Unknown to many, there are simpler ways to trade bitcoin and other cryptos, without complex procedures. P2P trading, for example, is quickly gaining traction globally, with a downward trend in traditional financial instruments. The cryptocurrency market continues to grow stronger and deeper. Crypto users continue to look for better alternatives through P2P exchange platforms.
From buying and selling cryptocurrencies to avoiding potential scams, this guide covers everything you need to know about P2P trading.
Let’s get into it.
What is P2P crypto trading?
Peer-to-peer trading is the process of buying and selling cryptocurrencies directly between users without a third party or intermediary. When you purchase cryptocurrencies using a traditional crypto exchange, you don’t transact directly with the other trader.
In a traditional crypto exchange, charts and other market aggregators are used to determine the optimal time to buy, sell or hold crypto. Crypto exchanges are tasked with organizing transactions on behalf of the trader.
The market price determines the final purchase price at the time of the transaction. Peer-to-peer trading (P2P) gives you more control over what type of cryptocurrency you can buy and who you can buy from.
The P2P trading structure also supports settlement time and the pricing method of cryptocurrencies in the exchange. Despite giving users total control over the transaction process, P2P transactions carry an array of risks. One kind of risk is that there is no third party to broker the deal.
How does P2P trading work?
P2P trading platforms match buyers to sellers to facilitate a trade. The P2P exchange platform typically takes a small fee for each trade conducted. It also requires users to store their funds in a separate digital wallet controlled by the platform.
Peer-to-peer trading works without the need for a central authority, it is completely decentralized. The trading platforms are based on peer-to-peer protocols permitting users to directly connect with other users to trade cryptocurrencies uninterrupted.
P2P protocols only serve as a medium for connecting traders. Unlike traditional trading platforms that have a server run by a centralized figure, P2P has many servers. The peer-to-peer protocols run on many servers run by software and smart contracts facilitate the process.
A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into the lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network.
When two traders enter into an agreement and transfer funds from one account to another, the smart contract executes the transaction. The contract then releases the funds to the seller and transfers ownership of the item to the buyer.
Contrary to the P2P trading process, banks and other financial institutions issue contract agreements in the traditional finance system. Financial institutions store and transfer funds from one account to another.
The banks also verify transactions and record them in their ledgers. In P2P trading, all participants have equal rights and obligations hence a third party involvement is unnecessary. The system relies on consensus algorithms to verify transactions and prevent double-spending.
Every participant has a copy of the ledger containing information about all transactions performed by all other participants in the network. To reduce cases of scamming, most P2P platforms use a rating system to identify trusted traders based on their ratings. Before getting into a trading deal, you only need to check traders’ reviews to ascertain their reputation.
P2P file sharing examples include Xunlei., BitTorrent, uTorrent, BitComet, Vuze and Transmission, Azureus, Emule and eDonkey, Gnutella, LimeWire and Cabos.
Peer-to-peer (P2P) software allows “peers” (individual computer systems) to connect to each other over the internet to share files. Examples of mainstream P2P software programs include BitTorrent, Limewire, Ares and AresWarez, Kazaa, Azureus, DC++ and Morpheus.
P2P trading vs. traditional exchanges
- Operation – traditional exchanges allow users to buy and sell cryptocurrencies with no third-party involvement while peer-to-peer exchanges allow users to sell and buy bitcoin and other cryptocurrencies directly from each other using out-of-band payment methods.
- Infrastructure – traditional exchanges have infrastructural deficits that make it difficult to reach a wide range of users and offer a wide range of assets and products like those of P2P exchanges.
- Asset range– traditional exchanges have a limited range of assets that users can trade, buy and sell. P2P trading platforms offer a wide range of digital assets and products.
- Payment methods – traditional exchanges offer a limited option on payment methods but are based on each exchange while P2P exchanges enable traders to select and have agreements with other traders based on the type of payment methods they want to use.
Key features of a P2P trading platform
Multilayer Security
Security is one of the main concerns for any cryptocurrency exchange platform. Some of the security features of a P2P exchange include; SSL implementation, Two-factor authentication and Anti Denial of Service.
SSL, or Secure Sockets Layer, utilizes a public-key or asymmetric algorithm to transmit Symmetric encrypted data — this two-part process provides incredible security and agility in encryption. SSL serves as a complex system, but this complexity is largely hidden from consumers. This hidden complexity makes the user experience that much better, improving the impression of your service.
Two-factor authorization (2FA) represents an extra layer of security used to make sure that people trying to gain access to an online account match who they say they claim to be. First, a user will enter their username and password. Then, instead of immediately gaining access, they will be required to provide another piece of information.
The Anti-DDoS service protects public IP addresses against Layer 4 to Layer 7 distributed denial of service (DDoS) attacks and sends alarms immediately when detecting an attack. Anti-DDoS improves bandwidth utilization and ensures the stable running of user services.
Anti-DDoS monitors the service traffic from the Internet to public IP addresses and detects attack traffic in real-time. It then scrubs attack traffic based on user-configured defense policies without interrupting service running. It also generates monitoring reports that provide visibility into the network traffic security.
Escrow
A smart contract-based escrow account is a basic characteristic of any P2P exchange. The escrow account enhances the trust and authenticity of the transaction. The assets and products remain in the escrow account after trading is finalized.
The exchange then releases the assets from the escrow account and transfers them to the buyer’s crypto wallet.
KYC and AML Verification
The identity of users needs to be verified and secured to minimize scams and theft of holdings and assets.
Know Your Customer (KYC) acts as a tool used to verify user information to ensure the legitimacy of the information. Anti-Money Laundering (AML) represents a set of regulations that prevent illegal transactions.
Multi Language Support
P2P exchanges support multiple languages to cater to more users across the globe. The exchange should have a user-friendly interface to ease the trading experience.
Cross Chain
Cross-chain trading in P2P exchanges enables the exchanges of cryptocurrencies between two parties without needing a third party. Cross chains help in processing the transactions on a real-time market basis.
Top 5 best P2P crypto trading platforms
Binance
Binance is the best P2P crypto exchange with over 300 payment methods. The exchange also offers the best crypto margin trading in the world and is the largest by trading volume.
Over $26 billion worth of transactions takes place on the Binance platform on a daily basis. The exchange connects traders from all around the world transacting in different cryptocurrencies and crypto assets.
Binance facilitates this through P2P trading options and margin-based products such as futures. Binance allows traders to sell different cryptocurrencies such as Bitcoin, Ethereum, Dogecoin, Binance Coin et cetera.
The exchange also supports over 70 types of fiat currencies such as the US Dollar, the Euro, British Pound and Chinese Yuan among others. The fees for peer-to-peer trading vary depending on fiat money used ranging from 0-0.35%.
Huobi
Huobi ranks as the eighth largest cryptocurrency exchange in the world with an average daily trading volume of $3.4 billion.
The Huobi P2P platform facilitates P2P trading of Bitcoin, Ethereum, USDT and Huobi Token. The crypto exchange operates in over 40 countries worldwide. It offers zero commission fees for both makers and takers.
Traders can access customer support 24 hours a day, 7 days a week.The exchange has a user-friendly interface that supports other crypto services such as spot trading and margin trading. Huobi also offers a huge range of fiat currencies to transact with and nearly 100 payment methods.
The trading platform also provides traders with one of the best P2P crypto lending services.
Bybit
Bybit is one of the top-rated P2P crypto exchanges because traders can stake their crypto with a guaranteed yield. The platform allows users to earn up to 5.50% APY (annual percentage yield) when staking the USD coin.
Bybit is limited to the Tether (USDT). However, the platform offers a wide range of fiat currencies. The range of payment methods is large and there are no fees when purchasing through the P2P platform.
The top-rated site also offers crypto products such as spot trading against BTC, USDC, USDT and DAI. The platform also offers crypto derivatives trading with futures, options and perpetual contracts.
Paxful
Paxful allows users to purchase bitcoin through its P2P platform with zero commission. The platform offers a 1% charge to sellers of the coin which is higher than other exchanges. Paxful does not support a wide range of cryptocurrencies but allows bitcoin users to gain free access to bitcoin wallets.
The Bitcoin wallet, powered by BitGo, is a leading provider of secure bitcoin wallets. This allows users to store crypto safely. Paxful allows traders to search for bitcoin offers on the exchange platform.
LocalBitcoins
LocalBitcoins only focuses on buying and selling bitcoins from person to person. There is a wide range of fiat currencies and payment options available to purchase bitcoin from other people. There are zero fees for buyers of bitcoin.
Sellers who post adverts to sell bitcoin will be charged a 1% fee on every completed sale. Users can also transfer crypto to the LocalBitcoins wallet completely free. When moving coins to other bitcoin wallets there is a sending fee which varies depending on how congested the blockchain is.
Pros and Cons of P2P Trading
Pros
- Unlimited access to the global marketplace – P2P trading gives you access to many buyers and sellers worldwide. In the case of restrictions by a country’s central bank or government, users trade on P2P platforms since central authorities do not regulate them. A key example is the Facebook marketplace.
- Multiple payment methods – traders in P2P markets offer their preferred methods. Users trade with whoever offers a method that is most convenient for them. Payment methods are not restricted as compared to a centralized exchange.
- Low trading fees – traders enjoy the freedom to transact with other traders directly with little or no extra cost. P2P platforms charge very low fees and some trading platforms provide free services except for posting ads.
- Secure transactions – P2P trading platforms offer escrow services in which the users hold their funds until terms are reached between traders. The P2P markets use encryption and two-factor authentication to initiate secure transactions.
Cons
- Slow trading speed – in a situation where one trader fails to agree to or confirm terms of agreement upon trading, the closure process is delayed.
- Lower liquidity – less popular P2P trading platforms experience low liquidity from time to time. Trading in an illiquid market needs more time to complete transactions. Low liquidity also influences the price of the currencies. However, this problem can easily be curbed by trading on popular P2P exchanges.
- Risk of fraud – certain risks such as scammers and loss of funds are major security concerns for traders in the crypto world. Traders are easily scammed when exchanges incorporate transacting through additional platforms. Traders must be careful enough to confirm that the other trader meets all the requirements before agreeing on terms.
Comparing different platforms: Here’s what to look out for
Check that your ideal platform has reliable security features in place to secure the trading processes. The P2P trading platforms should be legitimate and able to establish trust with users.
You should also ensure it has a user-friendly interface. A good P2P trading platform must be easy to navigate with a simple menu and ease of access. It should also come with sufficient customer support. A P2P trading platform should be a reliable service provider based on its response time and relay of services to traders.
Most P2P platforms offer several supported currencies, as we have previously mentioned. Traders must confirm that the P2P trading platform accepts and supports the cryptocurrencies they would like to trade in.
Payment methods and fees vary from one P2P platform to another. Traders must ensure that your desired payment method is accepted and available. Users must also confirm if the platform charges fees as not all P2P trading platforms are free.
P2P trading FAQs
- How do I start P2P trading?
Open an account with a P2P trading platform like Binance.com and secure a crypto wallet for your assets. Select an asset to leverage, strategize your pricing if you want to sell and start promoting your services.
- Is P2P trading on Binance safe?
Absolutely! Binance provides an escrow service that ensures safe and fair trading. Once a buyer completes their order, Binance handles the seller’s crypto in a temporary deposit until both parties confirm a successful transaction.
- As a P2P trader, how am I protected?
All traders in the P2P trading platform are protected by escrow. When an ad is posted, the amount of crypto for the ad is automatically reserved from the seller’s P2P wallet. If you are selling, never release the fund before you confirm that you have received money from the buyer.
- Is P2P available on the web or app?
Traders can now buy and sell BTC, ETH, USDT, Binance coin and DAI through Binance P2P on Binance.com and Binance mobile App. Other P2P platforms also offer P2P services in both web and mobile app views.
- How many payment methods can I link to my account?
You can activate at least 20 payment methods in your payment section. You will be required to enable the payment method before you can use it for posting crypto ads or taking orders.
