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Sep 08, 2020 12:52 PM EDT

What is a Peer-to-Peer Bitcoin Marketplace?


Peer-peer Bitcoin Market

(Photo : Pexels)

Since the dawn of bitcoin, traditional cryptocurrency exchanges have been the most popular way to buy bitcoin. With the now-defunct being the rock upon which the crypto church was built, these types of exchanges have dominated the space... until now.

Peer-to-peer (P2P) bitcoin marketplaces have burst onto the scene and some have become immensely popular among BTC traders.

How do they work?

Like their predecessors, P2P bitcoin marketplaces operate via order book-an electronic list of buy and sell offers available to the users. However, traditional bitcoin exchanges act as a middleman, helping buyers and sellers complete the trade. P2P bitcoin marketplaces don't follow this trend. Instead, these platforms have little to no interaction with the traders. Moderators will only step in if there's a dispute between the two traders.

Because of the rare interaction between the platform and the users, buyers and sellers complete the trade themselves. Essentially, this means that buyers could pay with whatever the seller will take. For example, if you're selling your BTC but don't necessarily want cash, let's say you want a gift card instead, you could look for someone willing to trade their gift card for your BTC-and there are a ton of things you can use to buy bitcoin. As a result of this flexibility, there are often hundreds of payment options on P2P bitcoin marketplaces.

To give you a clearer picture, let's use one of the biggest P2P bitcoin marketplaces out there, Paxful.

As a buyer on Paxful, you can input preferences like payment method, preferred fiat currency, location, and many more. The order book will then automatically filter the offers you can see, allowing you to choose the best offer.

As a seller, you can set up your own preferences and even make money with bitcoin by setting a profit percentage. Essentially, as a seller, if you don't want the cash, you can trade your BTC for gift cards (they're often cheaper than the ones you see in your nearby convenience store). Then, you can use those gift cards to buy yourself something pretty.

The cost-efficiency of personalization

A lot of gripes about P2P bitcoin marketplaces come from the lack of anonymity. Since traders have to communicate with one another to complete the trade (compared to traditional bitcoin exchanges, where buyers and sellers rarely interact with one another), there is definitely a trade-off.

However, the personalization of the entire process isn't a bad thing at all. In fact, it could be argued that the personalization can make these marketplaces even more appealing. Aside from the payment flexibility you get, P2P marketplaces are also often cheaper. Higher fees are charged on traditional bitcoin exchanges because of the more hands-on approach that the platform takes in the trade-a blueprint that P2P platforms don't follow.

Traditional bitcoin exchanges obviously still have their pros-more popular, bigger communities, more anonymity, and tried and tested. However, they also have their cons-higher fees and restrictions towards the unbanked and underbanked. P2P marketplaces are the same; they have their pros (payment flexibility, cost-efficiency, and accessibility) and cons (steeper learning curve and less anonymity).

At the end of the day, choosing which type depends on how you like to trade. Are you willing to pay higher fees for a more convenient experience, or would you rather give that up for better prices?

The choice is yours.

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