Key points
OTC P2P transactions, while offering some potential advantages, come with significant fraud risks.
Using reputable platforms such as Binance P2P that offer robust security, including escrow services and user verification, can significantly reduce the risks associated with P2P trading.
Being aware of common scams and being wary of offers that sound too good to be true are important steps to safely conduct P2P cryptocurrency transactions.
P2P transactions, where market participants trade their tokens for other digital assets or fiat directly, rather than through the order books of exchange platforms, are very popular in the cryptocurrency space due to their convenience and flexibility. This type of trading allows users to choose who to transact with and at what price, and offers access to the world of cryptocurrencies to users in regions where fiat gateways are unavailable.
However, the direct nature of P2P exchanges also creates room for criminals to use such transactions to commit fraud. Although reputable marketplaces such as Binance P2P offer users robust protection, some traders choose to transact outside of such platforms. This type of transaction may be associated with increased risks. Read on to learn more about OTC P2P scams and how to avoid them.
P2P trading outside of exchanges: advantages and risks
There are several reasons why users may prefer to conduct P2P transactions outside of cryptocurrency exchanges. Exchanges often charge transaction fees, which can add up, especially for frequent traders. By cutting out intermediaries such as exchanges, traders can lower the fees associated with buying and selling cryptocurrencies.
OTC P2P transactions can also provide greater privacy because they do not require users to provide personal information or go through the lengthy verification processes that today's reputable P2P marketplaces require. And this attracts users who value anonymity. Additionally, some smaller-cap cryptocurrencies are often not available on major P2P exchanges, and direct transactions can provide access to more assets. Finally, some may argue that OTC P2P transactions can be completed faster than those carried out by exchange platforms, as the latter may experience delays due to high traffic or lengthy verification processes.
Ultimately, each user of cryptocurrencies decides for himself how and where to make transactions. However, it is very important to understand the risks inherent in each type of trade. The potential advantages of OTC operations described above are associated with increased risks.
Security: Interacting with strangers, especially online, increases the likelihood of becoming a victim of fraud, deception, and theft.
No protection of funds: Unlike transactions carried out by reputable P2P platforms, if something goes wrong during an OTC trade, there will be no protection.
Prices: Cryptocurrencies are highly volatile, and without a market that provides up-to-date price data, a user may face challenges in determining the fair market value of the assets being exchanged.
OTC P2P scams
Scams, where attackers convince victims to trade digital assets directly outside of P2P exchange platforms, can take many forms, but often have similar elements.
Initial Contact: The scammer initiates contact with the victim through messaging platforms such as Telegram, WhatsApp or local community groups. Fraudsters can also post ads on social media posing as genuine traders or representatives of companies offering attractive P2P rates and claiming a history of numerous successful transactions.
Building trust: The scammer spends time building a relationship with the victim, often providing fake testimonials, transaction history, or even fabricated documents to make everything look genuine. There are also cases where the fraudster first conducts a few successful transactions with the victim to gain their trust before engaging in larger transactions.
Platform Initiation: Fraudsters can also make initial contact with their targets on a P2P platform and then offer to transact off-site. They may use platform outages as an excuse to do so or pretend to be representatives of the platform to convince the seller to transfer the cryptocurrency directly. When you trade on Binance P2P, an offer from a counterparty to leave the platform is almost always a sign of fraud.
Running a scam: Once trust is established, the scammer offers to complete the transaction at a favorable exchange rate. The victim is persuaded to transfer his cryptocurrency to the fraudster's wallet. After the transaction is completed, the fraudster becomes unreachable. The victim's attempts to contact the counterparty are futile, leaving the victim without his cryptocurrency and the ability to return it.
Real life examples
Example 1. John receives a good price offer
John is scrolling through his social media feed when he sees a self-proclaimed P2P trading expert bragging about his successful transactions and many satisfied customers who appreciate the prices they offer. Intrigued, John contacts the trader via WhatsApp and negotiates a good price, which the trader agrees to. Trusting the transaction, John transfers his cryptocurrency to the trader. However, after the transfer is completed, the trader stops responding and John has no way to get his cryptocurrency back.
This example highlights the risks of trading with unknown counterparties outside of exchanges, where it is almost impossible to verify people's claims about their identity, trading experience and reliability.
Example 2. Transferring operations from the stock exchange
Dennis meets a trader named Lynn on a reputable P2P exchange, and in order to save on fees, they agree to trade off-platform. Over the next few weeks, Dennis makes several successful transactions with Lynn, and with each subsequent transaction, he trusts her more and more. The volume of transactions gradually increases and, confident in his counterparty, Dennis decides to make a large transaction and exchange about 56,000 USDT. However, after Dennis transfers the cryptocurrency, Lynn fails to send the agreed payment and becomes unavailable.
This example highlights that even if there have been successful deals in the past, conducting OTC transactions carries the risk of the other party defaulting on its obligations.
How to avoid OTC P2P scams
Use trusted platforms: transact through reputable exchanges that offer escrow services and fraud protection.
Be skeptical of offers that sound too good to be true: If a P2P deal sounds too good to be true, it probably is. Be careful and exercise due diligence.
Stay informed: Stay aware of common scams and how they work. Knowledge is your best defense against fraud.
How does Binance protect its P2P users?
At Binance, we have implemented a number of measures to protect our P2P users. Here's how Binance is strengthening the security of its P2P platform.
Identity verification
Know Your Customer Verification: Binance requires all users to complete identity verification (KYC) before they can trade on the P2P platform. This ensures that both buyers and sellers are legitimate.
Reputation System: Binance P2P has a reputation system that allows users to rate and leave feedback on their trading partners. This helps users identify reliable traders and avoid potential scammers.
Escrow system
Secure Transactions: Binance holds cryptocurrency in escrow until the buyer confirms receipt of payment. This ensures that sellers transfer cryptocurrency only after receiving and confirming payment.
Dispute Resolution: If a dispute arises between a buyer and a seller, Binance Support can intervene. The escrow system allows Binance to hold funds until the dispute is resolved, ensuring a fair outcome for both parties.
Education and awareness
User Education: Binance provides educational resources to educate users about common scams and how to avoid them. This includes blog posts and tutorials on safe trading techniques.
Scam Alerts: Binance regularly informs users about new scams and precautions. These alerts help users stay alert and aware of potential threats.
Secure communication
In-App Chat: P2P platform Binance offers an in-app chat feature that allows buyers and sellers to communicate securely. This reduces the risk of phishing attacks or fraudulent messages.
Advanced technologies
AI Fraud Detection: The platform uses advanced Large Language Models (LLM) to monitor P2P chats for signs of fraud and help with user appeals.
Computer vision for POP verification: We use AI-based computer vision models to automatically evaluate documents supporting payments and detect cases where they have been forged, a common sign of fraudulent attempts.
If you have been cheated
If you have fallen victim to an OTC P2P scam, here are some steps you can take to reduce your losses.
Be careful with "recovery service" providers. While some may offer real help, many often make misleading promises or demand upfront payments. Don't be fooled twice.
Report this incident to local law enforcement. Binance works closely with law enforcement and as a result arrests and seizures are regularly made. While your money back is not guaranteed, in most cases this is the only option available.
Report the case to the moderators of the site, application or social network where you were contacted by a fraudster. Provide them with details such as the scammer's profile name and any other information so that this scammer cannot scam anyone again.
We also recommend that all our users, both new and experienced, read our articles about different types of scams to be prepared for any situation.
Result
While P2P transactions outside of cryptocurrency exchanges may offer some advantages, they also come with significant risks. It is important to understand these risks and take precautions to protect yourself. Using reputable platforms like Binance, staying informed and being careful will help you navigate the world of P2P cryptocurrency transactions safely.
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