Digital assets such as cryptocurrencies enabled a whole new level of direct peer-to-peer value exchange. While some markets chose to go the way of traditional exchanges, other platforms let users trade cryptocurrencies with each other directly, as was intended. Find out more about P2P crypto exchanges, how they work, and what they offer, in this guide by the ChangeHero team.
Key Takeaways
- Peer-to-peer (P2P) cryptocurrency exchanges are some of the earliest platforms for trading crypto. They let users post offers for buying or selling crypto while other users take the offer if they want.
- Some of the advantages of P2P trading are the degree of control over the transaction and a wider selection of accepted payment methods such as local bank transfers. In turn, it comes with a few disadvantages, such as security risks and slightly higher complexity of trading.
- These days, P2P markets on centralized cryptocurrency exchanges account for the most P2P trading volumes, while previously it was on dedicated platforms. Moreover, trades on decentralized exchanges are also peer-to-peer, although there are a few crucial differences.
Introduction to Peer-to-Peer Trading
Bitcoin’s invention revolutionized digital payments because it enabled direct peer-to-peer (P2P) transactions with no need for an intermediary. While this was enough to simply make a transaction, community members who wanted to buy or trade Bitcoin had to rely on off-chain methods.
What first started as forum threads and listings, evolved into whole platforms that connected buyers and sellers while acting as an intermediary in the trade but not the transfer. Later, more traditional crypto exchanges with order books came to be but at the same time, platforms like LocalBitcoins took on their own evolution path.
Today, P2P exchanges are essentially marketplaces where sellers list offers with their exchange rates and conditions and buyers choose the ones they want. The platform can only provide information or serve a more prominent role in the deal by arbitrating issues and providing an escrow service. Depending on that, it can take on various degrees of responsibility and require some or no compensation.
How Does P2P Trading Work
Regardless of the P2P crypto trading platform you choose, the process is mostly the same across all. Let us walk you through the typical flow of the P2P trading process.
- Make an account.
To become a buyer or seller on a P2P exchange, usually, a user account is required. This step also includes providing information on the payment method and going through verification. On a decentralized exchange, instead of that, you may be prompted to connect a wallet.
- Browse offers.
Choose the currency of purchase and the digital assets you would like to buy or sell. Upon selecting these filters, you will see a list of offers with the exchange rate and conditions. - Select an offer.
Inspect an offer in more detail to learn additional information such as preferred payment method and available amounts for purchase. You can also review the seller’s reputation before proceeding. - Receive payment.
By proceeding with the transaction, you connect with the seller. They will be able to review the deal on their end and are normally required to transfer funds first. The P2P exchanges provide a secure chat for you to talk to the seller if need be, and using external means of communication can be unsafe. - Release funds.
The funds that the seller transferred your way are first deposited to a secure escrow system of the P2P platform. To receive them, you will have to do the same and confirm the purchase. When both sides have made their transfers and the seller confirms it, the transaction is finalized and everyone receives the result.
To recap, trading on a peer-to-peer crypto exchange means that despite the platform providing you with a repository of offers and the infrastructure to trade securely, the transactions themselves are made between you and the seller directly.
Sometimes but not always, a P2P crypto exchange will act as a full-fledged intermediary in the trade by providing a secure escrow service and a dispute resolution system. For convenience and safety guarantees, users are expected to pay trading fees on top of the transaction fees their chosen payment methods impose.
Perks and Pitfalls of P2P Crypto Trading
Upsides of P2P Cryptocurrency Trading
Starting with the obvious conclusion from our review of the process, P2P trading is a method of trading cryptocurrencies that gives immediate parties more control over it. Unlike more traditional exchanges, buyers consciously choose the exchange rate instead of going with the market. Moreover, the parties do not share more information than necessary to make the deal.
A less obvious but crucial upside to P2P exchanges that comes directly from the way they work is a larger selection of local payment methods and fiat currencies. Since the exchange does not process payments, they are more free to enable sellers to accept their preferred payment method. To keep the offers organized, they still need to limit the listings but it impacts the selection of crypto assets more. Regardless, it often means that users from certain jurisdictions will find P2P crypto markets preferable due to having the payment methods they have access to.
P2P trading can come with additional benefits such as no trading fees or even no KYC. However, it can also indicate that the platform takes a hands-off approach to customer service or compliance.
Downsides of Peer-to-peer Exchange
A platform like we have just described should also not be expected to take responsibility for the security of your trades, making it entirely on you to not trust, verify. However, even the most reputable P2P exchanges out there cannot guarantee that you will not run into scammers. Malicious actors learn how to game the system and use the security features, such as chat and escrow, to defraud buyers.
Exchange rates and prices also vary greatly depending on the offer. Unless you closely monitor the market when choosing the listing, you can end up trading crypto assets at an unfavorable rate.
Last but not least, hardly any P2P exchanges truly qualify as beginner-friendly. Even the basic trading flow takes some getting used to and certainly is far from a couple of clicks. Besides, there is no guarantee that while you are learning the ropes or even after you have a solid grip, you will not fall for the aforementioned scams without going out of your way to learn the red flags on top of it all.
What should you watch out for? As a buyer, the oldest trick in the book is a fake proof of payment. Scammers
will try to send you a fake receipt outside of the platform's chat or hope a wrong notification (i.e. chat
instead of your bank app) will have you fooled. They may also start impersonating the exchange's support or
pretend to have sent it otherwise. As a seller, you might encounter a dispute after having sent the funds to
an escrow or buyer directly. Even if the platform is willing to settle it, you will still be left without the
funds for a while.
Solid Alternative to P2P Crypto Exchange — ChangeHero
It’s clear that P2P crypto trading is a popular way to trade cryptocurrencies but not one without faults. Before diving head first into the fray, try using ChangeHero: an instant crypto exchange platform.
- It’s safe — the funds are exchanged automatically as soon as they arrive at the dedicated address;
- It’s economical — you get the best current rate from ten liquidity providers integrated into the platform;
- It’s simple — only takes a few clicks to make;
- Swap over 200 crypto assets and buy 30+ with local payment methods and fiat currencies.
Most Popular P2P Crypto Exchanges
Dedicated P2P Platforms
The first P2P exchanges were a little more advanced than forum threads but worked rather similarly to them. As their user bases grew, they were making improvements to the user interface, security features, and various payment methods. At its prime, LocalBitcoins alone had over $100 million worth of weekly trading volume. However, it was shut down in early 2023 citing unfavorable market conditions.
Which are the best P2P crypto exchanges today that are not tied to a centralized crypto exchange? Your options include a privacy-preserving, open-source desktop application Bisq, and smaller pure-P2P services such as Remitano and Peach Bitcoin. Do mind that due to the scale of these platforms, liquidity can be on the low side: even the largest P2P platforms were doing fractions of daily CEX volumes on a weekly basis.
Centralized Exchanges
Nowadays, the niche is dominated by the P2P dashboards provided by centralized exchanges (CEX). Even despite being enabled by juggernauts like Binance, transactions made there remain direct between trading partners. Nevertheless, the CEX makes it more convenient because a regulated exchange requires a verified user account either way. By combining the best of both worlds, increasingly influential CEXs also keep peer-to-peer exchanges alive.
Choosing the best P2P crypto exchange comes down to finding the right cryptocurrency selection and payment methods. You might also want to learn about the trading fees and privacy policies of the trading platform in advance. CoinEX, Kucoin, and Bybit take no fees at all but are limited to a few cryptocurrencies. Binance takes 0.1% off each trade but accepts over 800 payment methods.
Decentralized Exchanges
Finally, a rather new addition to the world of decentralized finance (DeFi) — relative to the previous two, of course. Decentralized exchanges or DEXs also work without intermediaries and on a peer-to-peer basis. DEXs are an entirely different story, however: instead of being platforms that list offers, they are powered by smart contracts and offer a trading experience much closer to traditional crypto exchanges.
A big hurdle towards starting trading on a decentralized exchange is the complete lack of payment methods with fiat currency. Due to that, they also won’t require a user account and verification, making this very privacy-oriented, but still not too accessible to beginners.
Starting with Uniswap on Ethereum and PancakeSwap on BNB Chain, the choice of DEXs is very varied these days. The data on liquidity, market depth and variety, as well as fees and commissions, is fully transparent and can be found on special data aggregators like CoinGecko and CoinMarketCap.
Conclusion
The landscape of cryptocurrency peer-to-peer trading looks a lot more different than a decade ago. At the same time, it remains a popular and sometimes the most accessible way for users in certain locations to engage with the crypto market.
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Frequently Asked Questions
What is the best P2P crypto exchange?
In terms of volumes and supported payment methods, some of the best P2P crypto exchanges are Binance, OKX, and Bybit. However, depending on where you are, these may not be available to you or not have your preferred currency, so researching the options with your needs in mind is advised.
What is the difference between peer-to-peer crypto exchanges and regular crypto exchanges?
Regular cryptocurrency exchange provides the full trading environment and acts as a full-fledged intermediary, enabling and settling trades of varying complexity. P2P markets work more straightforwardly, and exchanges act mostly as dashboards for users to post and browse offers.
What is the difference between P2P and OTC trading?
Over-the-counter trading can seem similar to peer-to-peer trading due to both happening off the market. OTC deals happen with a third party (the broker) involved and usually come with higher volume requirements, while P2P trades are more widely available.
Disclaimer
This article is not a piece of financial advice. When dealing with cryptocurrencies, remember that they are extremely volatile and thus, a high-risk investment.
Always make sure to stay informed and be aware of those risks. Consider investing in cryptocurrencies only after careful consideration and analysis and at your own risk.
