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Peer-to-peer (P2P) trading is becoming increasingly popular among crypto traders, but like any type of trading, it comes with potential risks. Awareness of these risks will allow you to protect yourself from possible losses and better master the trading process. Users can ensure the safety of their assets in a variety of ways. Read on to learn more about protective measures and their application.
Introduction
Peer-to-peer (P2P) cryptocurrency trading involves buying and selling digital currencies without the participation of intermediaries. P2P trading allows buyers and sellers to set prices, select trading counterparties, and decide when to transact. It also helps active and experienced traders find and use favorable trading conditions to achieve their goals.
The P2P marketplace allows users to conduct crypto-fiat exchanges between themselves without a central authority or intermediary, while users have full control over their funds.
However, peer-to-peer trading comes with certain risks that you should be aware of. For example, users may experience fake proof of payment, chargeback scams, erroneous transfers, man-in-the-middle attacks, triangle scams, and phishing.
How safe is P2P trading?
Like any type of trading, P2P trading is associated with risks, which to a certain extent depend on the security measures on the exchange. Older exchanges are often criticized for increasing the risk of theft and fraud, while many new P2P platforms are actively improving their security systems.
Today, leading P2P exchanges use escrow services, regular security updates, a strict identity verification process, and other effective solutions.
But even with strong security measures in place, any trading activity involves risks, and P2P trading is no exception.
Common types of P2P fraud
Fake proof of payment or SMS message
Fraudsters may falsify payment receipts in an attempt to convince the merchant that they sent the payment and should receive the cryptocurrency. Often, victims are even sent fake SMS messages indicating that funds have been received in their account or wallet.
How to protect yourself: When selling, approve the transaction only after you have personally verified that the funds have arrived in your wallet or bank account.
Chargeback Fraud
An attacker can dispute the payment with the bank from which they paid for the P2P transaction in order to reverse their payment after receiving the assets from the seller. In addition, scammers often try to make a payment through a third-party account. When you use certain payment methods, such as online wallets, it becomes easier to return a payment.
How to protect yourself: Do not accept payments from third party accounts. If this happens, file an appeal and return the payment to the sender.
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As with chargeback fraud, the attacker can contact their bank, claiming the transaction was in error and requesting a reversal. Some scammers may convince the seller not to report the incident by intimidating them and claiming that selling cryptocurrency is illegal.
How to protect yourself: Don't be intimidated. Collect evidence and save screenshots of your correspondence and transactions with the criminal.
Man-in-the-Middle Attack Fraud
A man-in-the-middle attack scam involves an attacker interfering with the interaction between a user and an application, organization, or other person. In this case, the fraudster communicates on behalf of the counterparty in order to take possession of assets or confidential information, such as private keys. There are three types of this type of scam: romance scams, investment scams, and e-commerce scams.
Romance scam. The scammer begins a long-distance relationship with his victim. Having gained trust, he asks for help in solving financial problems, sending money or cryptocurrency, or sharing confidential information, such as private keys. Having achieved his goal, the attacker stops communication.
Investment fraud. The criminal finds the victim on the Internet and convinces her to invest money in a specific project or scheme. Acting as an “intermediary” between the victim and some profitable opportunity, the fraudster, under the guise of investment, transfers the user’s funds to his accounts.
E-commerce fraud. The scammer poses as an online seller with products at discounted prices. He insists that victims make payments in cryptocurrency to his wallet, then disappears without sending the promised goods.
How to protect yourself: Don't respond to sales requests on social media. You can communicate with the counterparty to the transaction only on the official platform.
Triangle scam
A triangle scam involves two attackers opening two orders almost simultaneously with the same seller, misleading him into sending more cryptocurrency than he paid for.
For example, buyer A opens a P2P order for 5,000 RUB (order A), and buyer B opens an order for 6,000 RUB (order B).
Buyer B transfers 5,000 RUB to the seller, while buyer A marks order A as paid. The seller sends cryptocurrency to buyer A, thereby executing A’s order for RUB 5,000. Buyer B sends the seller another RUB 1,000, provides proof of payment (which he received from Buyer A) for RUB 5,000 plus a receipt for RUB 1,000, and then forces the seller to send digital assets to B's order.
As a result, it turns out that the seller sent cryptocurrency in the amount of 5,000 + 6,000 = 11,000 RUB, but he was paid only 6,000 RUB.
How to protect yourself: Always check your bank account or wallet to ensure that all amounts for all P2P transactions have actually been received.
Phishing
Phishing is a type of malicious attack in which a scammer uses a fake profile to trick users into sending them assets or information. For example, an attacker could impersonate a P2P platform support representative to gain access to personal information or cryptocurrency accounts.
How to protect yourself: Some scammers may send fake account breach notifications via email or text messages. Follow unknown links in messages only if you have checked the source. Only contact official P2P exchanges for help.
How to identify risks
Before trading
Check the profiles of users posting P2P advertisements. Carefully select counterparties to trade with before entering into a transaction with any of them. When studying a counterparty's P2P profile, you should pay attention to the following factors:
Number of trades: If there are few trades, this is not necessarily a bad sign, but a large number of completed trades usually indicates the reliability of the counterparty.
Completion Rate: A rate of less than 80% may indicate that the trader has a habit of abandoning trades.
Feedback from merchants or users: a low number of positive or large number of negative reviews may indicate increased trading risk.
Check advertisements carefully. Review each P2P ad and determine if it meets your needs and goals. Consider price, quantity, available payment methods, restrictions (such as trading limits) and other conditions. For example, a too large discrepancy between the price of an asset in a P2P ad and the market price on other trading platforms should raise suspicion.
During trading
Be careful when interacting with a P2P buyer. The following actions should alert you:
The buyer convinces you to send cryptocurrency under any pretext.
The buyer requests optional information.
The buyer stops responding to messages.
The buyer asks you to borrow funds.
The buyer pays less than stated in the order.
The buyer pays more than stated in the order.
The buyer requests to communicate outside the P2P platform.
The buyer asks to make payment through an intermediary.
Be careful when interacting with a P2P seller. The following actions should alert you:
The seller asks you to cancel the order after you have paid.
The seller asks to communicate outside the P2P platform.
The seller asks you to trade outside the P2P platform.
The seller asks to pay an additional commission.
After trade
When interacting with a P2P buyer, you should be wary of the following:
You have not yet received the payment for which you transferred the cryptocurrency.
Receiving a check from a buyer that is not confirmed by the bank.
Your bank account has been blocked after receiving payment from a buyer.
The buyer has requested a refund from their bank after you transferred the cryptocurrency.
General tips for protecting yourself from scammers
Trade on proven platforms,
Choose well-known P2P platforms that offer users reliable security methods, such as:
Risk management functions. If a platform requires specific requirements before buying or selling, it reduces the number of inactive, unreliable or low-quality listings. The platform must have risk management algorithms to monitor for suspicious activity, as well as advanced order matching logic to match users only with trusted traders and verified merchants.
Some algorithms are even capable of limiting the trading activities of potential attackers. In addition, users may be protected by additional limits or delays when withdrawing funds.
Know Your Customer (KYC) protocols. P2P platforms with KYC protocols help newbies find reliable trading counterparties who have passed identity verification. Thanks to KYC verification, beginners can trade with trusted merchants who have a confirmed transaction history and reliable sources of funds.
Escrow services. Escrow services offer buyers and sellers a secure way to exchange goods or assets. It is carried out by a trusted third party, usually a P2P platform.
Support service. Although P2P trading usually takes place without intermediaries, the support team on the P2P platform can step in to help users if problems arise.
Automated payments. They allow P2P platforms to send cryptocurrencies from the escrow service automatically. Buyers instantly receive purchased assets, and sellers do not need to verify payment for each order or transfer assets manually.
Locking function. If you have had a bad experience with any user, you can block them and they will no longer be able to trade with you.
Communicate only on the platform
Avoid communicating with potential contractors on dubious sites and beware of advertisements with suspiciously favorable prices. If you communicate outside the platform, it will be easier for the scammer to start a dispute against you and deny that the transaction took place.
Check transactions
Check all available information about the counterparty. Review all transactions and receipts to ensure they are free of the following signs of digital fraud:
Words overlap each other
Different text colors
Different font
Different text size
You can also use free online image checking tools. Search for “fake image detection tool” to explore the available solutions.
Take screenshots
Retain all evidence of communications and transactions in case of an appeal.
Place targeted ads
If you have your own network of reliable counterparties, make sure that your ad is visible only to them. Hide your ad and share it only with the people you want, be it people you know or people you've already transacted with. Hiding an ad is also useful when making a large transaction.
Block suspicious users
Don't be afraid to block users with whom you have had ineffective transactions: this will help protect yourself from fraud and other unpleasant issues.
File an appeal
If you have a problem, contact support and file an appeal. Be sure to provide all relevant evidence of the transaction so that support can resolve your issue.
Conclusion
To protect your funds when trading P2P, be careful and avoid risks. Carefully review the terms of each transaction, look out for suspicious behavior, and choose platforms with strong security features.
Make P2P transactions with caution and contact support if you have any doubts. With these precautions in place, you can enjoy the benefits of P2P transactions without worry.
Recommended reading
What is P2P trading and how to use it
Peer-to-peer networks | Binance Academy
Why and How to Do Your Own Research (DYOR) Before Investing in Cryptocurrencies
Five Risk Management Strategies
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