Guide to Buying Crypto (P2P) Peer-to-Peer

Digital payments seems to be endorsed everywhere around the world today. China is way ahead with their digital payments while at the US the Fed just began this journey by proposing development of a new digital money. Government and institutions are seeing how powerful decentralization can be and they want a piece of the action.

Having this much buy-in from governments is actually good news for digital payments. As digital money gets wider adoption around the world there will be more regulation introduced. But let’s be realistic… Having a currency remain completely lawless is not possible. Digital money proposed by the governments will give them complete transparency on how the money is flowing. For currencies that they have no control over, they will either remain very difficult to trade or the trades will be very expensive to do.

The reality is regulation often lags behind innovation
— Bill Maris

I remember the very first Bitcoin purchase I ever made with a sketchy looking Bitcoin ATM: $20 worth where the fee was $13.50 and the left over was deposited to my wallet. This was an expensive test.

The speculative nature of crypto assets and the fact that they are still new and not regulated very well makes them very attractive to crypto exchanges. You have deposit fees, transaction fees, withdrawal fees, exchange fees, conversion fees, network fees, mining fees, and the list goes on.

For those that are “investing” in crypto and are hoping that the value of their coins is going to appreciate I think it’s worth comparing to some successful companies today. Let’s say you are buying AAPL or GOOG and you are paying 2% on transaction fee, then another 2% on withdrawal, 2% spread fee, 2% to deposit your money to brokerage. This is 10% of the value of your stock. This just doesn’t look practical!

Why are crypto exchange fees so high? Cryptos have been around for a decade but the market cap of all crypto currencies combined is still about ten times lower than market cap of gold. There have been more than 10 crashes of Bitcoin where half of them had drops over 55 percent¹. Crypto exchanges are able to exploit all this speculation around crypto assets and why wouldn’t they? These are very volatile assets after all!

What Are Crypto Fees Like Today?

Fees in most exchanges vary significantly. Some are cheaper than others but they might be other benefits that you probably need to consider before deciding whether you should use them or not. Typically exchanges have maker and taker fee. Buying is taking orders off the book so it’s a taker fee and here they are for some of the popular exchanges². Other fees withdrawal fees often depend on the amount or currency (for demonstration we used BTC as a base currency)³.

On first glance the fees don’t look that terrible if you don’t plan on doing a lot of trading. These fees can quickly add up when you consider additional fees. For example, CoinBase will charge 3.99% when you fund with debit or credit cards. Kraken charges an additional 1.7% + $0.10 when you fund with ACH.

DEFI exchanges like UniSwap look very attractive but with current gas prices on ETH a swap can cost you about $100. It’s not exactly something an average trader wants to pay. The advantage of DEFI exchanges like UniSwap is the fact that there are no KYC requirements (more on this below).

Over the past few years I’ve spotted several threads with issues with KYC and withdrawals. Some exchanges are known to hold your funds hostage if there is a suspected activity that violates their terms. There are numerous threads of people not being able to withdraw their own money because they are not able to complete account verification successfully. This does not mean that centralized exchanges are evil. They deal with a large number of transactions and won’t think twice about blocking your account if your account is flagged by algorithms as suspicious.

Privacy Concerns on Crypto Exchanges

Fees are not your only concern with crypto exchanges. There is always a risk that an an exchange might get hacked, and not only can you lose all the coins but your personal and transaction information can be exposed as well. Scandals like Mt. Gox are not very common but ransomware attacks are very prevalent today and exchanges are already targets.

So how does this affect you? Well if you are a casual trader that wants to find the best price in crypto then you might be signing up on various exchanges. This means that your private information is now on several platforms that may or may not be regulated in your country. We all know that once your information goes in any system it’s not that easy to get it purged for several years if ever. If they are operating somewhere on Cayman Islands there you have very little control over your information. But Bitcoin and other Altcoins are intended to keep your information private right? Well, if you use a custodial platform or an exchange this isn’t exactly the case.

When it comes to privacy and accountability, people always demand the former for themselves and the latter for everyone else.
— David Brin

Giving out some of your privacy is the other price you pay when buying crypto in exchanges today. DeFi projects like SushiSwap and UniSwap seem like promising solutions to preserving anonymity when transacting, but with current gas / network fees it’s not practical yet.

Other than high fees privacy is one of the growing concerns in the crypto community. Just like with cash, any exchange of crypto to fiat over a certain amount must be disclosed with government agencies like IRS. This a way to for governments to prevent money laundering, criminal activity, and of course to collect tax. All this makes sense. As long as the information is used for legitimate reasons there isn’t anything to worry about, but no one is making any guarantees about how your information used or stored!

Onboarding on Crypto Exchanges

Barrier to entry for people wanting to own some crypto was very high a few years ago. This has gotten better recently with many exchanges like CoinBase, Binance and Kraken. However, it still isn’t the easiest experience considering that there is a lot of resistance by banks and regulation. Funding is generally an issue with a lot of them.

It’s possible today to use credit cards, ACH and a variety of funding methods, but banks have been very active trying to block transactions to these exchanges. Risk of theft, fraud and scams is significant enough that it makes sense for banks to not want to allow these transactions if possible.

The good news is that you can still call the bank and explain that this is what you’re trying to do and after you’ve whitelisted exchanges you want to use you should have no problem. This does remain as one of the headaches that most beginners have to go through when onboarding on an exchange.

Still, the size and reputation of crypto exchanges gives most users some extra comfort about where their money is going. There are a lot of fees, verification can take time, funding can be difficult, but for a beginner who just wants to get in the game this is probably the safest option.

P2P as Alternative to Buying Bitcoin and Altcoins

P2P has been the less attractive option for a while now. There are many reddit threads explaining how people have been scammed when transacting. This is option still remains risky: you are transacting with actual people like yourself but you don’t always know who they are.

Despite all the risks, P2P does seem like the most flexible way to transact while keeping the fees to minimum. Instead of passing those fees to exchanges individual traders can collect a smaller margin and make a few extra bucks. It is also an easy way to send money to friends and family internationally without having to go through an exchange. There is also something about transacting with another human peer to peer as opposed to using an exchange company.

You never change things by fighting the existing reality.
To change something, build a new model that makes the existing model obsolete.
— Buckminster Fuller

P2P fiat-to-crypto and crypto-to-fiat is growing in popularity recently. People like P2P as an option for few reasons:

• You are in charge of your money: Platforms also called non-custodial share the private keys of your web wallet with you, so you actually have access to your coins all the time. You can import these keys in any other wallet and so you can use those funds off-platform as well. This is a good alternative if you are worried about the exchange ever locking you out of your account or preventing you from withdrawing.
• Support Local Payment Methods: Platforms like LocalCryptos, LocalBitcoins, P2PMoon, LocalCoinSwap allow transacting using an escrow system where buyer pays using fiat in a payment method of choice. Once the payment is received seller releases the escrow directly to the buyer.
• Lower to No Fees: The fees in P2P platforms are often lower than exchanges. Parties advertising buying or selling of crypto have the ability to choose the price. Fees that are collected by the platform are usually per transaction. LocalBitcoins charges the advertiser 1% per successful transaction. LocalCryptos charges 0.25% for the maker and 0.75% for the taker. P2PMoon does not charge any fees at all but requires a refundable collateral to be deposited for the crypto sellers.
• Little Verification Required: P2P platforms are still enforcing verification but strict verification is handled between the buyer and seller. If buyer and seller have verified each other once (or they know each other) then no other verification is needed. Most of these P2P trading platforms use ratings, reviews, popularity and other creative ways to establish a trust score. Users can then choose the score and verification criteria they require before they engage in a trade.

P2P is becoming a common way to trade fiat for crypto or vice versa, but just like any other time when you are dealing with money you really want to be ultra careful. Do your due diligence, find who you are trading with and comply with the law. Try a few smaller transactions and increase the amounts and volume after you’ve done a few successful trades.

So Where Should I Buy Bitcoin and Altcoins?

This really depends on the level of expertise that you have with crypto currencies. Crypto Exchanges are definitely a good way to get started. A lot of things are not obvious if you’ve never owned any crypto currency. Exchanges hide a lot of the technical jargon, they host a wallet for you and give you tools you need to transact.

Crypto exchanges, however, are not where you want to leave your funds long-term. Eventually you can move your coins to a personal wallet like Exodus or Electrum, and maybe even a hardware wallet like Trezor if you want to store your keys more securely.

If you are getting into the whole crypto scene and want to start owning Altcoins then you are likely going to be doing more than a few trades. Exchanges will make this process very simple, but the fees will start eating your stash. This is where P2P can be handy.

P2P is definitely a good way to trade and even make some profit if you spend the time. It is still remains relatively risky but so is everything else in crypto. Stay safe out there, enjoy this ride and see you on the 🌙

(1) Bitcoin Crash History — Exodus.com
(2) 2021 Crypto-Exchange Fee Comparison — cointracker.io
(3) Bitcoin Withdrawal Fees — withdrawalfees.com
(4) Calculating Gas Fees for UniSwap —r/ethereum