Buying Bitcoin Peer to Peer

Privacy, self-sovereignty

Pretty much since the beginning of this newsletter, I have emphasized the significance of self-custody for your Bitcoin. While maintaining control of your assets is crucial, the vulnerabilities exposed by the recent collapses of crypto exchanges and hedge funds, including the notable case of FTX, underscore the inherent problems with centralized exchanges. This has always been the case with centralized exchanges (Mt. Gox) and will likely continue into the future. Here's an updated overview of the drawbacks associated with buying Bitcoin on centralized exchanges and the benefits of acquiring your Bitcoin peer to peer:

Drawbacks of Centralized Exchanges:

1. Lack of Privacy: Centralized exchanges often require users to provide personal information (KYC/AML), compromising privacy. For more on how bad this has gotten in the US, a country known for freedom and liberty, check out my recent post here:

2. Risk of Hacks: Large pools of user funds make centralized exchanges attractive targets for hackers, leading to potential fund losses.

3. Exchange Insolvency Risk: Single-entity ownership makes centralized exchanges susceptible to insolvency, putting user funds at risk.

4. Limited Accessibility: Regulatory constraints can limit centralized exchange access in certain countries, hindering Bitcoin transactions.

5. Dependence on Intermediaries: Users rely on centralized exchanges as trusted third parties, exposing them to potential trade facilitation and security issues.

6. Government Intervention Risk: Centralized exchanges are subject to government regulations, risking shutdowns or compliance changes affecting user activities.

7. Limited Payment Methods: Some centralized exchanges accept only specific payment methods, restricting user options.

8. Higher Fees: Centralized exchanges often charge higher fees for trades and withdrawals compared to peer-to-peer (P2P) exchanges.

If you are going to use a centralized exchange to acquire your Bitcoin, bear these things in mind and above all after you buy a significant amount of Bitcoin (everyone will have a different measure of this), move your coins to cold storage right away!

Advantages of Peer-to-Peer (P2P) Exchanges:

1. Increased Privacy: P2P exchanges enable direct trading, eliminating the need to share personal information with a centralized entity.

2. Decentralized Control: P2P exchanges, lacking a central point of control, are resistant to government shutdowns and single points of failure.

3. Greater Accessibility: P2P exchanges offer accessibility in countries where centralized exchanges face restrictions.

4. Avoidance of Exchange Hacks: Holding fewer user funds, P2P exchanges reduce the risk of large-scale hacks and fund losses.

5. Flexibility in Payment Methods: P2P exchanges often support a variety of payment methods, enhancing user convenience.

Drawbacks of Peer-to-Peer (P2P) Exchanges:

1. Lack of Regulation: P2P exchanges operate with less regulatory oversight, potentially posing security risks for users. The flip side of that is maybe you don’t want a lot of regulation, which is why you are transacting peer to peer?

2. Counterparty Risk: Direct dealings with individuals on P2P exchanges introduce the risk of counterparties not fulfilling their trade obligations. P2P exchanges solve for this by requiring buyers and sellers to post Bitcoin collateral into escrow to ensure the trade is successfully completed.

3. Limited Liquidity: P2P exchanges may lack the same level of liquidity as centralized counterparts, affecting trade execution. On the flip side, you can set a price that you are willing to buy or sell at and just wait for someone to take your offer, so if you aren’t in a rush, this can work quite well.

4. Lack of Customer Support: P2P exchanges often provide lower levels of customer support, making dispute resolution challenging.

5. Possibility of Scams: There is always the risk of fraud and scams on P2P exchanges, necessitating thorough due diligence, but many exchanges have ways to ensure that participants in a trade act in good faith with posting collateral and also limiting the amount of Bitcoin that can be traded until a certain amount of transaction activity or time has passed.

6. Slower Transactions: Manual verification in P2P transactions may result in slower processing compared to centralized exchanges. Again, if you’re not in a hurry (low time preference), this shouldn’t be a problem.

Price Considerations:

The price of Bitcoin can vary across exchanges. P2P exchange prices are generally comparable to or slightly higher than centralized exchanges due to lower liquidity. However, regional variations and payment methods can influence prices. Despite potential differences, lower trading fees on P2P exchanges can offset any price variance.

Notable P2P Bitcoin Exchanges:

1. Paxful: A P2P marketplace supporting over 300 payment methods, including bank transfers and gift cards. Paxful

2. Bisq: A decentralized P2P Bitcoin exchange supporting various payment methods, emphasizing user privacy. Bisq

3. Hodl Hodl: A P2P exchange enabling direct Bitcoin trades with multisig escrow for added security. Hodl Hodl

4. BitQuick: Facilitating P2P Bitcoin trades through cash deposits at banks, with escrow services. BitQuick

If you do acquire Bitcoin peer to peer, I recommend you setup a separate hardware wallet to store those coins separate from anything you might have acquired on an exchange or other KYC’d provider. That way you can preserve the non-KYC status of your stack and therefore your privacy.

Of course, there are other ways to acquire Bitcoin peer to peer including selling something of value to a Bitcoiner in exchange for Bitcoin or even posting a meme on Nostr and getting sats for it. As Bitcoin, Nostr and the Lightning Network continue to evolve, there will be more ways to use Bitcoin in a self-sovereign way and to earn sats on a peer to peer basis. I’m excited for this future.

Not financial or legal advice, for entertainment only, do your own homework.  I hope you find this post useful as you chart your personal financial course and Build a Bitcoin Fortress in 2023.    

Thanks for supporting my work. Always remember: freedom, health and positivity!  

Please also check out my Bitcoin Fortress Podcast on YouTube here and on all your favorite streaming platforms. I do a weekly Bitcoin news update every week on current items of interest to the Bitcoin community, usually 30 to 60 minutes depending on the number of topics to cover. Please check it out if you haven’t already. Also now on Fountain, where you can earn Bitcoin just for listening to your favorite podcasts.

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