Summary
Peer-to-peer (P2P) trading is growing in popularity among cryptocurrency traders, but like any type of trading, it comes with potential risks. Traders' awareness of these risks helps them protect themselves from potential losses and understand the trading process better. There are many precautions they can take — read on to learn about them, and learn how and when to apply them.
the introduction
Peer-to-peer (P2P) cryptocurrency trading requires the buying and selling of digital currencies without the need for an external intermediary, and allows buyers and sellers to set their own prices, choose their trading partners, and decide when to make transactions. It also enables active and experienced traders to search for favorable trading conditions that suit their needs.
Peer-to-peer (P2P) cryptocurrency exchanges facilitate the trading of cryptocurrencies directly between users, without any central authority or external intermediary, giving users more control over their funds and allowing them to protect their identity during transactions.
Despite these advantages, there are also risks involved in P2P trading that every user should be aware of before deciding to take the plunge. Common risks that traders face include fake payment proof, chargeback fraud, false transfer, man-in-the-middle attacks, triple scam, and phishing.
Is peer-to-peer trading safe?
As with any type of trading, P2P trading has its fair share of risks that vary depending on the platform you are trading on and the safety measures it has in place. While previous peer-to-peer trading platforms carried a greater risk of theft and fraud, many of the newer P2P platforms have greatly improved their security measures.
For example, today's leading P2P trading platforms have escrow service, regular security updates, and strict identity verification procedures (among other measures) to keep users safe.
But even with strong security measures in place, all trading activity involves risk — and peer-to-peer trading is no exception.
What are some common P2P trading scams?
Fake payment proof or fraudulent text messages
Scammers may digitally fake payment receipts to convince you they made the payment and trick you into releasing cryptocurrency to them. One example of this is SMS fraud where criminals forge a payment text message and send it to the victim.
How to avoid this scam: If you are a seller, you should only agree to complete the transaction after confirming that you have actually received the payment amount in your wallet or bank account.
Chargeback fraud
The fraudster may use the chargeback feature on their chosen payment platform to cancel the payment once they have obtained the digital assets from you. In many cases, scammers attempt to pay through an intermediary account. Some payment methods, such as checks and e-wallets, make refund requests easier.
How to avoid this scam: Do not accept payments from external accounts. If this happens, submit an arbitration request to the underlying platform and initiate a refund request to the buyer's account.
Incorrect conversion
As with chargeback fraud, a fraudster may attempt to steal your assets by contacting the bank to report an erroneous transaction and request that it be cancelled. Some scammers may pressure you not to report the incident with scare tactics, such as warning you that selling cryptocurrencies is illegal.
1 How to avoid this scam: Don't be afraid of scare tactics, and systematically collect evidence, such as screenshots, of your correspondence and transactions with the scammer.
Man-in-the-middle attacks
In man-in-the-middle attacks, the fraudster places himself between the user and the application, organization, or other person and communicates on behalf of that counterparty to steal assets or sensitive information such as private keys. The three main categories of man-in-the-middle attacks include emotional, investment, and e-commerce fraud.
Emotional fraud. In this scenario, the scammer pretends to have an online relationship with their victim. Once he gains the victim's trust, he manipulates him into helping him with his financial problems, sending some money or digital currencies, or sharing sensitive information such as private keys, and quickly disappears after achieving his malicious goals.
Investment fraud. An investment scam involves the scammer communicating with the victim and convincing him or her of an investment opportunity in a particular entity. By acting as an “intermediary” between the victim and the investment destination, the fraudster can direct the user’s money wherever he wants under the pretext of “investment.”
E-commerce fraud. An e-commerce scam involves the scammer posing as an online seller selling in-demand goods at discounted prices. He insists that the victim pay in digital currency to his wallet and once he does so, he disappears without delivering the products he promised.
How to avoid this scam: Do not respond to trading requests on any social media platform. Only communicate with the counterparty through the official platform before and during the transaction.
Triple scams
Triangle scams involve scammers purchasing from the same seller almost simultaneously, ultimately confusing the seller into releasing more cryptocurrencies than paid.
For example, Buyer A places an order for 5,000 BUSD worth of cryptocurrencies (Order A), while Buyer B places an order for the equivalent of 6,000 BUSD (Order B).
Buyer B transfers 5,000 BUSD to Seller, at the same time Buyer A marks the order paid. The seller releases the cryptocurrencies to Buyer A, thus completing A's order for 5,000 BUSD. Buyer B then sends 1,000 BUSD to the seller, providing proof of payment of the 5,000 BUSD (which he received from Buyer A) plus the 1,000 BUSD, and forces the seller to release the assets. Digital on request b.
It then turns out that the seller has released 5,000 + 6,000 = 11,000 BUSD in cryptocurrencies but has only received 6,000 BUSD.
How to avoid this scam: Always check your bank account or wallet to ensure you receive full payments for all pending P2P transactions.
Fraud
Phishing is a type of malicious attack in which a fraudster uses a fake profile to trick users into sending them assets or information. For example, a scammer might impersonate a P2P platform's customer service representative to access private information or cryptocurrency accounts.
How to avoid this scam: Some scammers may send fake security alerts about your account via email or text. When verifying messages, do not click on unknown links before verifying the source. You should also only seek help from the official P2P platform.
How to identify risks
Before trading
Check profiles for P2P ads. Check potential trading candidates before entering into a trade with any of them. Some things to note while looking at the profile of a P2P trader are:
Number of Transactions: Low numbers are not necessarily bad, but a high number of completed transactions may be a sign of a reliable P2P party.
Completion rate: Reconsider if it is less than 80% as this may indicate that the trader has a habit of backing out of transactions.
Trader or User Feedback: Too few positive comments or too many negative comments can indicate higher trading risk.
Check ads carefully. Evaluate each P2P ad to determine if it meets your needs and goals. Take into account price, quantity, accepted payment methods, restrictions (such as trading limits) and other terms and conditions. For example, a very large discrepancy between the P2P price and the market price on other trading platforms is a sign that something is suspicious.
During trading
Stay alert when doing a P2P trade with a buyer. Danger signals include:
The buyer is urging you to release the cryptocurrencies.
Buyer requests unnecessary information.
The buyer stops responding.
The buyer is requesting a loan from you.
The buyer pays less than the amount agreed upon in the order.
The buyer pays more than the amount agreed upon in the order.
The buyer requires you to communicate outside the P2P platform.
Buyer requests payment through an intermediary.
Be vigilant when dealing with a P2P seller. Danger signals include:
The seller requested to cancel the order after you have already paid.
The seller's request is to communicate outside the P2P platform.
Seller's request to trade outside the P2P platform.
The seller asked to pay an additional commission.
After trading
Stay alert when doing a P2P trade with a buyer. Danger signals include:
Not receiving the assets you paid for.
Receiving a check without balance from the buyer.
Freezing your bank account after receiving a payment transaction from a buyer.
The buyer requests a refund through his bank after transferring your digital currencies to him.
General tips to protect yourself from scams
Trade on reputable platforms
Choose leading P2P platforms that provide their users with strong security features. Its most prominent basic characteristics are:
Advantages of risk management. A platform that imposes specific requirements before buying or selling helps reduce inactive, unreliable or low-quality advertising. Better yet, there should be sophisticated logic to match user orders with trusted traders and approved traders only, as well as risk management algorithms to monitor suspicious activity.
Some algorithms have been improved to limit the trading activities of potential bad actors. Additionally, withdrawal or delay limits can help protect user funds.
Identity authentication protocols. P2P platforms that implement identity authentication protocols can help beginners find reliable trading partners by enforcing user identity verification. This allows beginners to make trades with certified traders who have a proven track record of successful trading orders and reliable sources of funds.
Warranty service. Escrow services provide a safe way for buyers and sellers to trade goods or assets. A trusted third party — usually a P2P platform — handles the circulation of funds between transacting parties to maintain safety and fair trading.
Customer support. While P2P trading usually works without intermediaries, the P2P platform's customer support team can intervene if a user experiences problems with trading.
Automated payments. New automated payment methods enable P2P trading platforms to automatically process the issuance of cryptocurrencies held in escrow without manual intervention. Buyers can receive newly purchased assets instantly and sellers do not have to verify the payment transaction for each order or edit assets manually.
Block feature. This feature allows you to block suspicious users — if you have an unpleasant trading experience with someone, you can block that user and prevent them from trading with you again.
Communicate through the trading platform only
Avoid contacting potential trading partners on suspicious websites and be alert for prices that seem too good to be true. Communicating using external channels will also make it easier for a scammer to file a false dispute against you and deny that the transaction ever occurred.
Double check your transactions
Remember to check all information from your counterparty when dealing with them. Scan all receipts and transactions to ensure nothing has been digitally counterfeited. Here are some tips for identifying fake proof of payment:
Overlapping text
Color difference
Printing difference
Size difference
You can also use a free online image analysis tool. Search for “fake photo finder” or “image forensics tool” to get an idea of the tools available.
Take screenshots
Maintain records of all evidence of communication and transactions in the event you need to file a request for arbitration.
Targeted advertising
If you have an established cryptocurrency network, make sure your advertising only reaches the people you want to trade with. Hide your ad and share it with only specific people — these could be people you know and trust, or users you've interacted with successfully before. Hiding ads can also be useful if you want to make a big deal.
Block suspicious parties
Proactively block users with whom you have made suboptimal trades to protect yourself from fraud or other behavior that may disrupt your trading experience.
Submit an arbitration request
If you encounter a problem, request customer support and submit an arbitration request. Remember to provide all relevant evidence regarding your transaction so that customer support can best assist you.
Conclusion
To protect your assets, it is essential to stay alert to the potential risks associated with P2P transactions. This includes understanding the terms and conditions of any agreement, staying alert for red flags, and using platforms that support strong security features.
Be careful when making any P2P transaction, and contact customer support if you have any concerns. By being careful and taking necessary precautions, you can fully enjoy the benefits of P2P transactions.
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