How P2P Bitcoin Marketplace Differs From a Traditional Bitcoin Exchange
Being more inclusive and, in some cases, more cost-efficient, the popularity of cryptocurrency is beginning to soar—more people are getting their hands on crypto. Bitcoin is widely considered as the catalyst for the thousands of cryptocurrencies now available on the market—so what better place to start?
With it being over a decade old now, bitcoin is more mature than ever. It’s a lot safer to buy (with reputable platforms sprouting everywhere) and more accessible (because of its increasing flexibility) in today’s trading space.
When it comes to buying bitcoin, there are two main alleyways: traditional bitcoin exchanges and peer-to-peer bitcoin marketplaces.
Traditional Bitcoin Exchanges
The first-ever traditional bitcoin exchange, Bitcoinmarket, established in 2010, has effectively created the first market that treated BTC as a commodity. Unfortunately, Bitcoinmarket is now defunct. However, it inspired a flurry of exchanges that still play prominent roles in the bitcoin trading community.
Primarily, traditional bitcoin exchanges make use of order books, which is basically an electronic list that showcases available buy and sell offers. Through this list, buyers and sellers are matched, and once they’re matched, the trade process begins.
Traditional bitcoin exchanges will often act as a middleman, helping the buyer and seller complete the trade. With the platform’s help, buyers and sellers can trade with ease and arguably more anonymity (as there is little to no interaction between them).
To make things even easier for traders, traditional bitcoin exchanges will often require their users to link a bank account. This link will make the buying and selling process more straightforward, allowing more direct transactions.
Since traditional bitcoin exchanges have been around since the beginning, they’ve built a solid foundation for their popularity. Since 2010, many reputable exchanges have been established. As a result, large and tight-knit communities have been formed over the years.
P2P Bitcoin Marketplaces
Compared to traditional bitcoin marketplaces, peer-to-peer (P2P) bitcoin marketplaces are a new player in the cryptocurrency trading space. However, with the development of several real-use cases, these platforms have seen an increase in popularity over the years.
Just like traditional bitcoin exchanges, P2P bitcoin marketplaces use order books to match their buyers and sellers. However, on these platforms, the offers listed on the order book, are usually more customizable than their predecessor.
Also, a big difference is that P2P bitcoin marketplaces have little to no interaction with the traders. The only time the platform will interfere is if one of the parties files for a dispute. At that point, the platform will step in, review the case, and then award the BTC to the party who is in the right.
Since transactions on these platforms are peer-to-peer, meaning that buyers and sellers complete the trade themselves, flexibility in payment options becomes a big draw for these marketplaces. The biggest platforms on the market will often have hundreds of payment methods to choose from.
Let’s say you get an iTunes gift card for your birthday, but decide not to use it. It’d be such a waste if you let the funds expire. Luckily for you, iTunes gift cards are often popular payment methods on P2P bitcoin marketplaces. In turn, you could trade your gift card for BTC by searching through the offers available.
It also works the other way around. If you were looking to buy an iTunes gift card and got some BTC to spare, you could try trading bitcoin for gift cards by searching through the offers and looking for someone willing to trade.
Essentially, this flexibility means that any seller can trade their BTC for whatever they want as payment, which is why there are a ton of options. This feature effectively makes BTC more accessible than ever.
Advantages and Disadvantages
The two types of exchanges are both very viable options for buying BTC, but which is better for you? To determine that, let’s look at each type of platform’s pros and cons and directly compare them.
Traditional Bitcoin Exchanges
- They’re more popular. Since they’ve been around for a longer time, they’ve had the chance to build stable communities. Their popularity means more resources, tutorials, and audience.
- It’s a little more anonymous. Because the platform acts as a middleman for buyers and sellers, the traders rarely have to interact with one another. It’s all taken care of by the exchange.
- It’s simple and easy. With your bank account linked to the exchange, buying and selling BTC is straightforward. Also, because there is a lot of help from the exchange, the learning curve isn’t steep at all.
- Exchanges will often require you to link your bank account. Although this doesn’t seem like a problem to many, linking a bank account can be double-edged. Those with limited or no access to banks (unbanked and underbanked) will automatically be disqualified from what is supposed to be a “peer-to-peer electronic cash system.”
- Compensation can cost you. The platform, acting as a middleman—just like the linking of bank accounts—is also double-edged. Although they provide general ease and comfort in trading, they will often look for compensation afterwards. This compensation will result in higher fees compared to those charged on P2P bitcoin marketplaces.
P2P Bitcoin Marketplaces
- The flexibility is unbelievable. As mentioned earlier, there are hundreds of payment methods available on P2P bitcoin marketplaces. In the case of Paxful, one of the world’s leading people-powered marketplaces, there are over 350. Any payment method you can think of, they probably have it. This flexibility is also advantageous for sellers, as less popular payment methods can yield more profit.
- Offers are more customizable. Both buy and sell offers are easily customizable on these platforms, allowing you to edit aspects like profit percentage (for sell offers only), payment method, preferred fiat currency, payment window, and, sometimes, even location.
- Anyone can participate. P2P bitcoin marketplaces don’t require their traders to link a bank account, opening the door for the unbanked and underbanked to participate in transactions they would have otherwise be disqualified from. Instead of linking a bank account, most marketplaces will only require ID verification for Know Your Customer/Anti-Money Laundering purposes.
- Transactions are more cost-efficient. Because the platform only interferes in the case of a dispute, they don’t ask for a lot in compensation. On Paxful, buyers buy BTC with no fees, while sellers are charged a small amount.
- There is less anonymity compared to traditional bitcoin exchanges. Because buyers and sellers interact with one another regularly, a little anonymity is lost. Depending on the payment method you’re using, relinquishing your identity is sometimes required.
- There’s a steeper learning curve. You can always ask customer support for help or consult a forum, but more or less, you’re on your own. There’s no one to help you in trades other than yourself. It’s not necessarily a steep learning curve, but it’s definitely steeper than traditional bitcoin exchanges.
Ultimately, It’s Your Choice
Both types of exchange definitely have their advantages, but they also have their own set of disadvantages.
Traditional bitcoin exchanges, although they’re more expensive, are more accessible and more convenient. P2P bitcoin marketplaces offer more flexibility and cheaper transactions, but there’s a steeper learning curve.
Think of it this way: are you willing to give up a little anonymity for cheaper transactions and more flexible payments? If you are, then you should explore P2P bitcoin marketplaces further. If you’re willing to pay a little extra for added convenience, look into traditional bitcoin exchanges.
There’s no wrong choice here. It all depends on the way you want to trade. It’s normal for humans to have preferences, even choosing the way we buy our BTC—and that’s okay. Continue with your research of the two types of exchange by looking at some of the popular options for each model. Find one that you like, and then try buying small amounts to start. If the platform is up to par, then great! A part of the fun is getting your feet wet, so don’t be shy!
Welcome to the bitcoin trading sphere, and good luck!
Contributed by Iggi Vargas
Updated on 4th August 2020