Peer-to-peer (P2P) cryptocurrency trading is the buying and selling of digital currencies without the need for a third party intermediary. P2P trading allows buyers and sellers to set prices, choose their counterparties, and decide when to trade. It also allows experienced and diligent traders to find and take advantage of favorable trading conditions that suit their needs.
P2P cryptocurrency markets facilitate the direct exchange of cryptocurrencies between individual users. There is no central authority or third-party intermediary, so P2P trading gives users more control over their funds and allows them to protect their identity during transactions.
Despite these benefits, there are also risks associated with P2P trading that users should be keenly aware of before trying out this feature. Common risks that traders face include fake payment proofs, chargeback fraud, false transfers, man-in-the-middle attacks, triangulation, and spoofing.
Is P2P trading safe?
As with any type of trading, P2P trading comes with its fair share of risks, which vary depending on the exchange and its security measures. While older exchanges face a higher risk of theft and fraud, many newer P2P trading platforms have significantly improved their security measures.
For example, a top P2P exchange today typically has an escrow service, regular security updates, and strict identity verification processes (and other measures) to keep users safe.
However, even with proper safeguards in place, all trading activities carry risks — and P2P trading is no exception.
What are some common P2P scams?
Payment proof or fake SMS
Scammers can digitally alter receipts to convince you that they sent a payment and trick you into releasing cryptocurrency to them. One example is SMS phishing, where criminals spoof a text message to notify the victim that they have received a payment.
How to avoid this scam: As a seller, you should only unlock the transaction after checking if the payment is already in your wallet or bank account.
Chargeback Fraud
Bad guys can use the chargeback feature on payment platforms to reverse their payment once they receive your assets. In many cases, they try to pay through a third-party account. Some payment methods like checks and online wallets make it easier to request a chargeback.
How to avoid this scam: Don't accept payments from third-party accounts. If this happens, file a complaint with the platform and initiate a refund to the buyer's account.
Wrong transfer
As with chargeback fraud, scammers may attempt to steal your assets by contacting their bank to report a false transaction and requesting a reversal. Some scammers may even pressure 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 these criminals.
Man-in-the-middle attacks
In a man-in-the-middle attack, a bad actor inserts himself between a user and another application, organization, or individual and communicates on behalf of that party to steal assets or sensitive information such as private keys. The three main types of man-in-the-middle attacks include romance scams, investment scams, and e-commerce shopping scams.
Romance scams. In this scenario, scammers pretend to establish an online relationship with their victims. Once they have gained their trust, they will entice them to help them solve financial problems with money or cryptocurrency, or share sensitive information such as private keys. Finally, they will cut off all contact with the victim once their evil goals have been achieved.
Investment scams. Investment scams involve criminals approaching and successfully convincing victims to invest in a particular business. As the “middleman” between the victim and the investment opportunity, the scammer can transfer the user’s money wherever they want under the guise of “investing” for them.
E-commerce scams. E-commerce scams involve a scammer posing as an online seller offering desired items at a discounted price. The scammer insists that their victims pay in cryptocurrency to their wallet and, once this is done, they disappear without delivering the products they promised.
How to avoid this scam: Do not respond to trade requests on any social media platforms. Limit communication with your counterparty on official platforms before and during the trade.
Triangle scam
A triangle scam involves two bad actors almost simultaneously receiving two orders from the same seller, ultimately confusing the seller and releasing more cryptocurrency than they were paid.
For example, Buyer A receives a cryptocurrency order worth 5,000 BUSD (Order A), while Buyer B receives an order worth the equivalent of 6,000 BUSD (Order B).
Buyer B then transfers 5,000 BUSD to the seller, while Buyer A marks Order A as paid. The seller then releases the crypto to Buyer A, thus completing Order A for 5,000 BUSD. Buyer B sends another 1,000 BUSD to the seller, providing proof of payment for the 5,000 BUSD they received from Buyer A plus the 1,000 BUSD, and forces the seller to release the digital assets under Order B.
When the dust settled, it turned out that the seller had issued 5,000 + 6,000 = 11,000 BUSD worth of crypto but was only paid 6,000 BUSD.
How to avoid this scam: Always make sure to check your bank account or wallet to confirm that you have received full payments for all pending P2P transactions.
Phishing
Spoofing is a dangerous type of attack where a fraudster uses a fake profile to trick users into sending them assets or information. For example, a bad actor could impersonate a customer service representative of a P2P platform to gain access to personal information or cryptocurrency accounts.
How to avoid this scam: Some scammers may send fake security alerts about your account via email or text message. When checking messages, do not click on unknown links before verifying the source. You should also only seek help from official P2P exchanges.
How to identify risk
Before trading
Check P2P Ad Profiles. Screen potential trading candidates before you enter into a trade with any of them. Some things to keep in mind when looking at P2P profiles are:
Number of transactions: Low numbers aren't necessarily bad, but a high number of completed transactions can be a sign of a trustworthy P2P party.
Completion Rate: Reconsider if this is below 80% as this may indicate the trader has a habit of backing out of trades.
Seller or user feedback: Very few positive comments or many negative comments may indicate higher trading risk.
Examine ads carefully. Evaluate each P2P ad to determine whether it meets your needs and goals. Consider the price, quantity, accepted payment methods, restrictions (such as transaction limits), and other terms and conditions. For example, large discrepancies between P2P prices and market prices on other trading platforms are suspicious.
When trading
Always be cautious when interacting with P2P buyers. Red flags include:
The buyer urges you to unlock the crypto.
Buyers ask for unnecessary information.
Buyer not responding.
The buyer requests a loan from you.
The buyer paid less than the amount agreed in the order.
The buyer paid more than the amount agreed in the order.
Buyers require communication outside of the P2P platform.
Buyer requests payment through a third party.
Always be cautious when interacting with P2P sellers. Red flags include:
The seller asked you to cancel the order after you had paid.
Sellers require communication outside of the P2P platform.
The seller asks you to transact outside the P2P platform.
The seller asks you to pay extra commission.
After the transaction
When interacting with P2P buyers, red flags include:
The buyer has not received the property you paid for.
Check from buyer returned.
Your bank account is blocked after receiving payment from the buyer.
Buyers initiate chargebacks through their bank after you have transferred your crypto to them.
General tips to protect yourself from scams
Trade on reputable platforms
Choose top P2P platforms that offer users strong security features. Common features include:
Risk management features. A platform that enforces specific requirements before buying or selling can help reduce inactive, unreliable, or low-quality ads. Ideally, there should be sophisticated matching logic to match users with trusted traders and only verified sellers, as well as risk management algorithms to monitor for suspicious activity.
Some algorithms are even optimized to limit the trading activity of potential bad actors. Additionally, withdrawal limits or delays can help protect user funds.
Know Your Customer (KYC) protocols. P2P platforms with KYC protocols can help beginners find trustworthy trading partners by enforcing user identity verification. This allows beginners to trade with verified merchants who have a track record and reliable funding sources.
Escrow services. Escrow services provide a secure way for buyers and sellers to exchange goods or assets. A trusted third party — typically a P2P platform — handles the exchange of funds between the transacting parties to ensure safety and fairness of the transaction.
Customer support. Although P2P transactions usually operate without a middleman, the P2P platform's customer support team can still intervene if a user has problems with a transaction.
Automated Payments. 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 check each order payment or manually release assets.
Block feature. The block feature allows you to block suspicious users — if you have a bad experience with someone, you can block that user and prevent them from doing business with you again.
Communicate on the platform only
Avoid contacting potential trading partners on dubious websites and be wary of prices that sound too good to be true. Additionally, communicating through external channels makes it easier for scammers to falsely dispute you and deny that the transaction ever took place.
Double check your transactions
Remember to verify all information from your counterparty when transacting peer-to-peer. Carefully review all receipts and transactions to ensure that nothing has been digitally altered. Here are some tips for identifying fraudulent payment evidence:
Overlapping text
Different colors
Different fonts
Size difference
You can also use free online image forensics tools. Search for “fake image detection tool” or “edited image forensics tool” to find these tools.
Take a screenshot
Keep records of all communications and transactions in case you need to file an appeal.
Have advertising goals
If you have an established cryptocurrency network, make sure your ads only reach people you want to trade with. Hiding your ads and only sharing them with specific people — these could be people you already know and trust, or users you've successfully dealt with before. Hiding ads can also be useful if you want to make a large transaction.
Block suspicious parties
Proactively block users you have had suboptimal trades with to protect you from fraud or other behavior that could disrupt your trading experience.
Complaints
If you have any issues, please contact customer support and file a complaint. Remember to provide all relevant evidence of your transaction so that customer support can better assist you.
Summary
To protect your assets, it is essential to stay aware of the potential risks associated with P2P trading. This includes understanding the terms and conditions of any agreement, being alert to red flags, and using platforms with robust security features.
Be cautious when engaging in any P2P transactions and contact customer support if you have any concerns. By being aware and taking the necessary precautions, you can enjoy the full benefits of P2P transactions.