How Safe Are Peer-To-Peer (P2P) Cryptocurrency Exchanges
As the world of cryptocurrencies continues to advance, so are ways in which a trader can exchange crypto for fiat currency. A few years ago, exchange platforms required third party involvement to find asset buyers to complete a trade. However, currently, peer-to-peer (p2p) crypto exchange platforms eliminate central authorities’ need in trading. On these platforms, the trading parties enjoy direct trading.
A recent Cointelegraph report shows that in the first week of August 2020, 95 million US dollars worth of bitcoins passed through the Paxful and local bitcoins platform. Millions of altcoins pass through different P2P exchange platforms every year, resulting in increased growth.
These platforms support different cryptocurrencies. For example, Binance, a crypto service giant, provides several services, including P2P exchanges. It supports several crypto assets, including bitcoin, bitcoin cash, ethereum, BNB, etc. Other examples include; SIBEX, LocalBitcoins, Paxful, and LocalCryptos, which give good services, however most of them major in BTC.
The platforms come with a world of advantages, the first being speed and efficiency in transactions. Removing central authorities’ need means that transactions do not have to undergo lengthy procedures or official authorization. Allowing users to complete transactions in a few minutes.
Unlike other systems that focus on giving one payment option, P2P platforms offer several payment options for easy deposit and withdrawal. Users can pay using PayPal, Alipay, Moneygram, Mpesa, bank cards, etc. Transactions on P2P exchanges are often cheap in comparison to other crypto exchange networks.
Another vital element to consider when choosing an exchange platform is security. There are increasing cases of insecurity in the crypto world, and as such, any company offering crypto services should implement adequate security measures.
Safety Protocols in P2P Crypto Exchanges
Various technologies are instituted in P2P platforms to ensure that no money is lost and no hackers get through.
These platforms rely on blockchain dependability, reliability, and complete decentralization. However, more technologies hide the user’s identity and safeguard their assets.
KYC and AML Requirements
Know your customer (KYC) protocols, which are initiatives set in many blockchain businesses to recognize and verify the customers’ identity. Many governments refer to this system as anti-money laundering protocols (AML).
The protocol introduction came about due to increasing claims of crypto use in money laundering and criminal activities. Using the KYC protocols, many blockchain businesses collect a lot of personal data, including ID numbers.
The Peer-to-Peer (P2P) crypto exchanges do not adhere to any AML-KYC government initiatives. These platforms only require data necessary for opening accounts, which is mostly an email address. However, most of these platforms do not save the addresses after opening the accounts; thus, personal details will always remain private.
Moreover, these platforms are free from any external monitoring. This means that no one can get enough details to hack an individual’s account, resulting in an unhackable platform. Only two parties have control over a transaction, i.e., the buyer and the seller.
Leveraging Private Wallet
There are many wallets in the crypto space, divided into either private or exchange wallets. Most crypto platforms chose to use the exchange wallets, meaning the platform would own the users’ private keys. Exchange wallets give a third party control over an individual’s account and funds. If a user is dishonest at any point, they lose their wealth and cannot recover it.
P2P exchanges use private wallets, where the account holder has full control over the private keys. Private wallets help the user to store their private keys for a long time without any uncertainty. Users can decide to hold the keys in a hardware device or a paper wallet to bolster asset security.
Escrow is a financial service where two parties trading on P2P decides to entrust their commodities to be held by a third party. This service aims to allow the buyer to verify the goods’ authenticity and complete their payment before receiving full ownership.
P2P exchange platforms act as an Escrow service provider. The seller will put their assets in an escrow account, and then the seller would verify the authenticity and send payments as the buyer releases the assets.
Having a service like this reduces the chances of dishonesty and the possibility of losing money to fraud. This technique guarantees the trading party full security and honesty in transactions.
Financial technologies are growing and advancing every day, and peer to peer crypto exchange platforms only prove this point. These exchanges bolster the security of not only the assets but also protect individuals from criminals.
The platforms do not use the KYC protocols to collect data about the user, and neither do they keep the users’ private addresses; instead, users have full control over their wallets and their funds.
P2P networks’ main advantages include speed and efficiency. This is because there are no centralizing authorities. Both the buyer and seller benefit from transactions that take just a few minutes to complete. This form of exchange is highly secure and full of benefits for users.