When bitcoin was first conceptualized, the peer-to-peer aspect was at the core of it all. At that time, it had never been done in the finance or money industry. What some people don’t know is that the peer-to-peer revolution is beginning and we’re all a part of it.
You don’t know what that is? It’s alright, I’ll get you up to speed. I’ll be taking you on a tour of how the peer-to-peer system works, all its benefits, and how it differs from the traditional bitcoin exchanges. I’ll be taking you through how it works, how to buy bitcoin on a peer-to-peer marketplace, and great innovations that it has made throughout the years
To get to what a peer-to-peer marketplace is, you first need to know what a traditional bitcoin exchange is.
Traditional bitcoin exchanges are the more well-known and more used type of exchange. This is because traditional bitcoin exchanges have been around much longer than peer-to-peer bitcoin marketplaces.
On traditional bitcoin exchanges, buyers and sellers are matched via order books. This means that buyers and sellers rarely interact with one another and that they don’t know exactly who they’re trading with. Once the buyer is matched with the seller, a middleman is tasked to complete the trade for them. Although I’m presenting it in a negative light, some people might see this as a positive thing as no direct interactions between the buyer and seller can mean more privacy to some people.
Now that you know what a traditional exchange is, let’s compare it to what a peer-to-peer marketplace is.
Although peer-to-peer marketplaces are the less popular type of exchange, the popularity of peer-to-peer marketplaces are rising (especially in underbanked countries).
On peer-to-peer marketplaces, buyers and sellers are matched by the platform itself, and they are tasked to complete the trade themselves. This means that user can, in turn, set their own requirements and preferences, profit percentage, and can enter live chat with their trade partner.
Essentially, peer-to-peer marketplaces add a personalized touch to trading and depending on your trade partner, this can mean more efficient trades.
To decide which of the two types of exchange suits your trading style, I’ll provide a pros and cons list to help you out. Looking at the pros and cons of each type can somewhat tell you what you’re getting into and if it suits your idea of trading bitcoins.
Pros: As said earlier, traditional bitcoin exchanges are more well-known and more used. This means that there are already-established communities that are ready to help you. This also means that some of the biggest exchanges in the world have (or at least used to have) the traditional style of trading.
Since there is also a middleman that helps carry out the trade of the matched buyer and seller, this can mean faster trade times. Newbies can also find trades on traditional exchanges to be more intuitive.
Cons: Since there is a middleman to help carry out the trade, traditional bitcoin exchanges will implement higher fees.
There have been examples in the past of traditional bitcoin exchanges being affected by regulatory restrictions. The example that comes to mind is how The People’s Bank of China intervened. All withdrawals were frozen for a month in China and two of the largest exchanges were affected. As a user, this is NOT something you’d want as it would halt all potential profits.
Pros: One of the biggest pros that peer-to-peer marketplaces have is the wide array of payment methods. Since it’s a platform where people are matched with each other and they’re tasked to complete the trades themselves, more payment methods are popping up every day. Just think of it this way: imagine being in a room with millions of people and shouting “If there is anyone willing to accept ____________ as a payment method, I’d be glad to trade for bitcoins!”. There’s bound to be someone who’s willing to take that trade.
Most trades are also not affected by the erratic price of bitcoin. From the most recent bitcoin price dip, some studies show that there even more trades recorded. This means that peer-to-peer marketplace users use these platforms for profit and not only to invest in bitcoin.
Peer-to-peer marketplaces are more cost-efficient. Fewer fees are implemented as buyers and sellers are tasked to complete the trades themselves. The platforms also have little to no interference on the trades.
On peer-to-peer marketplaces, sellers have more power as they are able to set their own preferences on the trades. This means that sellers will have control over how much they make off a trade. They will also be able to choose their trade partners (a.k.a filter out their trade partners more).
Peer-to-peer marketplaces also usually have a live chat feature, allowing buyers and sellers to message each other while the trade is going on. This allows more clarification for payment requirements and verification. Depending on your trade partner, this could mean more efficient trades.
Security measures like escrow services are also implemented on peer-to-peer marketplaces. This prevents you from running into scammers and protects both the buyer and seller when trades commence. Escrow services are a third party that would hold all the bitcoins until all proper requirements are submitted. The coins will then be released after the trade is completed and both parties are happy.
Cons: Depending on your trade partner, the nature of trading on peer-to-peer marketplaces can sometimes take longer. Bitcoin and fiat transactions also have to come through before a trade is completed.
For newbies, it will also be much harder to learn the in’s and out’s of trading on a peer-to-peer marketplace. The steep learning curve is due to the nature of trading.
Neither type of exchange is better. It all depends on the type of trading you prefer. Always make sure to do research before going all-in on an exchange. Research not only about which type of exchange but also specific platforms that you might be interested in.
You can try trading small amounts on each exchange to see which one you prefer. Once you’re happy with an exchange, you can then start putting in bigger amounts.
As said earlier, the greatest innovation that peer-to-peer marketplaces have given us is the wide array of payment methods available. There are now hundreds of different payment methods to choose from and someone is usually willing to trade their bitcoins for your payment.
If you can’t find the payment method you’re looking for, then there’s usually an option to subit a new payment method. This means that the number of payment methods will slowly grow until there are no more payment methods missing from peer-to-peer marketplaces (a bit of an exaggeration but you get what I mean).
Although the process differs per platform, there is a skeleton on how to buy bitcoins on a peer-to-peer platform.
- Create an account.
- Set your buying preferences (your preferred fiat currency and how you’re going to pay)
- Look through the list of offers and see which one suits your needs
- Start a trade and follow all of the requirements of the seller
- Once the seller has verified your payment, he/she should then release the bitcoins from escrow (if the platform has an escrow service) and the trade is complete.
Selling bitcoins is also very simple.
- Create an offer – this means setting your preferences (profit percentage, fiat currency you’ll be using, kind of payment you’ll be receiving, etc.).
- Create offer terms – these are the requirements you’ll be needing depending on the chosen payment method
- Wait for someone to take your offer (and wait for his/her payment)
- Verify the payment then release the bitcoins from escrow
Although these are the basic processes that most peer-to-peer platforms follow, each platform will have their own specific set of steps/rules that you’ll need to follow. To find out more about a specific platform, be sure to do your research!
There are many advantages and disadvantages of bitcoin and it seems that peer-to-peer may fit on the advantages side. Although it may not be the worst form of trading, peer-to-peer finance has shown that it not only has the potential to earn you a significant income, it has also shown that it can do a lot of good for the community. #BuiltWithBitcoin, a campaign launched by ZamZamWater and Paxful, has shown us that peer-to-peer finance can help more than just an individual. By building a second school and providing scholarships to female Afghan refugees, they have shown the real good that peer-to-peer finance can bring.
Peer-to-peer is the future and sooner or later, we’ll all get on board. I hope that the information I have provided can shed some light on what peer-to-peer finance is all about. I wish you nothing but the best of luck on your trading adventure!