Introduction
Peer-to-peer (P2P) cryptocurrency trading entails buying and selling digital currencies without needing a third-party intermediary. P2P trading allows buyers and sellers to set their prices, select their trading partners, and decide when to transact. It also enables diligent and experienced traders to look for and take advantage of favorable trading conditions to suit their needs.
Crypto P2P marketplaces facilitate the direct exchange of cryptocurrencies between individual users. There is no central authority or third-party intermediary, thereby giving users more control over their funds and allowing them to protect their identity during transactions.
Despite these benefits, there are also risks involved in P2P trading every user should be keenly aware of before they decide to try their hand at it. Among the common risks traders face are fake proof of payment, chargeback fraud, wrong transfer, man-in-the-middle attacks, triangulation scams, and phishing.
Is P2P Trading Safe?
As with any type of trading, P2P trading has its fair share of risks, which vary depending on the exchange and its safety measures. While older exchanges faced a higher risk of theft and scams, many newer P2P trading platforms have significantly improved their security measures.
A leading P2P exchange today, for instance, typically has an escrow service, regular security updates, and a stringent identity verification process (among other measures) to keep users safe.
However, even with the appropriate safeguards, all trading activity comes with risks — and P2P trading is no exception.
What Are Some Common P2P Scams?
Fake proof of payment or SMS
Scammers may digitally alter receipts to convince you they have sent payment and trick you into releasing crypto to them. One example is the SMS scam where criminals forge a text message to notify the victim that they have received a payment.
How to avoid this scam: As a seller, you should only approve the transaction after checking if the payment is already in your wallet or bank account.
Chargeback fraud
A bad actor may use a chargeback feature on their chosen payment platform to reverse their payment upon receiving your assets. In many cases, they try to pay via a third-party account. Some payment methods like checks and online wallets allow for easier chargeback requests.
How to avoid this scam: Do not accept payments from third-party accounts. If it happens, raise an appeal to the platform and initiate a refund to the buyer’s account.
Wrong transfer
As with chargeback fraud, a scammer may attempt to steal your assets by contacting their bank to report an erroneous transaction and requesting that it be reversed. Some scammers may even pressure you into not reporting the incident by using scare tactics, like warning you that selling cryptocurrency is illegal.
How to avoid this scam: Don’t be intimidated by scare tactics. Systematically gather evidence, such as screenshots, of your correspondence and transaction with the criminal.
Man-in-the-middle attacks
In a man-in-the-middle attack, a bad actor inserts themself between a user and an application, organization, or another individual and communicates on behalf of that counterparty in order to steal assets or sensitive information like private keys. The three main categories of man-in-the-middle attacks include romance, investment, and e-commerce scams.
Romance scam. In this scenario, a scammer pretends to forge an online relationship with their victim. Once they’ve gained the victim’s trust, they manipulate them into helping him with his financial issues, sending some money or crypto, or sharing sensitive information like private keys, only to cease all contact when they’ve achieved their malicious goals.
Investment scam. An investment scam involves a criminal approaching and successfully convincing their victim to invest in a certain enterprise. Being the “man in the middle” between the victim and the investment opportunity, the scammer can direct the user’s funds wherever they wish under the guise of “investing” them.
E-commerce scam. An e-commerce scam entails a scammer pretending to be an online seller offering desirable items at discounted prices. They insist that their victims make payment in cryptocurrency to their wallets and once this is done, they disappear without providing the products they had promised.
How to avoid this scam: Don't respond to trading requests on any social networking platform. Limit your communication with your counterparty to the official platform before and during a transaction.
Triangulation scams
A triangulation or triangle scam involves two bad actors taking two orders from the same seller almost simultaneously, ultimately confusing a seller into releasing more crypto than has been paid.
For example, Buyer A takes an order for 5,000 TUSD worth of crypto (Order A), while Buyer B takes an order for the equivalent of 6,000 TUSD (Order B).
Buyer B then transfers 5,000 TUSD 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 TUSD. Buyer B sends another 1,000 TUSD to the seller, provides payment proof for the 5,000 TUSD they received from Buyer A plus 1,000 TUSD, and forces the seller to release digital assets under Order B.
When the dust settles, it turns out that the seller has released 5,000 + 6,000 = 11,000 TUSD worth of crypto but has been paid only 6,000 TUSD.
How to avoid this scam: Always make sure to check your bank account or wallet to confirm that you have received the full payments for all pending P2P transactions.
Phishing
Phishing is a type of malicious attack where a scammer uses a fake profile to deceive users into sending assets or information to them. For example, a bad actor may impersonate a P2P platform’s customer service representative to gain access to private information or crypto accounts.
How to avoid this scam: Some scammers may send fake security alerts regarding your account via email or text message. When checking messages, do not click on unknown links before you have verified the source. You should also only seek assistance from the official P2P exchange.
How To Identify Risks
Before trading
Check P2P advertising profiles. Screen potential trading candidates before you enter a trade with any of them. Some things to note while looking at a P2P profile are:
Number of trades: Low numbers aren’t necessarily bad, but a high number of completed transactions may be a sign of a reliable P2P party.
Completion rate: Reconsider if it’s below 80% as this may indicate the trader has a habit of backing out of transactions.
Merchant or user feedback: Very few positive comments or many negative comments can indicate higher trading risk.
Check advertisements carefully. Evaluate each P2P advertisement to determine if it meets your needs and goals. Consider the price, quantity, accepted payment methods, restrictions (like trading limits), and other terms and conditions. For instance, too large a disparity between the P2P price and the market price on other trading platforms is suspicious.
When trading
Stay alert when interacting with a P2P buyer. Red flags include:
The buyer pushing you to release the crypto.
The buyer requests unnecessary information.
The buyer becoming unresponsive.
The buyer asking you for a loan.
The buyer paying less than the amount agreed upon in the order.
The buyer paying more than the amount agreed upon in the order.
The buyer asking to communicate outside the P2P platform.
The buyer asking to pay through a third party.
Stay alert when interacting with a P2P seller. Red flags include:
The seller asking you to cancel the order after you’ve already paid.
The seller asking to communicate outside the P2P platform.
The seller asking you to trade outside the P2P platform.
The seller asking you to pay an additional commission.
After trading
When interacting with a P2P buyer, red flags include:
Not yet receiving the asset you paid for.
Receiving a check from a buyer that bounces.
Your bank account is blocked after receiving payment from a buyer.
The buyer initiates a chargeback via their bank after you’ve transferred your cryptocurrency to them.
General Tips to Protect Yourself Against Scams
Trade on reputable platforms
Choose leading P2P platforms that offer their users robust safety 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 advertisements. Better yet, there should be a sophisticated order-matching logic to match users with trusted traders and verified merchants only, as well as risk management algorithms to monitor suspicious activity.
Some algorithms are even optimized to limit the trading activities of potential bad actors. In addition, withdrawal limits or delays can help to protect user funds.
Know Your Customer (KYC) protocols. P2P platforms with KYC protocols can help beginners find reliable trading partners by enforcing user identity verification. This allows beginners to conduct trades with verified merchants with a proven track record and reliable sources of funds.
Escrow services. Escrow services provide a safe way for buyers and sellers to exchange goods or assets. A trusted third party — typically the P2P platform — handles the exchange of funds between transacting parties to uphold safety and fair trading.
Customer support. While P2P trading usually functions with no middlemen, a P2P platform’s customer support team can intervene if a user faces problems with a trade.
Automated payment. New automated payment methods enable P2P platforms to automatically process the release of crypto held in escrow without manual intervention. Buyers can receive their newly purchased assets instantly and sellers don’t have to check each order payment or release assets manually.
Block feature. The block feature allows you to block suspicious users — if you’ve had an unpleasant experience with someone, you can block that user and prevent them from trading with you again.
Communicate on the platform only
Avoid contacting potential trading counterparties on dubious websites and stay alert to prices that sound too good to be true. Also, communicating using outside channels will make it easier for a scammer to raise a false dispute against you and deny the transaction ever happened.
Double-check your transactions
Remember to verify all information from the counterparty when transacting with a peer. Scrutinize all receipts and transactions to ensure that nothing has been digitally altered. Here are some tips to identify fake proof of payment:
Overlapping text
Different colors
Different typography
Difference in sizes
You can also use a free image forensics tool online. Search for “fake image detector” or “doctored image forensics tool” to get an idea of what’s available.
Take screenshots
Keep records of all proofs of communication and transactions in case you need to file an appeal.
Have targeted advertisements
If you have an established crypto network, ensure that your advertisement only reaches people with whom you want to trade. Hide your ad and share it only with specific people — this could be people you know and trust or users you’ve dealt with successfully before. Hiding advertisements can be useful as well if you want to do a large trade.
Block suspicious parties
Proactively block users with whom you’ve had sub-optimal trades to protect yourself from fraud or other behavior that may disrupt your trading experience.
Make an appeal
If you encounter an issue, seek customer support and open an appeal. Remember to provide all relevant evidence regarding your transaction so that customer support can better assist you.
Closing Thoughts
To protect your assets, staying alert to the potential risks associated with P2P transactions is essential. This includes understanding any agreement's terms and conditions, remaining vigilant about red flags, and using platforms with robust safety features.
Be cautious when engaging in any P2P transaction, and contact customer support should you have any concerns. By being mindful and taking the necessary precautions, you can fully enjoy the benefits of P2P transactions.
