In the first part of this article we will cover the problems of centralized crypto exchanges such as: storing of personal information, custody of funds, facilitation of gambling and fractional reserve. In the second part we will explain how P2P solves them.
KYC
KYC or know your customer requirements pose a real danger to the users. Imagine if your home address and the amount of bitcoin you have purchased over the years becomes public information. Criminals can quite literally knock on your door and physically force you to give up your bitcoin aka $5 wrench attack.
There were plenty of information leaks from a variety of different service providers, some of them ended up with text files containing personal details (email, phone number, home address) freely circulating in public chats. So this threat is not a hypothetical, but a real one.
Custody of funds
As we say in bitcoin: Not your keys not your coins. It means that if you transfer your bitcoin to a third party it’s no longer yours. And if the company goes bankrupt or gets hacked, in most cases you won’t see your money again.
Since you give up the ownership of your funds, exchanges can prevent withdrawals for any reason they see valid. Some exchanges for example can flag your account for using privacy preserving techniques, others may require additional information about you or a receiver of funds before you can make a transfer.
Facilitation of gambling
Crypto exchanges are getting paid to offer tokens that are pretty much designed to rug pull investors. They don’t really mind if people are gaining or losing money, as long as they are taking home cold hard cash via commission.
There are also options of leverage trading that are promising bigger profits, but bitcoin is very volatile so usually it just ends up destroying traders.
Fractional reserve
When you are buying bitcoin on centralized exchanges what you are receiving might just be a number on the screen not backed by the real asset, which was learned the hard way by 1 million users of FTX. It used to be the 3’d largest exchange and when it filed for bankruptcy about $1.7 billion of customer funds were missing.
Pretty dark picture, but have no fear, P2P is here!
What are the benefits of buying bitcoin P2P? On Hodl Hodl deals are private, self custodial, secure, censorship resistant, you can create deals on your own terms, they are transparent as well as they offer an opportunity for arbitrage trading.
Privacy
Bitcoin trading platform Hod Hodl doesn’t collect private data of users. Registration is a very easy process where you provide an email address, click on a confirmation link and you are good to go. Buying bitcoin is possible with gift cards or even in person with cash.
Self-custody
At no point in time Hodl Hodl takes custody of user’s funds. There is also no in-built wallet, so users must use their own wallets to interact with each other.
Hodl Hodl ensures every trader’s safety by providing unique multisig escrow for every contract created. During the trade, bitcoin remains locked in the multisig escrow (P2SH) address on the blockchain. In order to release the Bitcoin from escrow, two (out of three) keys are needed — one belongs to the seller, one belongs to the buyer, and the other belongs to Hodl Hodl.
Censorship resistance
In countries that are hostile to bitcoin, P2P provides the way around the tyrannical restrictions. Essentially it might be the only way for an individual to complete a bitcoin trade.
Your own terms
It is possible to sell bitcoin over the market price and sometimes find offers to buy below the market price using your preferred payment methods. Users can also submit payment methods for a review if they are not listed.
Transparency
Both parties can independently verify the amount of bitcoin locked in the escrow. It can be done by using freely available blockchain explorers or by using your own bitcoin full node. What it means is that you don’t have to trust your counterparty, instead you can verify the legitimacy of the deal yourself.
In addition Hodl Hodl is very clear about the fee structure and is automatically breaking it down for the users to see.
Arbitrage opportunities
Arbitrage opportunities can appear because of a bitcoin discount on centralized exchanges, also between different payment methods and different currencies there might be a price difference. So it is possible to utilize P2P exchanges to earn.
In conclusion, if you remember anything from this article it’s that: KYC is an activity that puts users in danger. By sending your bitcoin to a centralized exchange you lose the ownership of it. Gambling with the best money the world has ever seen is a suboptimal idea.
Reach us
- Hodl Hodl trading platform: hodlhodl.com
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- E-mail: support@hodlhodl.com
- Blog: hodlhodl.medium.com
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HODL!
