Brief content

P2P trading is becoming increasingly popular among crypto traders, but like any other type of trading, it comes with potential risks. Knowing these risks allows traders to protect themselves from possible losses and better understand the process. There are many precautions they can take. Read on to learn about these measures and how and when to use them.

Introduction

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, choose their trading partners, and decide when to make a deal. It also allows diligent and experienced traders to search for and use favorable trading conditions according to their needs.

P2P cryptocurrency marketplaces facilitate the direct exchange of cryptocurrencies between individual users. They have no central authority or third-party intermediary, giving users more control over their funds and allowing them to protect their identity during transactions.

Despite these advantages, there are also risks associated with P2P trading that users should be well aware of before trying their hand at this activity. Common risks faced by traders include fake proof of payment, chargeback fraud, incorrect remittance, man-in-the-middle attacks, triangle scams and phishing.

Is P2P trading safe?

As with any other type of trading, P2P trading has its fair share of risks, which vary by exchange and its security measures. While older exchanges faced a higher risk of theft and fraud, many new P2P trading platforms have greatly improved their security measures.

A leading P2P exchange today typically has an escrow service, regular security updates, and a strict identity verification process (among other measures) to keep users safe.

However, even with appropriate security measures in place, any trading activity involves risks, and P2P trading is no exception.

Some common P2P scams

Fake proof of payment or SMS

Scammers can digitally alter receipts to make you believe they sent a payment and trick you into transferring cryptocurrency to them. One example is SMS fraud, where criminals forge a text message to inform the victim that they have received a payment.

How to avoid this scam: When selling cryptocurrency, you should approve the transaction only after checking whether the payment has arrived in your wallet or bank account.

Incorrect transfer

As with chargeback fraud, the fraudster may attempt to steal your assets by contacting your bank to report the erroneous transaction and request that it be reversed. Some scammers may even trick you into not reporting the incident by using scare tactics, such as warning you that selling cryptocurrency is illegal.

How to avoid this scam: Don't be intimidated by scare tactics. Systematically collect evidence, such as screenshots of your correspondence and transactions with the criminal.

Attack of the middle man

In a man-in-the-middle attack, an attacker works between a user and an 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 romance scams, investment scams, and e-commerce scams.

  1. A romantic scam. In this scenario, the scammer pretends to start an online relationship with his victim. After winning the trust of the victim, he begins to manipulate her, forcing her to help solve financial problems. The scammer asks the victim to send some money or cryptocurrency or share sensitive information such as private keys, after which all contact ceases, once the scammer's malicious goals have been achieved.

  2. Investment fraud. Investment fraud involves the criminal entering into the trust of the victim and successfully convincing them to invest in a particular business venture. Acting as an intermediary between the victim and the investment opportunity, the scammer can direct the user's funds anywhere under the guise of their "investment".

  3. Fraud in electronic commerce. E-commerce fraud involves a fraudster pretending to be an online seller offering products at discounted prices. He insists that their victims make cryptocurrency payments to the scammer's wallet, and once this is done, the scammer disappears without delivering the promised products.

How to avoid this scam: Do not respond to sales requests on any social media. Limit your communication with the counterparty to the official platform before and during the deal.

Fraud with parallel orders for the same amount (or slightly different amounts)

The parallel order scam involves two criminals opening two orders to the same seller almost simultaneously, which ultimately confuses the seller into transferring more cryptocurrency than was paid for.

For example, buyer A opens a cryptocurrency order for 5000 BUSD (order A) and buyer B opens an order for 6000 BUSD (order B).

Buyer B then transfers BUSD 5,000 to the seller, while Buyer A marks A's order as paid. The seller then transfers the cryptocurrency to buyer A, thus fulfilling A's order for 5,000 BUSD. Buyer B sends another 1,000 BUSD to the seller, provides confirmation of payment of the 5,000 BUSD for which Buyer A has already received cryptocurrency, plus 1,000 BUSD, and forces the seller to transfer the digital assets for B's order.

It will then turn out that the seller transferred 5,000 + 6,000 = 11,000 BUSD worth of cryptocurrency and only received payment for 6,000 BUSD.

How to avoid this scam: Always check your bank account or wallet to make sure you've received full payments for all pending P2P transactions.

Phishing

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, an attacker can impersonate a support representative of a P2P platform to gain access to personal information or crypto accounts.

How to avoid this scam: Some scammers may send fake alerts about your account's security via email or text. When checking messages, do not follow unknown links until you have verified the source. You should also seek help only from an official representative of the P2P exchange.

How to identify risks

Before trade

  1. Check P2P seller profiles. Vet potential trade candidates before making deals with them. Some things to look for when viewing a P2P profile:

    • Number of transactions: Low numbers are not necessarily bad, but a high number of completed transactions can be a sign of a reliable P2P counterparty.

    • Completion Rate: If the level is below 80%, it may indicate that the trader has a habit of abandoning transactions.

    • Merchant or User Feedback: Very few positive comments or many negative comments may indicate higher trading risk.

  2. Check the ad carefully. Evaluate each P2P ad to determine if it meets your needs and goals. Consider price, quantity, available payment methods, restrictions (such as trading limits), and other terms. For example, too much discrepancy between the P2P price and the market price on other trading platforms is suspicious.

During trading

  1. Be vigilant when interacting with a P2P buyer. Red flags:

    • The buyer forces you to issue cryptocurrency.

    • The buyer is asking for unnecessary information.

    • The buyer stops responding.

    • The buyer is asking you for a loan.

    • The buyer pays less than the amount specified in the order.

    • The buyer pays more than the amount specified in the order.

    • The buyer asks to communicate outside the P2P platform.

    • The buyer wants to make a payment from a third party/third party account.

  2. Be vigilant when interacting with a P2P seller. Red flags:

    • The seller asks you to cancel the order after you have already paid.

    • The seller asks to communicate outside the P2P platform.

    • The seller asks you to trade outside the P2P platform.

    • The seller asks you to pay an additional fee.

After the trade

When interacting with P2P buyers, warning signals are:

  • Not receiving the asset you paid for.

  • Receipt of a check from the buyer, from which funds can be returned.

  • Your bank account is blocked after receiving payment from the buyer.

  • The buyer will initiate the chargeback through their bank after you have transferred your cryptocurrency to them.

General advice on fraud protection

Trade on reputable platforms

Choose leading P2P platforms that offer their users robust security features. Key features include:

  1. Risk management.A platform that enforces certain requirements before buying or selling can help reduce inactive, unreliable, or low-quality listings. Moreover, there should be perfect order matching logic to match users only with trusted traders and verified merchants. Risk management algorithms should also be present to track suspicious activity.
    Some algorithms can even be optimized to limit the trading activity of potential fraudsters. In addition, withdrawal limits or delays can help protect users' funds.

  2. Know Your Customer (KYC) protocols. P2P platforms with KYC protocols can help newcomers find reliable trading partners by forcing user identity verification. This allows newbies to make deals with proven merchants with proven reputations and reliable sources of funds.

  3. Escrow service. An escrow service provides a secure way for buyers and sellers to exchange goods or assets. A trusted third party, usually a P2P platform, handles the exchange of funds between the parties to the transaction to ensure security and fair trade.

  4. Customer support. While P2P trading usually works without intermediaries, the P2P platform's customer support team can step in if a user has a problem with a transaction.

  5. Automated payment. New automated payment methods allow P2P platforms to automatically process the transfer of cryptocurrency stored in an escrow system without manual intervention. Buyers can instantly receive purchased assets, and sellers do not need to verify the issuance of cryptocurrencies in each order or manually issue assets.

  6. Lock function. The blocking function allows you to block suspicious users. If you had a bad experience, you can block that user and prevent them from trading with you again.

Communicate only on the platform

Avoid dealing with potential trading partners on suspicious websites and watch out for prices that seem too good to be true. In addition, communicating through external channels will make it easier for a fraudster to create a false claim against you and deny that the transaction took place at all.

Double check your transactions

Do not forget to check all information from the counterparty when concluding an agreement with him. Carefully review all receipts and transactions to ensure that nothing has been digitally altered. Here are some tips on how to spot a fake payment confirmation:

  • Text overlay

  • Different colors

  • Different design of texts

  • The difference in size

You can also use a free online image analysis tool. Search for "fake image detector" or "edited image examiner" to analyze the resulting image.

Take screenshots

Keep records of all evidence of communications and transactions in case you need to file an appeal.

Tailor your ads to your target audience

If you have an established crypto network, make sure that your ad is only shown to the people you want to trade with. Hide your ad and only share it with certain people. These can be people you know and trust, or users you've worked with successfully in the past. Ad hiding can also be useful if you want to make a big deal.

Block suspicious counterparties

Block users with whom you have conflicting agreements early to protect yourself from fraud or other behavior that could disrupt your trading experience.

Create an appeal

If you encounter a problem, please contact support and create an appeal. Be sure to provide all relevant evidence relating to your transaction so that customer support can better assist you.

Conclusion

In order to protect your assets, it is important to be aware of the potential risks associated with P2P transactions. This includes understanding the terms of any deal, staying alert for red flags, and using platforms with robust security features.

Be careful with P2P transactions and contact support if you have any questions. By being careful and taking the necessary precautions, you can take full advantage of P2P transactions.

  • What is P2P trading and how do people use it?

  • Peer-to-Peer Networks Explained | Binance Academy

  • Why and How to Do Your Own Research (DYOR) When Investing in Cryptocurrency

  • Five risk management strategies


Disclaimer and Risk Warning: This content is provided to you "as is" for general information and educational purposes only, without any representations or warranties. It should not be considered as financial advice and is not intended to recommend the purchase of any particular product or service. You should seek advice from appropriate professional advisors. If the article is written by a third-party author, please note that the opinions expressed are those of the third-party author and do not necessarily reflect the opinions of Binance Academy. Please read our full disclaimer here for more information. Digital asset prices can be volatile. The value of your investment may go down as well as up, and you may not get back the amount you invested. You are solely responsible for your investment decisions and Binance is not responsible for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, please see the Terms of Use and Risk Warning.