Acquiring bitcoin with cash comes in two distinct flavours; you can choose to purchase it from a company such as a centralised exchange or fintech trading company, or you can purchase it from another bitcoin holder. When using an exchange, you’ll have to give up a host of information about yourself to acquire an account, and often exchanges don’t encourage you to take self-custody immediately. You will need to request a withdrawal until those funds are at risk.
This a risk that has come back to bite many bitcoin traders in the past once as exchanges collapsed over the years.
Exchanges will not promote self-custody; in fact, they rely on you not requesting your funds because it allows them to leverage your funds or encourage you to keep trading; either way, these are winning strategies for exchanges.
Another issue with exchanges is the KYC and AML obligations when using these services, which tie your bitcoin to your identity. These are databases that can be leaked and put you at risk.
Exchanges do provide a smooth onboarding process, but it has their drawbacks. If you don’t feel comfortable with trade-offs, you can opt to deal with individual private sellers. With a P2P exchange, you can purchase bitcoin directly from another person.
Having made several P2P trades myself, I know how daunting it can be and how easy it is to make a mistake when dealing with online sellers in what is a financial wild west. Due to the uncertainty around P2P markets, many new bitcoin users choose to avoid it and opt for the relative or rather perceived “safety” of centralised entities.
How does P2P trading work?
Peer-to-peer (P2P) trading is a type of bitcoin exchange method that allows traders to trade directly with one another without the need for a centralised third party to facilitate the transactions. They are the formalisation of user behaviour that has gone on for years, with many trading bitcoin with another via text message, social media posts, and even message boards and forums.
Since P2P exchanges link bitcoin purchasers and sellers, they’re sometimes compared to marketplace sites like OLX, Gumtree, Craigslist or Facebook Marketplace. Like these classified sales platforms, bitcoin P2P exchanges allow buyers and sellers to browse bitcoin advertisements/offers or create their own.
P2P trading platforms allow buyers and sellers to promote their orders in one place and then provide a search or browsing function for offers. P2P platforms don’t match buyers and sellers together to facilitate a trade, but merely find a path of discovery for participants looking to buy or sell bitcoin.
The platform will typically take a small fee for each trade conducted and also require users to store their funds in a separate digital wallet controlled by the platform and held in escrow.
Getting over your P2P fears.
P2P exchanges facilitate trading without the intervention of a third party, giving you control over the entire process. You’re in control every step of the way, so you only have yourself to blame if something goes wrong with your trades. The idea of taking personal responsibility for your finances can seem scary in a world where we’ve become accustomed to handing over rights to a custodian.
But it’s part of the bitcoin experience and a feeling you need to get used to should you wish to have self-sovereign money with no counterparty risk. P2P is how bitcoin is meant to be used, and the more people bypassing central points of failure, the more robust the bitcoin economy becomes, making it harder to attack.
To help you get started, we’ve put together a bitcoin P2P checklist.
If you’re on the fence about P2P trades or need a helping hand on getting the wheels going in that direction, you can use it as a guide for navigating the P2P markets and assist you in making successful and secure trades with strangers on P2P exchanges. We will go through what to look for when picking orders, deciding who you’ll be trading with online and how to limit specific attack vectors.
This is not to say you will become completely scam-proof, but this guide will help you to successfully navigate a P2P bitcoin purchase, from sourcing an order to taking custody of the funds.
1. Have a burner account.
Burner email accounts can be a great way to protect your personal information when trading Bitcoin on a P2P exchange. If you’re trying to remain private online and have no connection to your bitcoin, the last thing you want to do is sign in with a service using an email like Ron_Weasley@gmail.com.
Having a burner account will help shield your identity since you won’t be providing any personal information to the platform.
Additionally, a burner account can help you keep track of all your P2P trades since all the information will be tied to that account and not in between your work emails or other social media notifications.
Finally, using a burner account can help you avoid potential scams if the email address is leaked; in the future, you’ll know any strange emails coming into it are likely phishing scams and spam. Having an extra layer of security can give you peace of mind knowing that your trails are better covered.
Yes, it’s a bother to manage another email account, but is it really that much work?
Note: Certain P2P platforms like Robosats allow you to conduct trades with a key ID instead of having to create an account; keep that ID safe, and you can always re-use that account with its history without having any ID tied to it.
2. Have a burner wallet.
When venturing into the P2P world, you have the opportunity to start with a clean slate, so don’t bring any of your identity-tied baggage along with you. One of the easiest ways to dox your P2P activities online is to re-use a bitcoin address you previously tied to a centralised exchange or posted on your website or social media accounts.
Since that address is tied to you, we can assume any transactions moving into that wallet are yours, too, so those bitcoin UTXOs you bought P2P are essentially doxed.
Main chain
If you are planning to buy P2P bitcoin on the main chain, your best course of action would be to set up a brand new wallet that you can use temporarily to take custody of your funds. Once you have those funds in your control, you can always CoinJoin them later if you wish to move them into cold storage with your other funds.
Having a separate wallet for P2P trades also makes accounting a lot easier if you’re planning to track your portfolio over time.
Liquid Network
If you’re securing funds over the Liquid network, you should still spin up new addresses, but you have a little more protection with confidential transactions. While users can see you performing transactions on a Liquid block explorer, they cannot see the amounts you’re moving.
Liquid also makes it far cheaper to move funds on its side chain, which is great for smaller purchases, which you can then consolidate and peg out to the base chain when you have an amount with securing in cold storage, or you can bag 1sat/vbyte.
Lightning Network
If you’re using the Lightning Network to withdraw your funds to a custodial wallet like Wallet of Satoshi, please ensure that, again, you’re using a burner address that is not tied to you, or it defeats the purpose of trying to maintain privacy.Â
Stacking via Lightning is far cheaper, and you can always close your channel or submarine swap your funds if you wish to move them to cold storage. If you want to blind your P2P sats, you can always withdraw them to an eCash wallet instead and then pay a submarine swap invoice from there to add some extra layers of privacy to your transactions.
3. Beware of seductive offers.
When it comes to taking advantage of deals from peer-to-peer (P2P) exchanges, sure, there are times when people are desperate to liquidate bitcoin and put up attractive offers, but this is not the norm; no one wants to trade at a loss without good reason. When people are looking to liquidate bitcoin, they might offer smaller margins above spot or even below spot, but for a limited amount.
If you see large sales for way below the spot, consider it a red flag. Offers that may appear to be too good to be true may be just that. Extremely low prices that are far below the spot price may be strategies to profile gullible users, and secure their details only to later scam them.
4. Avoid trading outside of the P2P platforms.
In a P2P trade platform, you will have to initiate a monitored chat that is seen by you, the seller and a third-party mediator; this chat helps keep a record of how the transaction has been conducted and which parties might not be acting in good faith.
You can use this chat to exchange payment information with the seller and then attach proof of payment or keep the seller up to date with your side of the payment.
The chat allows the mediator to keep track of any issues in case there is a dispute, and the more information in the chat, the better your chances of winning a dispute.
Limit your conversations with the buyer or seller to the P2P platform. Don’t agree to use outside communication channels like Skype, Zoom, Discord, Telegram, WhatsApp, Email etc. This will only make it easier for them to source personal information on you, to try and threaten you, social engineer access to your accounts or deny the transaction and raise a false dispute against you.
Regardless of the reason a poison-toothed parseltongue gives you, deny him and remain in chat.
5. Check the seller’s social proof.
Certain P2P platforms allow sellers to build up a reputation tied to the site; it will usually show you information like:
- Amount of trades completed
- Positive reviews
- Negative reviews
- Disputes won
- Disputes lost
Regarding reviews, they can be helpful, but they can also be faked with scammers willing to spin up hundreds of accounts and push through fake orders only to review themselves to be received as trustworthy. Always check the views; if they are one-word answers or simple sentences, they are most likely fake reviews. You can also check if all the reviews were done in a short space of time; it’s a giveaway that they’ve been manufactured.
Additionally, if the reviewer only has one review, one purchase, or the review accounts are all reviewing the same accounts using variations of their experience, it’s most likely fake.
If you’re not keen on sifting through all the offers, you can entrust your sleuthing to the platform, which may offer a verification option with KYC for sellers, which might give you a sense of safety. Obviously, KYC can be faked; a seller could easily purchase a KYC’d ID from someone else and verify their account and still act maliciously, so please feel that verified sellers are always safe.
6. Purchase smaller amounts.
If it’s your first trip to Diagon Alley, please don’t show the sellers you’re ready to be taken for a ride on their broomsticks only to see your finds being the only thing swept up. Sellers can check your profile just like you can see theirs, and if they spot fresh meat, they might be inclined to try to conjure up some sort of sorcery.
Start with small amounts and limit your exposure to the trade; the last thing you want to do is be out thousands of dollars while hoping you have enough to file a dispute. If you’re picking up bitcoin at $20, 50, or $100 orders at a time, you’ll start to build up confidence, and you’ll begin to become familiar with the tricks sellers try to pull.
The reason for smaller purchases is a way to build up an account; once you have a proven track record of buying on that account, the sellers will be able to check you out and see that you are not someone they can easily scam, so they’re less likely to try.
7. Don’t trust anything said in chat.
If you’re unfortunate enough to open up an order with a scammer, you’ll find your order chat will get dragged out constantly. Serious sellers who are there to make money don’t have time to chit-chat. They’re there to make profitable sales, secure that margin and go back and do it again while they try and pick up cheap bitcoin from sellers.Â
Scammers, however, have nothing better to do; you are their margin, and you are their meal ticket, so they are willing to waste as much time as needed to get you to give them free money.
They will spin all sorts of silly stories like:
- The payment didn’t go through; please try again.
- The payment came through in Euros, and the order is for dollars; please cancel the order and place a new one.
- The order has expired; please create a new one.
- The price of bitcoin has changed; please cancel this order.
- The bitcoin network is slow, cancel the order, and we will try again later.
- I can’t move that small amount of bitcoin. Can you buy more?
If they’re not lying to you, they’ll try sending you fake proof of payment screenshots, PDFs or nudes, but you can simply ignore that mess. All you need to know is once you create an order and the bitcoin is in escrow, as soon as your bank or fiat gateway has confirmed payment, they must release those funds.Â
Any other talk they can save for their therapist or mom.
You about your money, and if they ain’t speaking sats, you ain’t hearing nothing.
8. Don’t cancel an order.
If you’re buying bitcoin from a peer where the escrow is set based on the order you’ve placed, whatever you do, do NOT cancel your transfer. The seller effectively had to put up bitcoin to set up the trade with you and is waiting for you to make the payment, and both parties agree that the fiat payment has been made; once both parties agree, the funds can be released.
If you cancel your order, you break the stalemate you had with the seller, and the moderator might not have the ability to recover funds should you try to enter into a dispute. By cancelling, you release the hold on those funds, and if the seller removes those funds from the platform, the moderator has no funds to recover.
There can be a long-standing claim against this account, and if that seller ever funds the account again, it can be captured and awarded, but the seller could abandon that account, and there will be no option for recourse.
As long as you don’t cancel the order, you effectively have a Petrificus Totalus spell going, and the seller cannot weasel their way out of it.
9. Don’t conduct orders without escrow.
The lack of an escrow system is a significant flag for any crypto trading platform offering P2P services. If there is no escrow, that order is a no-go. I don’t care how much lower it is than spot; it’s designed to sucker you into a position you cannot recover from, it’s fairy dust, trying to get you to see things, and it’s not real.
The escrow is your friend; it is the Incarcarous spell you can use to hold a seller accountable; when they secure funds in escrow, they are tied to the order until either you cancel it or the moderator awards the funds to the correct party.
If you head into a trade without escrow, you’re effectively handing over your money to a stranger, who could block you at any second, and you’re hoping they’ll send you bitcoin; that’s not a great spot to be in, so don’t do it to yourself.
10. Bring in the moderator for disputes.
 If you cannot reach an agreement and settle up with a seller, your next step is to file a dispute by contacting a P2P platform’s customer mediation team for assistance. P2P platforms typically have a system in place to investigate and handle disputes.
You should always report any suspicious activity.
Make a habit of taking screenshots of all of your transactions as proof that they were completed. It’s essential to have concrete evidence of a scammer acting in bad faith. If issues arise, calmly tell them if they don’t release the funds, you will be calling for a moderator; if that doesn’t do it, pull the trigger.
If your case is well presented with information in the chat and screenshot receipts, the moderator will have no problem resolving the case and releasing the funds to you.
If you don’t know how to build an argument via a chat with screenshots properly, contact your ex-girlfriend, I’m pretty sure she can coach you on it.
11. Build up a relationship with certain sellers.
P2P platforms often allow you to “save” or “favourite” certain sellers so you can create a list of sellers you’ve made a trade with in the past, and it makes it easier to contact and use their services again in future.
A good relationship with a trusted peer will give you peace of mind that you won’t get rugged since you’re dealing with someone who is reliable and trustworthy with a proven track record. Traders who are in it for the long term will even lower margins for you because they have done business with you before, so it could net you some cheaper sats.
Building a relationship with P2P bitcoin traders provides an increased level of safety, but don’t let that lull you into a false sense of confidence, they can flip on you at any time, and you should be cautious with every purchase, especially when they actively encourage you to increase your order amounts.
12. Be security conscious at all times.
When trading on a P2P platform, it’s best to assume that everyone involved is likely to scam you in some way, shape, or form; that way, you will question everything and remain vigilant when using these platforms.
Your wits are the closest thing you have to a Specialis Revelio.
When visiting a P2P platform, double-check the website domain, ensure you’re using the official app, check the merchant’s details, compare the name in the payment account, and make sure it’s the same for the verified merchant.
Also, if you are going to trade physical cash, use this as a last resort and conduct trades in a public area while informing loved ones what you plan to do or bring with a friend.
If the seller wants cash, try to use bank transfers or transfer via an ATM deposit or as money; that is, the bank can confirm that it is received so you can prove it should there be a dispute. If you’re selling bitcoin for cash, it might be best to use a bank, too, to protect yourself against accepting counterfeit notes.
Are you a bitcoin privacy advocate?
Are you using non-KYC bitcoin exchanges? Which app is your favourite? Do you have one you’d like us to cover? Do you have any tips you think should be added to the list?
Let us know in the comments down below.
