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Bitcoin Exchange LocalBitcoins has closed down. Where else can you trade crypto peer-to-peer? P2P trading alternatives

Bitcoin Exchange LocalBitcoins has closed down. Where else can you trade crypto peer-to-peer? P2P trading alternatives

On 9 February 2023, LocalBitcoins.com, the world’s oldest peer-to-peer (P2P) trading platform for Bitcoin, announced that it would be shutting down its website. According to its notice, from 16 February 2023, customers would no longer be able to post trades and would only be allowed to withdraw funds to their own wallets.

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LocalBitcoins.com closure: the end of an era?

LocalBitcoins was one of the first platforms where you could reliably obtain Bitcoin. Founded in June 2012, many early crypto users would have been familiar with the platform, and likely used it at some point. Before bigger exchanges appeared in the following years, there weren’t many places to get Bitcoin, certainly not in every country.

By December 2020, there were over 1 million active traders on the platform, with billions of dollars changing hands.

P2P exchange

The service was unique for many reasons, introducing a more structured way to facilitate over-the-counter (OTC) trading of local fiat money for bitcoins. Users would post advertisements on the platform, setting their own exchange rates based on a percentage above or below current market rates. LocalBitcoins used a formula that would automatically adjust their advertised rates based. Other users would see these advertisements and open trades with the advertisers, paying them in local currency and buying their bitcoin.

This resonated with the original concepts of Bitcoin as a new kind of peer-to-peer digital money – trading on LocalBitcoins essentially meant that you were buying from or selling to other people, rather than from an in as you would on an broker, or using an intermediary like on an exchange.

Escrow: a safer way for crypto traders

LocalBitcoins also introduced an escrow system – once a trade was triggered by a buyer, the amount of bitcoins agreed in the trade would be automatically locked into the platform. Only after the buyer confirmed that funds for the trade are received in their accounts (depending on the method of payment), would the buyer be able to release the bitcoins in escrow to the seller.

This was a form of protection that many traders found useful. Along with a dispute settlement system managed by the platform, this meant that both parties were able to complete crypto trades with the watchful eye of LocalBitcoins ensuring that payments are made correctly.

Multiple payment methods

While exchanges and brokers do allow for mainstream payment options like bank deposits and debit or credit card payments, LocalBitcoins went a step farther, allowing users to use hundreds of different kinds of payment methods.

From the more usual digital payment services like PayPal and Payoneer, to remittance services like Western Union and Moneygram, local traders would be able to use dozens of other services based in their location. In many cases, these local options would be cost-free and instant, allowing for trades to settle in minutes.

Face-to-face crypto exchanges

Another unique aspect of P2P trading in the early years was face-to-face trading. Because Bitcoin use wasn’t widespread yet, coins also weren’t readily available. So it was pretty common for people to meet directly to exchange coins for local currency.

LocalBitcoins also allowed people to connect like this, still facilitating the trade via escrow, but releasing the bitcoin to the buyer only when the trade had been confirmed after the face to face meet. This was suitable for casual traders who sought more privacy and in fact, increased trading volume for sellers since every successful physical meet would result in positive feedback, increasing the reputation of traders willing to participate in this somewhat risky method

The cold crypto winter takes its toll on centralized exchanges

Over the past few years, with more and more exchanges becoming available and regulatory requirements becoming more strict, LocalBitcoins did experience a downturn in users and volumes. This was particularly true after it enforced additional Know Your Customer (KYC) procedures, requiring traders to verify themselves to continue trading. Previously, even anonymous traders could use the platform easily without limitations.

Industry observers note, however, that their abrupt closure comes at a time when the United States Financial Crimes Enforcement Network recently named the service as one of the largest Bitcoin transmitters to Russia-linked exchange Bitzlato.Bitzlato itself was the target of a major enforcement action from US authorities as the Russian exchange stands accused of money laundering and sanctions evasion.

LocalBitcoins themselves have suggested that the decision to shutter is mainly a business one, citing long-term negative outlooks in the crypto markets during this “cold crypto winter” as the key reason for closure.

Historically, bearish periods in the crypto market, alongside regulatory developments, have caused centralised exchanges to modify their business or shut down. In 2022, one of the largest centralised exchanges in the world, FTX, crumbled spectacularly amid liquidity, fraud, and debt issues, highlighting just how sensitive exchange businesses are in a “crypto winter”.

P2P crypto trading alternatives

P2P trading will continue to have appeal to some people, particularly because P2P trades tend to have better rates of exchange, while providing the protection of escrow and dispute settlement. Some P2P platforms also continue to allow anonymous trading, so are attractive to crypto users concerned with privacy.

With the departure of LocalBitcoins, here are some alternatives to trade crypto peer to peer.

1. Binance

Although its main business is derived from its centralised exchange, Binance actually has a P2P exchange. You can buy a variety of coins from there, including Bitcoin, Ethereum, Binance Coin, Tether and others, using several payment methods including Wechat, Alipay and even QIWI.

Currently, Binance P2P supports over 30 local currencies across Australia, Asia, and South America.

2. LocalCoinSwap

This Hong Kong-based P2P exchange has been around for over 5 years now, and doesn’t actually request for identification to open an account. That said, most traders there will require an ID from you for money transfers, anyway, but it is possible to find those who won’t.

One of the main attractions here is the rates, which tend to be as much as 5% better than market. Bitcoin has quite a lot of sellers but you might struggle to find altcoin sellers. M-Pesa is a popular method of payment, so East African users are commonly found there.

3. WazirX

Perhaps the biggest and most well-known brand in India, WazirX was India’s biggest exchange until regulatory developments forced them out several years ago. Nevertheless, its P2P option remains active with users looking to trade with each other.

WazirX also claims to use a unique “auto-matching P2P engine”. So instead of looking for individual advertisements, you simply enter the coins you’re looking for and the engine will automatically match you with the seller offering the best rate.

4. Paxful

Perhaps the closest thing to LocalBitcoins, Paxful is only a couple of years younger and does support users from the US. While it is recognised as one of the biggest names in P2P trading, Paxful does have a somewhat notorious reputation for having poor customer support and limited payment methods.

5. Bisq

Bisq is the only decentralised P2P exchange on this list – instead of a platform where you deposit funds and escrow it there, Bisq uses smart contracts to lock your escrow funds on the blockchain.

This also means there is no KYC at all on this platform, so it could be your best choice for anonymous and privacy-preserving trading.

On the other hand, because it is a bit more complicated to use, there aren’t that many sellers there. Volume is also a bit thin, so don’t expect to be able to buy or sell a lot.