As Bitcoin (BTC) continually evolves, people get more innovative in the way they trade. Traders and investors are always thinking of new ways to make their experience more convenient, secure, and in this case, flexible.
Hence the birth of peer-to-peer (P2P) Bitcoin marketplaces. What are they and how do they work? What older model did they replace?
If you’re looking to buy BTC and are still figuring out exactly how to buy them, you’re in luck because we’re breaking it down for you here.
Traditional Bitcoin exchanges: if it ain’t broke, don’t fix it
We know what you’re thinking: how can Bitcoin exchanges be “traditional” if there’s nothing traditional about this new digital asset?
These platforms are called traditional Bitcoin exchanges because believe it or not, they’ve been around almost as long as Bitcoin has. The now-defunct Bitcoinmarket was the first-ever exchange to pop up on the scene, coming out in 2010—a year after Satoshi Nakamoto introduced Bitcoin. This was the first time Bitcoin was treated as a commodity, effectively establishing a market that would be the rock upon which the Bitcoin church was built.
That’s why we call them traditional. They’re tried and tested. Until now, they’re still one of the most popular ways to buy Bitcoin.
How do they work? It’s simple. They mainly operate using something called order books to match buyers and sellers. These are electronic lists that bring you buy and sell offers on a silver platter. From there, all you have to do is choose an offer that’s to your liking and the platform will help you complete the trade—acting as a middleman between you and the seller.
To simplify things even further, traditional exchanges will often link a user’s bank account to their trading account—allowing easier, quicker, and more streamlined trades.
That’s pretty much it. They’re effortless to use, which is probably why they seem more enticing to beginner traders. However, they aren’t the only popular players in town.
Peer-to-peer Bitcoin exchanges and the personalization of trade
Although P2P Bitcoin marketplaces are new players, they’ve been getting more popular over the past years. Why? Because you can customize your trade and interact with real people.
Like their more popular older brother, peer-to-peer Bitcoin marketplaces use order books to match their buyers and sellers. However, that’s where the similarities in the process end. Instead of acting as a middleman for the buyer and the seller, the only time they interact with traders is when there’s a dispute. This means that buyers and sellers complete the trade themselves.
About now, you’re probably thinking: “Isn’t it easier to use a traditional Bitcoin exchange since they’re directly helping me out?” In a way, you’re absolutely right—it is easier. However, by allowing the buyers and sellers to complete the trade themselves, P2P Bitcoin marketplaces allow their traders ultimate payment flexibility.
What does that mean? Let’s say you’re looking to sell your pen, so you start taking offers for your ingenious writing tool. Some offer cash, but there are a few people offering non-cash items like a marker or a pencil. At that point, you have the opportunity to choose how you want to be paid.
From the buyer’s point of view, they have the chance to get what they want for something other than cash. It’s the same principle on peer-to-peer Bitcoin marketplaces. Looking to buy BTC? There are sellers on these platforms who are willing to take cash, payments through online wallets, and even gift cards. Looking to sell BTC? Well, what do you want for it?
Essentially, you can pay with pretty much anything a seller will take. This is how P2P Bitcoin marketplaces work. More often than not, there will be hundreds of payment methods to choose from. See? Ultimate flexibility.
In addition to flexibility, there are also security protocols that protect the traders—escrow. Escrow is a third-party service that holds onto the promised BTC until the seller is paid. Once the seller receives payment, they can then release the BTC from escrow and the trade is complete. These services secure transactions for both the buyer and the seller, creating a safer trading environment for everyone
Which one is for you?
We’ve already given you a couple of advantages for each type of trading platform, but let’s delve a little deeper. We’ll be comparing the two with four main categories in mind: price, speed, ease of use, and accessibility.
Spoiler warning: there are a couple of double-edged swords involved.
The first thing that will come to mind when choosing between the two is price—the way fees are charged on both platforms differ. We’ve mentioned that traditional Bitcoin exchanges can generally be more enticing to the beginner trader because the platform acts as a middleman to assist them every step of the way.
Because of that, there are fees associated with the help coming from the platform (double-edged sword number one). Although that fee doesn’t exist on the P2P side of things, there are escrow fees (double-edged sword number two). These fees will vary depending on the platform, but they’re generally not too high.
Next, let’s talk speed. Once again, the middleman aspect comes back but this time, for the better. Since you’ve got the platform helping you out, transactions can be faster on a traditional exchange. Additionally, with the link between your bank and trading account, payments are more straightforward. Transactions on P2P Bitcoin marketplaces aren’t slow at all—although if you compare the two, traditional exchanges can have a bit of an edge.
Okay, now that we’ve got price and speed covered, what about ease of use? Right off the bat, it’s clear that traditional Bitcoin exchanges may have an edge—platform acting as a middleman, linked bank accounts, and yada yada. P2P Bitcoin marketplaces have a steeper learning curve compared to their counterpart, but it isn’t that steep. Once you get the hang of how peer-to-peer trading works, your operations will be running like clockwork.
Let’s move on to the last category: accessibility. Here comes double-edged sword number three: the link between bank and trading accounts. If you have a bank account, then great! You’ll have easy access to a traditional bitcoin exchange. However, there are people who don’t have it as easy.
Peer-to-peer Bitcoin marketplaces offer a solution for those who have limited or no access to a bank account. They could also be a good alternative for those who don’t want to link their bank accounts.
Trade YOUR way
Judging by their sets of pros and cons, it’s clear to see that there’s no definite winner here. What it all boils down to is the way you like to trade.
When choosing between the two, try asking yourself these questions:
“Do I prefer a more personalized form of trade?”
“When I start trading, what payment method will I use the most?
“What’s my trading style going to look like?
Both are equally excellent options, but it’s always going to depend on you. The best thing to do at this point might be to get your feet wet. You can try both of them, using the smallest possible amounts to get the flow of how trading works. Once you feel comfortable with a particular type, you can start scaling up your trading operations.
There is no definitive way of trading. At the end of the day, it’s still your money—and you should be able to use it however you please. It’s normal for people to have their own preferences, and this applies to Bitcoin exchanges as well. The exploration of options can sometimes be the most fun part of trading, so don’t be shy—put yourself out there!