What is Peer-to-peer (P2P) Crypto Exchange and How it Works?

What is Peer-to-peer (P2P) Crypto Exchange and How it Works?

in Cryptocurrency

In the previous article, I explained to you what a cryptocurrency exchange is and how it works. Today we will look over the question what a P2P crypto exchange is, what Bitcoin exchanges exist and how they differ from the usual ones.


  1. Where does it come from?

  2. P2P cryptocurrency exchange advantages

  3. P2P crypto exchanges disadvantages

  4. How to prevent a fraud?

  5.  LocalBitCoins 

  6. BitQuick

  7. Paxful.com

  8. Bisq.io

  9. Bitcoin.de

  10. Conclusion



Where does it come from?

Peer-to-peer (P2P) became popular in 1999 when Napster appeared. Napster was an application for music files sharing but it has a central server. The server linked people who had and the ones who hadn’t files and transferred the files between two computers directly. However, in July 2001 the server was accused of copyright infringement and was shut.


P2P crypto exchanges


So, P2P (or peer-to-peer) cryptocurrency exchange is a crypto exchange that does not need any intermediaries. I mean a server or a middleman. The software of the crypto exchange doesn’t match the orders in the order book but the persons who are behind the orders, that is a seller and a buyer. It doesn’t mean you can’t be an arbitrator in such a deal. As you could have already guessed, a P2P crypto exchange has the decentralization idea in its root.


Please, don’t confuse P2P crypto exchanges with the pure decentralized ones. The latter supports smart contracts while peer-to-peer - not.


P2P cryptocurrency exchange advantages

The red line that runs through all the idea is decentralization. However, there are other advantages:

  • No censorship

I mean, neither a government nor any third party can influence the crypto exchange process. Let’s remember the Coinbase (which is a regular one) example. The USA’s SEC asked the crypto exchange to provide the data of more than 13.000 people and the exchange did it. SEC said people need to pay taxes from the crypto investment activity, and the Coinbase also met the requirements installing a banner on its site with an alarm to pay the taxes:


Coinbase crypto exchange banner

  • Privacy

This item comes from the previous - the less the government’s influence, the more private the crypto exchange is.  

  • Small transaction fees

The regular crypto exchanges need people to operate who get salaries. Unlike of them, P2P cryptocurrency exchanges are software so the transaction fees are very small.

  • Security

The regular cryptocurrency exchanges carry out crypto wallet functions, holding your money on their servers. It means they can be hacked or robbed. The P2P crypto exchanges exclude such a possibility as they don’t keep one’s money at all.

crypto exchange security


P2P crypto exchanges disadvantages

Such kind of cryptocurrency exchanges is new and undeveloped. That’s why it has an imperfect functionality:

  • Not intuitive

The audience which currently uses the P2P crypto exchanges is comparatively small so their interface is far from the perfect state.

  • Low trading volumes

The reasons have already been mentioned above - small audience and imperfect interface.

  • Long trading time

Well, the regular cryptocurrency exchanges have also the con because of the long Bitcoin and fiat transactions. However, the transaction duration here is even longer as the system needs time to find a buyer for every seller, then they need to communicate and so on. The professional traders don’t use P2P crypto exchanges because of the long transaction time.

  • No ICO claims

I guess it’s easy: no centralized server - no ICO claims as there is no one to whom you can claim.


How to prevent a fraud?

The P2P crypto exchanges operating principle is constructed in such a way that Bitcoin transactions are not refundable while the fiat ones can be refunded if the buyer asks the refund from the bank.

how to prevent a fraud

To prevent this the peer-to-peer cryptocurrency exchanges created a system of obligatory deposits which means that a buyer and a seller make a Bitcoin deposit before a deal. After the deal is conducted both of them can take the deposited money back. If not, the community finds an arbitrator and the deposit serves as a payment for his services and a compensation for the victim of the fraud.


Let’s take a closer look at the process of peer-to-peer cryptocurrency exchange functionality on the example of the largest one,  LocalBitCoins.


On the cryptocurrency exchange, people from different countries can easily exchange their local currencies to Bitcoin and vice versa depending on their exchange rate and payment methods which they can specify in their advert on the website.


Two kinds of currency trade are provided on the exchanges:

  • Over the Counter (OTC) - the buyer and the seller make transactions face-to-face. They can meet in a cafe or somewhere else and make the deal.
  • Online option - the seller deposits Bitcoins to an escrow account which is blocked for him afterward. When the buyer makes his payment the LocalBitcoins software transfer the Bitcoin directly to the buyer’s wallet. If the seller wants to scam the buyer and blocks the release, the system makes it itself.

Localbitcoins p2p crypto exchange

LocalBitcoins pros:

  • Multiple ways of payment
  • Buyer and seller can see each other
  • No transaction fees (for tax purposes, however, the service takes fees for the advertisement).
  • Decentralized
  • No robots, just actual persons
  • Fast and secure online transactions
  • An introduced receipt of payment provides instant Bitcoin transactions.


LocalBitcoins cons:

  • Over the Counter (OTC) transactions security is limited

  • People may live far from each other and can’t meet-up

  • The possibility that someone won’t make a transaction

  • You trade with a person face-to-face so you have to provide your own security


The other popular peer-to-peer cryptocurrency exchanges are:


The service allows the U.S. residents to buy Bitcoins with cash. No need to create an account to buy Bitcoin. For the transaction, you just need your email and phone number. The purchases less than $400 doesn’t need an identification.

Bitquick p2p crypto exchange

The system also uses escrow accounts for the sellers. When a buyer chooses the seller, he gets an email with the seller’s bank account number. He has to go to the local branch of the bank and deposit the money on the account. After this, the buyer has to upload the receipt to BitQuick, confirm the payment and after all this the money will be released from the escrow account.


The service also uses escrow accounts and supports more than 300 payment options, including GIFT CARDS. Yes, you read it correctly. If you have an Amazon, iTunes or any other gift card that burns your pocket, you can buy Bitcoins on this.

Paxful.com p2p crypto exchange

The other payment options are:

  • Cash deposits
  • Online transfers
  • Debit/Credit cards


The fees depend on the seller - which amount he says, the one will be.


If you buy Bitcoin with cash or gift cards you don’t need any ID. But you do need to upload it if you are going to use debit or credit cards and online transfers.


Bisq (previously Bitsquare) is a peer-to-peer blockchain crypto exchange. Why do I underline blockchain? Because the blockchain is lead by a community, not a centralized server which means that hacks are almost impossible.

Bisq.io p2p crypto exchange

To make a transaction here you will need a crypto wallet, a bank account or an online transfer account. The arbitration mechanism is functioning.

The crypto exchange supports 127 cryptocurrencies. There is none minimal deposits, although the maximum trading size is 1 BTC.


According to the crypto exchanges’s support,


“Trading fees are based on trade amount and distance to market price. Min. fee (MinFee) = 0.0002 BTC, default fee (DefFee) = 0.002 BTC, amount factor (AF) = 1/BTC, market price factor (MF) = square root of percent value (e.g. 1% -> 1, 9% -> 3, 0.01% -> 0.1). Trading fee = max(MinFee, DefFee * amount * AF * MF). E.g. 0.002 BTC for 1 BTC trade at 1% market price distance.​


Bitcoin.de is a Europe-based P2P cryptocurrency exchange. How you could have guessed, it supports Euro (EUR) in pairs with Bitcoin (BTC), Bitcoin Cash (BCH) and Ethereum (ETH). The website of the company has a rating system with a trust level. Both buyer and seller can rate each other and the un/successful transactions affect the trust grade.

bitcoin.de p2p crypto exchange

To make a transaction you need to link your bank account to the user account on the website. SEPA (Single Euro Payments Area) bank transfer system is also supported. the fees rate depends on each of them: SEPA transfer will take one percent while regular one - 0.8 percent.



As you can see, P2P cryptocurrency exchanges are completely different from the usual ones and provide more security thanks to the escrow accounts, but it takes longer time for the transactions.


I think the peer-to-peer crypto exchanges are worth using if you need to buy or sell a large amount of money. In other cases, regular crypto exchanges are quite suitable and don’t take so long time and nerves.


However, it depends only on you which kind of cryptocurrency exchange to choose.


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