Nowadays, there are so many ways to get your hands on crypto and that’s a great thing because adoption seems to be rising. The question is: how do you know which route to go?
If you’re looking to start trading, there are two great ways to go about it: either through a traditional crypto exchange or a peer-to-peer (P2P) crypto marketplace.
What are they and how do they work?
Traditional exchanges have been around for over a decade now and seemingly, they’ve perfected their version of the formula. Until now, they’re still some of the most popular ways to get crypto.
On a traditional exchange, they use order books to link buyers and sellers. Basically, these are electronic lists that can bring you buy and sell offers on a silver platter. From there, the platform will step in, act as a middleman, and help you complete the trade—meaning there’s little-to-no interaction between you and the seller. Most exchanges will even require you to link your bank account so that your trades are much faster.
These are especially appealing to beginners since the platforms hold your hand throughout the entire process. However, it does come with a set of drawbacks. First of all, the fees are often higher on these platforms. Because they act as a middleman for your trade, they’ll need to be compensated for it. Secondly, not everyone has access to a bank account. This means that if you don’t have one, you can’t participate in any transactions.
Enter: P2P crypto marketplaces. Just like their traditional counterpart, P2P marketplaces also use order books. However, that’s where their similarities come to an end. Instead of acting as a middleman, the platform will allow the traders to complete the trades themselves.
Although that may sound like a hassle, the benefits of personalizing the trade process are far wider than you think. Because users complete the trades themselves, there’s more flexibility in payment options. Basically, people will sell you crypto for what they need—whether that be gift cards, bank transfers, or e-wallet funds, to name a few.
Additionally, since the platforms only interfere when there’s a dispute, they charge lower fees than traditional exchanges.
How do people stay safe on a P2P marketplace?
We know what you’re thinking: if the platform isn’t helping you complete the trade, how do users stay safe on a P2P marketplace? Most P2P marketplaces use something called escrow, a third-party service that holds the crypto until the trade is completed. To give you a better idea of how escrow works, let’s take a look at Paxful, the world’s leading peer-to-peer crypto marketplace.
Let’s say that you’re looking for an offer to buy Bitcoin. After a few minutes of searching, you find the perfect offer that’ll allow you to get your hands on BTC in exchange for a gift card. As soon as you start a trade with this seller, the BTC that you’re promised goes into escrow. That way, your seller can’t run away with the money after you’ve paid. After sending in your payment and marking the trade as Paid, your trade partner will take a few minutes to verify the validity of the gift card. Once they know that the gift card is good, they’ll release the BTC from escrow and the trade is complete.
Escrow is sort of the middleman that protects both parties. For the buyer, it’ll prevent sellers from running away with the money that they promised to exchange. For the seller, it’ll protect them from buyers who send fake payments.
Although escrow is a large part of a P2P marketplace’s security, there are also additional systems in place to protect users. For Paxful, this includes two-factor authentication (2FA), state-of-the-art blockchain analysis tools that help identify suspicious activity, and a 24/7 customer support team to help you out in sticky situations.
Additional tips for staying safe on Paxful
In most cases, staying safe on a P2P marketplace will depend on the way the platform works. If you’re trading on Paxful, for example, and you want to stay safe, here are a couple of tips for you:
- Familiarize yourself with the platform – Make sure that you know how the features work and learn how to identify red flags.
- Trade with verified users – On Paxful, you’ll notice that some offers have a Trusted tag or users will have special badges that indicate that they’re reliable—Ambassador, Associate, Corporate account, Expert Trader, Peer, and Power Trader.
- Look at a user’s reputation score – Check out the feedback of people who have traded with this user before. As indicated by the little number beside the green thumbs up icon, a user’s reputation score will allow you to gauge how reliable they are.
- Don’t trade off escrow – As mentioned earlier, escrow is there to keep both buyers and sellers safe. If someone ever asks you to trade off escrow, consider it a red flag.
Ultimately, the best advice we can give you is to do your own research—no matter what P2P platform you decide to use.
In the cryptocurrency space, knowledge is power. There’s always going to be a risk when you trade crypto—it can’t be eradicated; it can only be minimized. The more you understand cryptocurrency, how to trade it, and how a platform works, the more you’ll be able to identify red flags. The more you can identify the red flags, the safer you’ll be on any platform.
*The content of this article is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.