Summary
Peer-to-peer (P2P) trading is becoming increasingly popular among crypto traders, but like any type of trading, it carries certain potential risks. Being aware of these risks allows traders to protect themselves from potential losses and better understand the process. There are many ways to take precautions. Read on to find out what they are, as well as when and how to apply them.
Introduction
Peer-to-Peer (P2P) cryptocurrency trading involves buying and selling digital currencies without the need for a third-party intermediary to intervene. 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 seek out and take advantage of favorable market conditions according to their needs.
P2P cryptocurrency marketplaces facilitate the direct exchange of cryptos between individual users. There is no central authority or third-party intermediary, so users have greater control over their funds and can protect their identities during transactions.
Despite these benefits, there are also risks in P2P commerce that every user must know very well before deciding to participate. Common risks faced by merchants include fake payment receipt scams, chargeback fraud, mistaken transfer, man-in-the-middle attacks, triangulation scams, and phishing.
Is P2P commerce safe?
As with any type of trading, P2P trading has its own share of risks, which vary depending on the exchange and its security measures. Although older exchanges carried a higher risk of theft and scams, many newer P2P trading platforms have significantly improved their security measures.
For example, today, a leading P2P exchange typically has an escrow service, frequent security updates, and a rigorous identity verification process, among other measures, to protect users.
However, even with proper safeguards, all commercial activity carries risks and P2P trading is no exception.
What are some of the most common P2P scams?
Proof of payment or fake SMS
Scammers can digitally alter receipts to convince you that they sent payment and trick you into releasing the cryptocurrency. An example is the SMS scam in which criminals forge a text message notifying the victim that the payment has been received.
How to avoid this scam? As a seller, you should only approve a transaction after verifying that the payment is in your wallet or bank account.
Chargeback fraud
A malicious user can use the chargeback feature on your chosen payment gateway to reverse the payment once you hand over your assets to them. In many cases, they try to pay through third-party accounts. Some payment methods, such as checks and online wallets, more easily allow chargeback requests.
How to avoid this scam? Do not accept payments from third party accounts. If it happens, create an appeal on the platform and initiate a refund to the buyer's account.
Wrong transfer
As with chargeback fraud, a scammer may contact your bank, report a wrong transaction and request that it be reversed, all in an attempt to steal your assets. Some scammers may even pressure you not to report the incident using scare tactics, such as warning you that selling cryptocurrency is illegal.
How to avoid this scam? Don't be intimidated by scare tactics. Gather evidence, such as screenshots, of your correspondence and the transaction with the criminal.
Man-in-the-middle attacks
In a man-in-the-middle attack, a malicious user acts as an intermediary between the user and the application, organization, or another individual, and participates in the communication on behalf of that counterparty to steal assets or sensitive information, such as the private keys. The three main categories of man-in-the-middle attacks include romance, investment, and e-commerce scams.
Romance scams. In this situation, a scammer pretends to forge an online relationship with his victim. Once he has gained the victim's trust, he manipulates her into helping him with his financial problems, by making the victim send some money or cryptocurrency or share his sensitive information, such as private keys, and immediately after having achieved your malicious targets, cut off all contact.
Investment scam. An investment scam involves a criminal approaching their victim and convincing them to invest in a certain company. The scammer, who becomes the intermediary (man in the middle) between the victim and the investment opportunity, can direct the user's funds wherever they want by pretending to "invest" them.
E-commerce scam. An e-commerce scam involves posing as an online seller offering desirable items at discounted prices. The criminal insists that his victims make a payment in cryptocurrencies to his wallet and, once made, disappears without delivering any promised product.
How to avoid this scam? Do not respond to commercial requests on any social media platform. Limit communication with the counterparty to the official platform before and during the transaction.
Triangulation scams
A triangulation or triangular scam involves two malicious users taking orders from the same seller at almost the same time, eventually confusing the seller so that he or she releases more cryptocurrency than paid.
For example, Buyer A takes a cryptocurrency order for 5,000 BUSD (Order A), while Buyer B takes an order for the equivalent of 6,000 BUSD (Order B).
Buyer B transfers 5,000 BUSD to the seller, while Buyer A marks order A as paid. The seller releases the cryptocurrencies to buyer A and fills order A for 5,000 BUSD. Buyer B sends another 1,000 BUSD to the seller, provides proof of payment for 5,000 BUSD (which he obtained from Buyer A) plus 1,000 BUSD, and pressures the seller to release the digital assets from order B.
After the chaos ends, it turns out that the seller released 5,000 + 6,000 = 11,000 BUSD worth of cryptocurrency, but only received 6,000 BUSD in payment.
How to avoid this scam? Always make sure to check that you have received payment for each pending P2P transaction in your bank account or wallet.
Phishing
Phishing is a type of malicious attack in which the scammer uses a fake profile to trick users into sending assets or information. For example, a malicious user can impersonate a customer service representative of a P2P platform to gain access to private information or cryptocurrency accounts.
How to avoid this scam? Some scammers may send fake security alerts related to your account via email or text message. When reviewing messages very carefully, do not click on unknown links before you have verified the source. You should also seek assistance from the official P2P exchange.
How to identify risks
Before trade
Check P2P ad profiles. Filter potential trade candidates before engaging in a transaction with them. Some things to look for when analyzing a P2P profile are:
Number of transactions: Few transactions do not necessarily indicate something bad, but many completed transactions can be a sign that that P2P counterparty is trustworthy.
Order Completion Rate: If this rate is less than 80%, consider trading with someone else, as this may indicate that the trader has a habit of changing their mind in the middle of a trade.
Trader or User Feedback: Too few positive feedback or many negative feedback may indicate high trading risk.
Review the ads carefully. Evaluate each P2P ad to determine if 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, too big a difference between the P2P price and the market price on other trading platforms is suspicious.
During trading
Be alert when interacting with the P2P buyer. These warning signs may be:
The buyer pressures you to release the cryptocurrencies.
The buyer requests unnecessary information.
The buyer stops responding.
The buyer asks you for a loan.
The buyer pays less than the agreed amount in the order.
The buyer pays more than the agreed amount in the order.
The buyer asks you to communicate outside the P2P platform.
The buyer wants to pay you through a third party.
Be alert when interacting with the P2P seller. These warning signs may be:
The seller asks you to cancel the order after you have already paid.
The seller asks you to communicate outside the P2P platform.
The seller asks you to trade outside the P2P platform.
The seller asks you to pay an additional commission.
After trade
When interacting with a P2P buyer, red flags may include:
Not receiving the asset you paid for.
Receive a check that bounces.
That your bank account is blocked after receiving a payment from the counterparty.
Have the buyer initiate a chargeback at their bank after you transfer your cryptocurrencies to them.
General Tips to Protect You Against Scams
Trade on platforms with a good reputation,
Choose leading P2P platforms that offer their users strong security features. The most common functions included are:
Risk management functionalities. A platform that enforces specific requirements before buying or selling can help reduce inactive, low-quality, or unreliable listings. Better yet, there should be sophisticated order matching logic to match users with only trusted and verified traders, as well as risk management algorithms to monitor for suspicious activity.
Some algorithms are even optimized to limit the trading activities of potential bad users. Additionally, withdrawal limits or delays can help protect users' funds.
Know Your Customer (KYC) protocols. P2P platforms that have KYC protocols can help beginners find trustworthy trading partners, thanks to mandatory user identity verification. This allows beginners to carry out trading transactions with verified traders with a proven track record and reliable sources of funds.
Escrow service. Escrow services provide a secure way for buyers and sellers to exchange goods or assets. A trusted third party, typically the P2P platform, handles the exchange of funds between the parties involved in the transaction to maintain security and fair trading.
Customer Support. While P2P commerce is usually done without intermediaries, a customer support team of a P2P platform can intervene if a user faces any problem during a transaction.
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 have to verify each payment order or release assets manually.
Locking functionality. The blocking functionality allows you to block suspicious users. If you had an unpleasant experience with someone, you can block that user and prevent them from trading with you again.
Maintain communication only through the platform
Avoid contacting potential trading counterparties on dubious websites and keep an eye out for prices that seem too good to be true. Additionally, communicating through external channels will make it easier for a scammer to create a dispute against you and deny that the transaction occurred.
Confirm your transactions
When carrying out transactions with a counterparty, remember to verify all their information. Analyze all receipts and transactions to ensure nothing has been digitally tampered with. These are some clues to identify a fake payment receipt:
Text overlay
Different colors
Different typography
Different sizes
You can also use a free image forensic tool. Do an online search for "fake image detector" or "fake image forensics tool" to see what's available.
Take screenshots
Keep records of all evidence of communication and transactions in case you need to create an appeal.
Create targeted ads
If you have an established crypto network, make sure your ad only reaches the people you want to trade with. Hide your ad and share it with specific people, such as people you know and trust or users you've already successfully interacted with. Hiding ads can also be useful if you want to make large transactions.
Block suspicious counterparties
Proactively block users with whom you have had unsatisfactory transactions, to protect you from fraud or other behavior that could disrupt your trading experience.
Create an appeal
If you run into any problems, seek help from customer service and start an appeal. Remember to provide all relevant evidence regarding the transaction so that customer service can assist you in the best way.
Conclusion
To protect your assets, it is essential to remain alert to the potential risks associated with P2P transactions. This includes understanding the terms and conditions of any agreement, watching for red flags, and using platforms with strong security features.
Use caution when engaging in any P2P transaction and contact customer service if you have any concerns. By being aware and taking necessary precautions, you can fully enjoy the benefits of P2P transactions.
Further reading
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