What is Crypto Peer-to-Peer Trading or P2P trading?

Cryptocurrencies are becoming increasingly popular both as investment assets and as payment methods. Investors will have to convert their fiat money to crypto by buying them as well as those who wish to use it to pay for goods or services. Those holding crypto will also want to convert their holdings to fiat at some point.

Exchanges are the primary destination for this buying and selling to happen, but a new emerging method is coming up. This method is called Peer-to-Peer (P2P) trading. P2P trading is spreading very fast especially as governments around the world crack down on the use of cryptocurrency, the latest being the Nigerian Central Bank.

Following the ban on cryptocurrency, use of P2P trading platforms increased by 15%. That is a significant number, considering Nigeria is currently the African country with the highest crypto trading volume.

So what is P2P trading?

Now that you know so much about P2P trading, the question is, what is P2P trading? Well, simply put, it is the buying and selling of crypto from one person to another without using a third party like an exchange. This is not to say you cannot use an exchange for a P2P trade. There are exchanges that allow you to do this, only you don’t have to buy and sell in the traditional sense of an exchange.

There are a number of marketplaces purely for P2P trading as well. Some of them are Localcryptos, LocalBitcoins etc. buyers and sellers create accounts on these marketplaces or on an exchange and other buyers or sellers contact them as the case may be.

The platform, be it an exchange or a marketplace serves to ensure that there is no fraud. This is done by locking the cryptocurrency to be sold in an escrow wallet until the seller confirms receipt of payment in their local currency. The digital asset is then released to the buyer. This ensures that the seller doesn’t receive payment and then holds onto their digital asset leaving the buyer stranded.

If there is any dispute such as payment not sent, the affected party can appeal by providing some information to help the platform validate their claims, if found for instance that the seller did receive payment but refused to confirm receipt, the platform can release the digital asset to the buyer with or without the permission of the seller.

Trades are facilitated between users from a place that use the same fiat currency. For instance, if you register and indicate you are in China with the Yuan as your preferred currency, all your trades will be matched with buyers or sellers from China as the case may be. This makes it easier for buyers to easily pay sellers since they use the same fiat currency.

P2P trading explained

Looking at the Nigerian example above, P2P trading is a method most commonly used by citizens of countries in which their restrictions on the use of cryptocurrency. The country that pioneered P2P trading was China. The country’s restrictions on Bitcoin particularly is well known.

One time there was a rumor that the government had placed a ban on trading of the asset. At the time, the Chinese depended solely on P2P to buy and sell Bitcoin and the method is still very common in the country. While anyone can use the method of trading, it is more commonly used in such countries as Nigeria and China.

Why use P2P trading?

The obvious reason for using this method to trade is to by-pass restrictions. When you trade directly without using an exchange, the government cannot tell if the money deposited in your bank account (if you are selling) is the proceeds of selling crypto or not, so you are safe. Also if you are buying crypto, the transfer is from wallet to wallet which no one can tell who owns it, making it safe too.

The other reason is that P2P trading is also sometimes cheaper than using traditional exchanges for buying or selling. Exchanges like Binance offer a 100% free P2P trading platform which means you get 100% of whatever you are buying or selling.

The third reason for using P2P trading as an option is that it is quite safe, the process of carrying out the trade is much simpler than buying or selling conventionally on an exchange as well. The marketplace or exchange makes sure no one is cheated in the process, making it a safe and much simpler option to use if you do not intend to trade on an exchange.

P2P trading fees

On some platforms such as Binance, P2P trading is absolutely free of charge. However, P2P marketplaces charge fees for every transaction. As a matter of fact, they charge both the seller and the buying. For instance on LocalCryptos, the person who placed the listing (the maker) whether the seller or buyer is charged 0.25% of the transaction amount. The taker who is responding to the listing whether buying from the maker or selling to them is charged 0.75%.

Another marketplace LocalBitcoins charges makers a flat 1% fee for every completed transaction. There are no fees for takers. These variations from one marketplace to another means you can choose whichever best suits your purpose, for instance if you wish to list, it is better to go to Localcryptos that charges just 0.25%.

On the other hand if you want to act as a taker, you should use LocalBitcoins which charges no fees for takers.