Bitcoin has always been bought on traditional bitcoin exchanges. The method of linking your bank account and buying from a bitcoin exchange has been around for much longer, making it very popular.
Despite the popularity of traditional bitcoin exchanges, there seems to be a new challenger rising through the ranks: peer-to-peer marketplaces.
Traditional bitcoin exchanges vs. peer-to-peer marketplaces
Although these two platforms have the same goal (buy and sell bitcoin), their methods are vastly different. On traditional bitcoin exchanges, buyers and sellers are matched via order book. Once matched, the platform acts as a middleman to help carry on the trade—meaning that buyers and sellers rarely have to interact with one another. Most consider this to be more private as there is more anonymity. This is why a lot of newbies and potential investors are attracted to trading on traditional bitcoin exchanges: not only is it more popular (meaning more communities and resources to learn from), it’s also more private and easier (due to the middleman).
Peer-to-peer marketplaces are also matched via order book. However, there is no middleman to help with the trade. Buyers and sellers are tasked to coordinate with one another to complete the trade. When users look to buy bitcoin, they input their preferences and are then shown a list of offers to choose from (according to those preferences). Each offer is packed with information like the vendor’s payment requirements, how much bitcoin you’ll be getting on the dollar (the vendor’s profit percentage), and much more (depending on the platform). This will allow each buyer to choose an offer that’s ideal for them.
Why peer-to-peer marketplaces are better
Although traditional bitcoin exchanges have been around longer and are generally more popular, they have their drawbacks. First of all, remember the middleman that helps buyers and sellers complete their trades? That comes at a price. This usually means that traditional bitcoin exchanges have higher fees. Also, most traditional bitcoin exchanges will require you to link a bank account to your account. This could be a problem for areas that are severely underbanked. Traditional bitcoin exchanges are also often the platforms that get affected by regulatory restrictions.
Despite traditional bitcoin exchanges being praised for having more anonymity, there are a lot of advantages that a personalized trading experience can bring to a trader. Taking Paxful—one of the leading peer-to-peer marketplaces in the world—as an example, here are some of the features that make trading more personal, yet beneficial for traders:
- Hundreds of payment options - Because the buyer and seller are tasked to complete the trade themselves, it allows sellers to choose what they would accept as payment for their bitcoin. This, in turn, has allowed buyers to choose among a wide array of payment options. On Paxful, there are over 300 payment options—ranging from bank transfers and gift cards to more obscure payment methods like IMPS transfers and cash-in-person. Having a lot of options will allow buyers to pay with, basically, whatever they like.
- Personalized offers - As mentioned earlier, offers are personalized by both buyers and sellers. Buyers have the option to pick offers based on their preferences. On the other hand, sellers have the option to sell their bitcoin on their terms.
- Live trade chat - The best peer-to-peer marketplaces often have a live trade chat for maximum efficiency. That way, if a buyer has any questions regarding the payment, they can directly message the seller. This should also help newbies learn more about how trades usually go on peer-to-peer marketplaces. It also allows people to form business relationships via bitcoin.
The risks and how peer-to-peer marketplaces combat them
As mentioned earlier, people will usually need a bank account to join a traditional bitcoin exchange. Peer-to-peer marketplaces, on the other hand, will basically allow anyone to join and trade. This opens up the doors for scammers to come into play. However, peer-to-peer marketplaces have developed over the years and have implemented several security protocols to combat these scammers. Here are the best examples, as found on Paxful:
- Escrow service - Escrow services act as a third-party mechanism that holds all the bitcoins until the trade is complete. So once a buyer starts a trade with a seller, the bitcoins for sale are automatically moved into escrow—preventing the seller from running away with the buyer’s payment. Escrow also protects vendors as it prevents buyers from running away with bitcoins without paying.
- Dedicated Community and Customer Experience teams - Paxful has a dedicated support team that is there at your beck and call 24/7. They’ll help you with any questions and/or disputes that you may have.
- 2FA - 2-Factor-Authentication is an essential part of securing your account as it will ask for verification before logging in and before sending any bitcoin out of the account. It provides that much-needed extra layer of security.
Using peer-to-peer marketplaces and bitcoin outside of investment
Aside from the many investment opportunities you can receive from using peer-to-peer marketplaces, these platforms have also provided people with opportunities to use bitcoin for other things. People are starting to use bitcoin for making payments, sending remittances, and even wealth preservation.
As you can see, peer-to-peer marketplaces aren’t only reinventing bitcoin for investment opportunities, but they’re also providing financial passports to those who need it the most. The unbanked are finally able to secure a makeshift bank account. The citizens from struggling economies are able to prevent the value of their money from dropping even more. Bitcoin is being used as the perfect vehicle for peer-to-peer finance and the marketplaces are allowing everyone to get in on the action.