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Peer-To-Peer Trading
Peer-to-peer trading (P2P) is a direct purchase and sale of cryptocurrencies between users without intermediaries. P2P exchanges connect buyers and sellers and provide a level of protection through escrow services, a feedback/rating system and dispute resolution.
The benefits of P2P trading include global availability, multiple payment options, zero transaction fees, and personalized offers. However, it also has disadvantages, such as lower trading speed and less liquidity compared to centralized exchanges (CEXs).
Introduction
P2P cryptocurrency trading is a method of buying and selling cryptocurrencies directly between users without the participation of a central intermediary.
Users can use the P2P exchange to access the global marketplace, a variety of payment options and personalized offers.
However, P2P trading has its drawbacks, such as low trading speed and less liquidity.
In this article, we will discuss the pros and cons of P2P trading and how people can benefit from it.
What Is P2P Trading?
P2P crypto trading means the direct purchase and sale of cryptocurrencies between users, without a third party or intermediary. This is different from buying and selling cryptocurrencies on CEX, where you cannot make transactions directly with counterparties.
CEX uses charts and aggregators of market orders to evaluate current market prices and determine the optimal time to buy, sell or hold cryptocurrencies.
When you are ready to buy or sell, the exchange enters your order into its order book and executes the transaction on your behalf.
Depending on the type of order you are using, effects such as slippage may mean that you will not get the exact price you want. P2P trading, on the other hand, gives you full control over pricing, settlement time, and who to sell to and from whom to buy.
How Does a P2P Exchange Work?
Think of the P2P exchange the same way as the Facebook Marketplace – they are similar in that they connect buyers and sellers.
However, buying or selling something on the Facebook Marketplace can be a daunting task, as the counterparties are strangers and it is difficult to establish trust.
What happens if the seller receives the payment, and then blocks the buyer and does not send him the purchased goods? In this case, the buyer loses money due to fraud.
P2P exchanges are designed not only to connect buyers and sellers, but also to provide them with a level of protection, ensuring the security of transactions and reducing the risk of fraud.
Buyers and sellers can view cryptocurrency ads and place their own ads, while taking advantage of the protection provided by feedback and rating systems.
In addition, the P2P exchange uses escrow to protect the cryptocurrency being bought and sold until both parties confirm the transaction.
For example, if you sell bitcoins for fiat money, Binance deposits your BTC. As soon as you receive the fiat money, you will be able to confirm the transaction, and the BTC will be transferred to the buyer’s wallet.
If one of the parties is dissatisfied with the transaction, she can file an appeal to resolve the issue with the counterparty, or contact Binance customer support.
However, it should be borne in mind that an appeal must be filed during the execution of the warrant while it is still under consideration.
Advantages of P2P Trading
Global marketplace
One of the advantages of using a local bitcoin P2P exchange is that it gives you access to a global market of buyers and sellers of cryptocurrencies. For example, some P2P exchanges are available in hundreds of countries, which allows you to buy and sell cryptocurrencies with people around the world in minutes.
Multiple payment methods
Traditional exchanges may not offer as many payment options as P2P exchanges. Binance P2P, for example, offers more than 700 payment methods, including cash payment in person. This can be useful for those who prefer personal transactions or do not have access to a bank account.
Zero trading fees for takers
Although some cryptocurrency exchanges charge a fixed fee or a percentage per transaction, others allow traders to connect and conduct transactions for free – be sure to read the terms and conditions before choosing a P2P exchange.
Secure transactions via escrow
As mentioned above, some cryptocurrency exchanges use escrow services to protect buyers and sellers. When choosing to secure a transaction using escrow, funds are stored on the exchange and are issued only when the terms of the transaction are fulfilled by both parties.
Transactions must be completed within a certain period; if the buyer does not make a fiat payment at the specified time, his order is canceled, and the cryptocurrency is returned to the seller’s wallet.
Personalized offers
Sellers have full control over the sale price, exchange rate, payment method and how much they are willing to sell for the transaction.
The same is true for buyers (purchase price, payment method and the amount they are willing to spend for the transaction). If the conditions of both parties coincide, a deal can be concluded.
The rise of better alternatives to P2P
The decline in popularity of P2P platforms and the recent closure of some of the oldest P2P platforms is also explained by the emergence of more profitable alternatives, since there are now more practical “inputs” that allow users to buy cryptocurrency using their bank accounts and credit cards.
The costs of doing business are also of great importance. For example, exchanges like Coinbase spend millions of dollars just to comply with local laws.
Non-banking communities around the world can benefit the most from a P2P exchange, but given the growing regulatory compliance requirements, it is unlikely that they will produce the volumes needed for their large-scale support.
Mark Taverner, one of the founders of the Swiss-regulated crypto and fiat platform Xerof, told Cointelegraph that users often switch from P2P platforms to other reliable solutions because they need to minimize counterparty risk.
Users, of course, switch to those providers that can eliminate these risks:
“We see a growing demand for reliable, transparent and compatible solutions, and most of these users will switch to operators with licenses from recognized and respected jurisdictions. P2P markets will exist.
The long-term question remains only how they will cope with the increased regulatory requirements,” he said.
Jorgensen said that P2P platforms will continue to develop, as well as decentralized exchanges, and explained: “Although DEX [decentralized exchanges] are technically peer-to-peer exchanges, they are more focused on the government without trust with much better commissions.
In terms of regulation now and in the foreseeable future, the exchange of cash for cryptocurrency and cryptocurrency for cash is likely to be the place where most, if not all, regulation will be introduced.
Think about it. It is logical that when depositing and withdrawing cryptocurrencies, as when depositing and withdrawing shares in trading, these points of deposit and withdrawal of funds are documented. Ultimately, governments want to tax these transactions, and this approach is the least difficult way to do this.”
The closure of major P2P platforms in 2023 was a sign of evolving regulation, especially in the US. However, experts believe that P2P platforms will continue to play a key role in developing countries, and these countries will move towards launching their own platforms to overcome the closure of popular global platforms.
What Are the Risks of Arbitrage?
Although arbitrage can be beneficial for a trader, it comes with its own risks and costs. For example, a change in exchange rates may lead to a decrease in the value of a currency or asset.
In this case, the trader may suffer financial losses if the value of his asset decreases before he has time to sell it on another market.
In addition, there are bank fees associated with the transfer of assets between markets, which can reduce profits.
There may be other indirect costs, such as the cost of financing transactions and opportunity costs associated with the fact that they have not invested elsewhere.
Publish buy and sell ads
This method allows you to place an ad on the P2P trading platform, specifying the asset you are interested in buying or selling and the price at which you are ready to make a deal.
After placing your ad, other platform users who see it will decide whether they want to trade with you.
If another P2P user decides to trade with you, they will send you a trade request.
Once you accept the request, both parties will be able to complete the transaction. If you set the price above the market, it will provide you with more income.
For example, you can publish an ad for the purchase of bitcoin at a price of $20,000 and another ad for the sale of bitcoin at a price of $20,200. Thus, you will be able to earn $200 for every 1 bitcoin you trade.
Closing Thoughts
P2P cryptocurrency trading is a way to buy and sell cryptocurrencies without involving intermediaries. With P2P trading, you control prices, counterparties and the time of transactions.
It can be compared to Facebook Marketplace, but with an additional level of security thanks to feedback systems, ratings and escrow services.
This global marketplace provides access to various payment options, including cash transactions in person.
Although P2P trades may be slower and less liquid than on CEXs, those who are willing to wait and want to personalize their trades can benefit from arbitrage and other opportunities that P2P trading provides.
