that centralized services will always have flaws and that hackers will always have ways to find and exploit them.

DEX

There is no problem too big for the developing community and, sure enough, a solution is already available. Decentralized exchanges (DEX) allow their users to buy and sell cryptocurrencies with no third party involved. These decentralized platforms are not new. Platforms like Waves DEX, BitShares, NXT, CounterParty, and many others have been around for a while. These exchanges all leverage Blockchain technology in order to provide users with a trustless trading experience.

With promising tests being conducted on atomic swap technology by projects like Komodo, the Altcoin Exchange and many others, the prospect of fully decentralized exchanges seems to be getting closer to reality every day. There is, however, another solution that has been around for awhile now. The predecessors of decentralized exchanges themselves, peer-to-peer exchanges allow users to buy and sell cryptocurrencies directly from each other using out-of-band payment methods.

P2P exchanges

Today, we’re going to take a deep look at p2p exchanges in order to find out if there is still a place for these platforms once decentralized exchanges “take over”, which may not be too far ahead.

Peer-to-peer exchanges offer multiple advantages when compared to their fully decentralized peers. Let’s take a look:

Growing popularity

Starting with the fact that made us ask this question in the first place, peer-to-peer exchanges are becoming more popular every day. Despite the recent progress made by decentralized exchanges, users are still more likely to resort to platforms they find simple and familiar (we’ll talk more about this in the next section). Data from Coin.dance shows us just that:

LocalWhen looking at the CNY volume data from LocalBitcoins, we can see two accentuated spikes right around the time when the People’s Bank of China cracked down on cryptocurrency exchanges for the first time, and then again when the latest move forced exchanges like BTCC to stop providing trading services in the country indefinitely:

ChinaHowever, one must also wonder if these exchanges are immune to government action. Centralized exchanges are much more versatile in complying with the law and defending themselves against hacker attacks.

“We have fiat”

Fiat. No matter how much you love Bitcoin and crypto in general, cash is still king and there is really no easy way of getting around it. Although decentralized exchanges allow users to exchange cryptos for cryptos, the system is pretty much closed off from fiat currencies. Although some projects like Waves and Bitshares offer fiat-pegged tokens, turning these tokens into actual money (and vice-versa) is no easy task and requires the user to trust a centralized gateway.

Peer-to-peer exchanges like LocalBitcoins and Paxful allow users to quickly set up an account and buy cryptocurrencies without the need to make a fiat deposit. Instead, payment is done directly to the user in the agreed payment system, and the Bitcoin is then released from escrow to the buyer. This allows users to retain a certain amount of privacy when compared to centralized gateways.

Although users can only purchase Bitcoin in most P2P exchanges, the upcoming Qvolta platform will feature a wider selection of cryptocurrencies, including Bitcoin, Ether, Monero and others, ensuring users can have direct access to different investment vehicles within the cryptosphere, and also giving them the ability to safeguard their privacy through the use of privacy-centric coins like Monero.

Simple and intuitive

Decentralized exchanges are still in their infancy and, while there’s still much to be done, there seems to be a huge discrepancy when comparing the ease-of-use in centralized exchanges with the lack thereof in decentralized ones. While Blockchain projects have made incredible advancements and provided simple graphic interfaces, some confusion is bound to happen for less-than-tech-savvy users.

Downloading and installing the software, creating and backing up a wallet, and many other additional steps may deter average users from taking advantage of the benefits provided by DEX’s. Peer-to-peer exchanges, however, are as simple as they are convenient. Users are only required to visit the website, create an account, and they can start buying/selling coins.

Some will even feature a mobile application for iOS and Android, an important step for cryptocurrency mass adoption given mobile phone ownership rates are high among the unbanked population, those who can benefit the most from cryptocurrency use and investments.

No proxy tokens

This is a problem that may be solved with the rise of atomic swap technology, but current decentralized exchanges require the trader to use what is known as a “proxy token”. These tokens are used in order to allow Blockchain-based DEX’s to trade cryptocurrencies that exist outside of their respective Blockchain.

Waves, for example, uses proxy tokens like “wBTC” and “wETH” to facilitate the exchange of these assets. However, the practice adds one extra step and requires user to trust centralized gateways that store the base asset in order to ensure a 1-1 peg is maintained. While this is not a deal breaker for some users, it can deter others from using the service.

Revenue stream

Yes, peer-to-peer exchanges are not only empowering users by providing easy and safe access to the cryptosphere, but they are also creating additional revenue sources for those who wish to take advantage of them. For sellers, it’s common to sell Bitcoin for inflated prices when dealing with revertible payment methods like PayPal and others, given that there’s a risk factor involved. However, if this risk can be managed by the seller, the P2P exchange can become his new workplace, with personal account systems where users can create offers for their preferred exchange rate according to the tariff they have purchased.

Additionally, users can also earn an income through affiliate programs that are created by these exchanges. LocalBitcoins offers an affiliate system, as well as Qvolta. Referral programs can help the entire ecosystem, allowing users to earn extra cash for inviting friends, thus bringing in more people and creating a larger variety of options for buying and selling coins.

Disadvantages

Not all is perfect, though. Peer-to-peer exchanges still have some fundamental problems that can hamper their growth in the future. Including their centralized infrastructure that relies on web servers to host the platform itself, a property not shared with Blockchain-based decentralized exchanges.

P2P exchanges are also not 100 percent safe, and scams are bound to happen. Malicious actors take advantage of the refundable payment methods in order to keep purchased coins and the fiat spent on them. This same factor has also led some sellers in P2P markets to start asking for ID verification before making a deal, a less-than-optimal practice when it comes to privacy and security.

Conclusion

So, the question still stands. Can decentralized exchanges replace peer-to-peer exchanges completely? From what we’ve seen today, the popularity of P2P exchanges are not declining, and the advantages they offer are not currently achievable by Blockchain-based DEX’s, at least with the technology currently available.

As the tech is tuned, decentralized exchanges may indeed become more popular among cryptocurrency users. However, we believe that P2P exchanges will be here for a while and will most likely coexist with fully decentralized ones, even if centralized trading platforms become extinct, acting as a sort of middle ground or gateway to a fully decentralized ecosystem.

– Frisco d’Anconia, Guest Author