TL;DR
Peer-to-peer (P2P) trading is becoming increasingly popular among cryptocurrency traders, but like any type of trading, it comes with potential risks. Traders who are aware of these risks can protect themselves from possible losses and better understand the process. There are several precautions you can take — read on to find out what they are and learn how and when to apply them.
Introduction
Peer-to-peer (P2P) cryptocurrency trading involves buying and selling digital currencies without the need for a third-party intermediary. P2P trading allows buyers and sellers to set their prices, select their counterparties and decide when to transact. It also allows diligent and experienced traders to take advantage of favorable trading conditions to meet their needs.
P2P crypto markets facilitate the direct trading of cryptocurrencies between individual users. There is no central authority or intermediaries, which gives users more control over their funds and allows them to protect their identity during transactions.
Despite these benefits, there are also risks involved in P2P trading that all users should be aware of before trading. Common risks traders face include false payment receipts, chargeback fraud, incorrect transfers, man-in-the-middle attacks, triangulation scams, and phishing.
Is P2P trading safe?
As with any type of trading, P2P trading has its risks, which vary depending on the broker and its security measures. While older brokers faced greater risks of theft and scams, many newer P2P trading platforms have improved their security measures significantly.
Nowadays, a good P2P broker typically offers an escrow service, regular security updates, and a strict identity verification process (among other measures) to ensure users' safety.
However, even with adequate security measures, all trading activity presents risks — and P2P trading is no exception.
Common scams in P2P trading
Proof of payment or fake SMS
Scammers can digitally alter receipts to convince you that they sent the payment and trick you into releasing the cryptocurrencies to them. One example is the fake SMS scam. Criminals spoof a text message that notifies the victim of the supposed receipt of a payment.
How to avoid this scam: As a seller, you should only approve the transaction after confirming receipt of payment in your wallet or bank account.
Chargeback fraud
A malicious user can use the chargeback function on the selected payment platform to reverse the payment once they receive your assets. In many cases, they try to pay through a third-party account. Some payment methods, such as checks and online wallets, make chargeback requests easier.
How to avoid this scam: do not accept third-party bill payments. If this happens, initiate an appeal and return the funds to the account that sent you the payment.
Incorrect transfer
As with chargeback fraud, a scammer may attempt to steal your assets by contacting the bank to report an incorrect transaction and request that it be reversed. Some scammers may even pressure you not to report the incident using scare tactics, such as claiming that selling cryptocurrency is illegal.
How to avoid this scam: Don't be intimidated by tactics like this. Systematically collect evidence, such as screenshots of the transaction and your correspondence with the criminal.
Ataques man-in-the-middle
In a man-in-the-middle attack, a malicious individual acts as an intermediary between a user and an application, organization, or other person and communicates on behalf of that other party, with the goal of stealing assets or sensitive information, such as private keys. The three main categories of man-in-the-middle attacks include relationship scams, investment fraud, and e-commerce fraud.
Romance scam. In this scenario, the scammer pretends to establish an online relationship with their victim. After gaining the victim's trust, the scammer manipulates them for help by claiming financial problems and requesting some money or cryptocurrencies, or requests to share confidential information such as private keys. When it achieves its malicious goals, it completely stops contact with the victim.
Investment scam. An investment scam involves a criminal convincing his victim to invest in a particular venture. By positioning himself as an intermediary (“man in the middle”) between the victim and the investment opportunity, the scammer can direct the user's funds wherever he wishes, under the pretext of “investing” them.
E-commerce scam. An e-commerce (e-commerce) scam involves a scammer pretending to be an online seller offering desirable items at a discount. The scammer insists that his victims send payment in cryptocurrencies to his wallet and, once this is done, he disappears without providing the products he promised.
How to avoid this scam: do not respond to trade requests on any social media platform. Before and during a transaction, communicate with your counterparty exclusively on the official platform.
Triangulation scams
The triangulation scam involves two scammers executing two orders from the same seller almost simultaneously, causing the seller to release a larger amount of cryptocurrencies than the amount paid.
For example, buyer A triggers an order to buy 5,000 BUSD worth of cryptocurrencies (order A), while buyer B triggers an order equivalent to 6,000 BUSD (order B).
Buyer B then transfers 5,000 BUSD to the seller, at the same time Buyer A marks order A as paid. The seller releases the cryptocurrencies to buyer A, completing order A for 5,000 BUSD. Buyer B sends another 1,000 BUSD to the seller and provides proof of payment for 5,000 BUSD (used for order A) along with proof of payment for 1,000 BUSD. He then asks the seller to release the digital assets from order B.
As a result, the seller released a total of 5,000 + 6,000 = 11,000 BUSD worth of cryptocurrencies, but only received 6,000 BUSD.
How to avoid this scam: Always check your bank account or wallet to confirm that you have received the correct payments for all pending P2P transactions.
Phishing
Phishing is a type of attack where the scammer uses a fake profile to trick users into sending assets or information to him. For example, the scammer may pose as a customer support representative of a P2P platform to gain access to private information or crypto accounts.
How to avoid this scam: Scammers may send fake security alerts related to your account via email or text message. When checking messages, avoid clicking on unknown links until you have verified the source. Furthermore, you should only request assistance from the official P2P broker.
How to identify risks
Before trading
Check out P2P ad profiles. Before starting a negotiation with any user, analyze the possible candidates. Some important aspects when analyzing a P2P profile are:
Number of trades: Low numbers are not necessarily bad, but a high number of completed transactions can be a sign of a trustworthy P2P counterparty.
Completion rate: Be careful if this number is below 80% as it could indicate that the trader has a habit of canceling transactions.
Trader or User Reviews: Few positive reviews or many negative reviews may indicate a higher risk when trading.
Check ads carefully. Evaluate each P2P ad to determine if it meets your needs and goals. Consider price, quantity, accepted payment methods, restrictions (such as trading limits), and other terms and conditions. For example, a very large difference between the P2P price and the market price on other trading platforms is a reason for suspicion.
During trading
Be careful when interacting with a P2P buyer. Warning signs include:
Buyer pressure for you to release cryptocurrencies.
The buyer asking for unnecessary information.
Lack of response from the buyer.
The buyer applying for a loan.
The buyer paying less than the value defined in the order.
The buyer paying more than the value defined in the order.
Buyer's request to communicate outside the P2P platform.
Buyer's request to pay through a third party.
Be careful when interacting with a P2P seller. Warning signs include:
Seller's request for you to cancel the order after you have already paid.
Seller's request to communicate outside the P2P platform.
Seller's request to trade with you outside of the P2P platform.
Seller's request for an additional commission.
After trading
When interacting with a P2P buyer, red flags include:
Failure to receive assets you have already paid for.
Receiving a check from the buyer that bounces.
Blocking your bank account after receiving payment from a buyer.
Requesting a chargeback from the buyer through their bank, after you have already transferred your cryptocurrencies to them.
General tips to protect yourself from scams
Trade on reputable platforms
Choose top P2P platforms that offer their users robust security features. Common features include:
Risk management capabilities. A platform that imposes specific requirements before buying or selling helps reduce inactive, untrustworthy, or low-quality ads. Even better if the platform offers advanced order matching logic to connect users only with trusted traders and verified traders, as well as risk management algorithms to monitor suspicious activity.
Some algorithms are even optimized to limit the trading activities of potential malicious users. Additionally, withdrawal limits or longer review processes can help protect user funds.
Know Your Customer (KYC) protocols. P2P platforms with KYC protocols help first-time users find trustworthy counterparties by encouraging identity verification of their users. This allows beginners to trade with verified and trustworthy traders with a proven track record.
Custodial services. Escrow services provide a secure way for buyers and sellers to trade goods or assets. A trusted third party — usually the P2P platform — is responsible for intermediating the exchange of funds between the parties involved, ensuring security and fair negotiation.
Customer support. Although P2P trading typically works without intermediaries, the P2P platform's customer support team can intervene if a user experiences problems during a trade.
Automated payment. New automated payment methods allow P2P platforms to automatically process the release of cryptocurrencies held in escrow without manual intervention. Buyers can receive their newly purchased assets instantly and sellers do not need to verify payment for each order or release assets manually.
Lock feature. The blocking feature allows you to block suspicious users — if you had an unpleasant experience with someone, you can block that user and prevent them from doing business with you again.
Communicate only on the platform
Avoid contacting trading counterparties on suspicious websites and be wary of prices that seem too good to be true. Furthermore, communication using external channels facilitates the action of scammers who can initiate false disputes against you and deny that the transaction took place.
Check your transactions
Remember to verify all counterparty information when making transactions. Examine all receipts and transactions to ensure nothing has been digitally altered. Here are some tips for spotting a fake payment slip:
Overlaid text
Different colors
Different typography
Size difference
You can also use a free image forensics tool. Search for “fake image detector” or “doctored image forensic tool” to get an idea of the resources available online.
Save screenshots
Keep records of all proof of communication and transactions in case you need to request an appeal.
Have targeted ads
If you already have an established crypto network, make sure your advertisement only reaches the people you want to trade with. Hide your ad and only share it with specific people — these could be people you know and trust, or users you've done business with in the past. Hiding ads can also be useful when trading large amounts.
Block suspicious counterparties
Be safe, block users with whom you have had bad negotiations. Protect yourself from fraud or other behavior that could harm your trading experience.
Request a feature
If you have issues, reach out to customer support and file a dispute or submit a feature 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 be aware of the potential risks associated with P2P transactions. This includes understanding the terms and conditions of any agreement, being aware of warning signs, and using platforms with advanced security features.
Use caution when engaging in any P2P transaction and contact customer support if you have any questions or issues. By paying attention and taking the necessary precautions, you can make the most of the benefits of P2P transactions.
Further reading
What is and how to do peer-to-peer (P2P) trading?
Guide to peer-to-peer networks | Binance Academy
Why and How to Do Your Own Research (DYOR) When Investing in Cryptocurrencies
Five Risk Management Strategies
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