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Four Alternatives To LocalBitcoin After Cash Trading Ban (#GotBitcoin?)

On June 1, Finnish peer-to-peer (p2p) bitcoin (BTC) trading platform LocalBitcoins quietly removed in-person cash trading from its service. Three days later, the company publicly confirmed the ban on Twitter. As per the accompanying statement, LocalBitcoins had to renounce local cash trading to “adapt to the current regulatory environment.” Four Alternatives To LocalBitcoin After Cash Trading Ban (#GotBitcoin?)

Four Alternatives To LocalBitcoin After Cash Trading Ban (#GotBitcoin?)

The removal of the option has angered users, who seemingly began looking for decentralized platforms with more room for anonymity. However, as the Wild West-like unregulated days of crypto might be coming to an end, the more p2p services might have to apply Know Your Customer (KYC) and Anti-Money Laundering (AML) efforts in order to stay compliant with the watchdogs.

Brief Introduction To Localbitcoins And P2P Trading

Founded in June 2012, LocalBitcoins is one of the crypto industry’s longest-standing veterans. It is headquartered in Helsinki, Finland.

Unlike Coinbase — which was established the same month — and other conventional cryptocurrency exchanges, LocalBitcoins positions itself as a decentralized service that matches people who are willing to trade bitcoin.

In that sense, it is easy to compare LocalBitcoins with similar p2p services like Craigslist or eBay.

Imagine a marketplace where people post their offers to buy or sell bitcoin on a bulletin board, specifying the exchange rate and location (among other things). Interested users reply to those advertisements, choosing to either meet in person and exchange bitcoin for cash, or trade remotely using online banking.

The World Turned Upside Down

That is what LocalBitcoins was until June 1, when the cash option was suddenly removed from the platform. Now, users can only trade via online payment options, or deposit their cash directly to the seller’s bank account.

Predominantly, people choose to meet up to buy and sell cryptocurrencies with cash for anonymity reasons, since no personal information was required in the process.

It is also irreversible, Michael Foster said, who co-founded a similarly-named p2p platform, LocalEthereum, which caters to Ethereum (ETH) users. He explained to Cointelegraph:

“There is a zero possibility of chargeback fraud, which is the hardest scam to avoid when trading P2P. Chargeback fraud is when, for example, somebody sends you money via PayPal, only to reverse the transaction after receiving the goods.”

So, this is how an in-person, cash-based crypto transaction normally happens: After being matched online, both parties arrange a meetup at a public place with Wi-Fi. Then, after receiving an envelope of cash along with a wallet address, the selling party transfers the cryptocurrency on-the-spot, using their laptop or mobile phone.

“It’s best to meet in daylight, in an area with lots of people and cameras. For extra security, bring a friend, or make the exchange inside an airport or a bank,” Foster added.

While it is difficult to call this option a safe one in the conventional sense, financially wise, it is the most secure scenario, a representative of p2p exchange Bisq told Cointelegraph:

“I see the choice as a trade-off between physical safety, financial safety, privacy, and convenience. If it’s financial safety someone prefers, then cash is king. Nothing beats obtaining cold hard cash and depositing it in your bank yourself. There’s zero chargeback risk. But that financial safety comes at a risk to physical safety. […] Non-cash payment methods get around this physical safety risk, but require a person to reveal information to a counterparty that they might not want to reveal. And these methods are usually a lot more convenient too. Which one is better or ‘safer’ is a personal judgment.”

Localbitcoins Ban Was Dictated By Finnish And EU AML Laws

LocalBitcoins started applying KYC measures in April 2018, when a trader proved on Reddit that a personal ID was now required to buy and sell bitcoin for some trade volumes.

“Error! Your trade volume has been significant in the past 12 months. Please verify your ID to continue trading,” the screenshotted message displayed.

Expectedly, the reduction of anonymity on one of the oldest marketplaces in the industry angered decentralization pundits. “RIP localbitcoins. Hi, another centralized exchange,” read one of the top comments on the thread.

The peer-to-peer exchange kept silent until May 9, 2018, when it finally announced that updated terms of service were coming into effect closer to the end of the month.

Notably, the changes were performed in accordance with General Data Protection Regulation (GDPR), a European Union decree on data protection and privacy.

Thus, starting from May 25, 2018, LocalBitcoin users were asked to verify their ID on several occasions, including “trading over certain volume limits,” as well as fraud investigations, among others. They also had to be older than 16 and register only one account per person.

Almost a year later, on March 25, 2019, LocalBitcoins announced it will soon become supervised by the Financial Supervisory Authority (FSA) of Finland, soon after the Finnish parliament approved new legislation that will provide a legal status for cryptocurrency assets.

Around the same time, LocalBitcoins banned users living in Iran, presumably due to sanctions previously imposed by the United States.

On June 1, users started reporting that cash-in trading was removed from LocalBitcoins. Again, crypto traders preferring the meetup option were displeased.

“It’s time to no longer recommend LocalBitcoins, EVER,” the top response to the original Reddit report reads, while the following comment contains a list of alternative platforms.

Similarly to last year, LocalBitcoins did not issue a public announcement for several days. On June 4, a statement was finally released explaining that the removal was dictated by the local regulatory framework:

Some portion LocalBitcoins users moved to rival platforms, others attempted to bypass the ban.

Four different p2p platforms approached by Cointelegraph confirmed that they have seen an increase in local cash trades ads on their platforms since LocalBitcoins removed the option.

However, in-person meetings accounted for 0.5-2% of all trades on three of those platforms, based on their answers, with one exchange reporting 16%, meaning that the general demand is quite low. A representative of the p2p bitcoin exchange Hodl Hodl told Cointelegraph:

“It [local cash trading] is not really popular, but we’ve seen an influx of traders who used to trade on Localbitcoins coming to our Telegram group and actively discussing various options on how to trade cash and suggesting improvements, which we think is great, helps us improve the workflow and we’re expecting to see more cash trades soon.”

Ray Youssef, CEO and co-founder of Paxful, another popular platform for p2p exchanges, told Cointelegraph that there was an increase in cash transactions “throughout the month of May.”

A representative for Bisq also said that it has seen more offers in the USD market lately. “Less than 2% of the trades on Bisq so far in June have been cash trades,” the spokesperson specified.

LocalEtehreum, in turn, reported “a huge uptick” in face-to-face exchanges since LocalBitcoins removed the option, in an email conversation with Cointelegraph:

“Cash exchanges made up 0.6% of LocalEthereum’s volume last month. Since the announcement, cash has climbed to 16% of volume — a 26-fold hike. We’ve never seen this level of activity for cash before.”

However, some LocalBitcoins users are not switching over, yet. Now that the “cash in-person” options are not available on the platform, some traders list those offers under the “cash deposit” tab, specifying that they are only looking for face-to-face meetups.

A United Kingdom-based trader, who has posted a similar advertisement, told Cointelegraph, “I tried to post again and it didn’t work so we tried cash deposit but that’s also kind of useless now as people want to use cash deposit service”.

That trader is now considering moving to other p2p platforms. “What defeats the point of BTC anonymity is transferring funds from your own bank account through a centralized company and then purchasing BTC,” he told Cointelegraph via Telegram.

“Not very local anymore,” he said of LocalBitcoins.

Another seller based in Thailand, who prefers to stay anonymous, also confirmed to Cointelegraph that he or she was trying to bypass the local cash trades ban by listing their offer under the cash deposit tab:

“I have no idea why localbitcoins stopped the cash trades, but if they don’t make them come back in the near future, I will use other platforms. I am already looking at alternatives.”

Nevertheless, LocalBitcoins might curb those kind of ads in the near future, according to what the spokesperson for LocalBitcoins told Cointelegraph via email:

“It is not possible anymore to create local buy/sell ads for cash money, all the existing ads are being removed.”

LocalBitcoins declined to comment on how popular cash trading was on their platform prior to the removal. Also, when asked whether any other KYC-related changes should be expected from LocalBitcoins in the light of local or EU regulations, the spokesperson said it “will inform our users as soon as possible,” if something should happen.

Will Other P2P Platforms Keep Cash Trading Option?

Now that LocalBitcoins had to abandon the cash in-person trading, its rival p2p platforms are picking up a fraction of its traders. But will they remain pro-anonymity amid the increasing pressure of compliance in the industry? Hodl Hodl representative told Cointelegraph:

“As for us, we’d rather shut down and stop operations than subject our users to KYC/AML.

There’s simply no market for a P2P exchange that does KYC/AML. The only reason LocalBitcoins is still making money is because the majority of their volume is from jurisdictions where the KYC/AML info that users provide is not yet affecting said users.”

The Hodl Hodl spokesperson agreed that it is possible that all p2p platforms will be forced to ban cash trading in the future, but argued that, since its exchange is noncustodial and doesn’t hold any bitcoins or fiat money, it might have a better chance of being cleared to operate.

LocalEthereum brought up the same argument in its conversation with Cointelegraph, arguing that its platform is noncustodial as well, and hence might be exempt from certain regulations.

Youssef of Paxful also told Cointelegraph that its service is determined to keep the cash option:

“As the Age of Compliance begins to dawn, many P2P exchanges may need to ban cash transactions as they will not have the compliance resources to handle the anti-money laundering, safety, and regulatory issues, but not at Paxful. We have a top tier legal and compliance team and we are growing our compliance efforts immensely, keeping the door open for the unbanked and underbanked worldwide.”

Thus, it is unclear if there will be another crackdown on p2p exchanges, as it largely depends on the jurisdiction in which such services are based. As previous examples from the crypto industry have shown, a company might choose to move to another country when faced with extensive local regulatory difficulties.

As for now, the p2p exchanges segment seems puzzled by the sudden crackdown, according to what the Bisq representative told Cointelegraph:

“I don’t see how buying bitcoin with cash is any different from buying bananas or bullion with cash. Neither person knows the other person, and it doesn’t matter.”

However, he added, exchanges (even peer-to-peer ones) need to follow the laws of their jurisdictions — and traders should too. Four Alternatives To LocalBitcoin, Four Alternatives To LocalBitcoin, Four Alternatives To LocalBitcoin, Four Alternatives To LocalBitcoin, Four Alternatives To LocalBitcoin, Four Alternatives To LocalBitcoin, Four Alternatives To LocalBitcoin

Updated: 6-27-2019

Bitcoin DEX Bisq Sees Record Volume After Localbitcoins Bans Cash

P2P bitcoin (BTC) trading platform Bisq is seeing record trading volumes as users drop Localbitcoins, data from monitoring resource Coin Dance confirmed this week.

Bisq, the DEX formerly known as Bitsquare, is a decentralized application facilitating crypto-to-fiat trades without a formal intermediary.

For the week ending June 22, the most recent period for which data is available, the platform handled $6.1 million, its best performance on record.
Noticeable upticks came from markets as diverse and the United Kingdom and Brazil, the former seeing its second-biggest volumes.

The increased activity comes weeks after Localbitcoins, traditionally the go-to P2P trading platform, abruptly withdrew the option for users to meet and perform trades for cash.

Part of a series of increased know-your-customer (KYC) moves, dropping cash sparked criticism, with competitor LocalEthereum rushing to hook deserted traders.

Many P2P markets rely heavily on cash exchange, as users either have no access to the banking system or feel unable to rely on it, as is the case with countries such as Venezuela.

The latest data underscores the change in consumer habits with Localbitcoins failing to capitalize on bitcoin breaking $10,000 and higher.

Volumes across the platform for the seven days to June 22 actually fell compared to previous weeks, reaching $56.4 million.

Updated: 4-8-2020

Bisq Disables Trading Due To ‘Critical Security Vulnerability’

The developers behind the peer-to-peer cryptocurrency trading platform Bisq have temporarily disabled services after discovering a critical security vulnerability.

Formerly known as Bitsquare, Bisq is a decentralized exchange (DEX) that facilitates crypto-to-fiat trades without a formal intermediary. In a community announcement posted on April 8, the developers said that they were investigating the security issue, telling users:

“If you have any active trades right now, please DO NOT send any funds.”

The devs add that it is “especially important” for users not to send any funds if they are involved with any of the trades included in a provided list of specific multisig transactions.

Users Can Override Suspension — But At Their Own Risk

As a decentralized exchange, the developers’ intervention is not airtight. In a follow-up to the original post, they wrote:

“To clear confusion: yes, Bisq is a proper distributed peer-to-peer network. So you can override the latest alert key functionality that blocks trading. But we highly discourage you from doing this for your own security.”

Pledging to release more details when they can, the developers indicate that all existing trades cannot be completed until they release v1.3.0 of the application. “Please hold tight,” they stressed, noting that due to Bisq’s security model, user funds are not at risk.

Bisq And Its Predecessors

As previously reported, Bisq’s popularity last year eclipsed stalwart P2P platform LocalBitcoins, after the latter abruptly withdrew the option for users to meet and execute trades for cash.

This February, LocalBitcoins touched a seven-year low in overall trading volumes — an apparent mark of ongoing user uncertainty in response to a series of incidents and allegations. In January, the platform had hit a two-year low for weekly volumes in China.


Updated: 1-28-2020

LocalBitcoins Quietly Suspends Accounts in Multiple Regions Without Notice

Popular Bitcoin (BTC) exchange platform LocalBitcoins is allegedly suspending user accounts with little fanfare, citing an “enhanced due diligence process.”

Finland-based LocalBitcoins, one of major global peer-to-peer (P2P) crypto exchanges, has reportedly suspended user accounts in some countries in Africa, the Middle East and Asia without warning, with some users being unable to withdraw their Bitcoin, Forbes reports Jan. 25.

LocalBitcoins Gives No Public Statement On The Matter While The First Reports Came About A Week Ago

According to the report, the first complaints started coming in last week, with LocalBitcoins users in countries like Afghanistan, Iraq, Nigeria, Syria, and Pakistan claiming that they were not able to withdraw their Bitcoins without deleting their accounts.

As LocalBitcoins has made no official announcement on the matter, Cointelegraph has asked the company to provide a comment but did not receive an immediate response. This story will be updated should they respond. Meanwhile, LocalBitcoins tweeted on Jan. 28 that they have some planned website maintenance work, which reportedly lasted for one hour.

Apparent Connection With European Union’s New AML Law

Following the suspensions, one of the alleged affected users of LocalBitcoins suggested on Reddit that the action must be connected with the European Union’s new Anti-Money Laundering (AML) law, which is known as 5th Anti-Money Laundering Directive (5AMLD). In a Jan. 28 post on Reddit, the user claims that new accounts users are not able to send Bitcoin that they received in their wallets, while customer support is not responding “at all.”

In a separate Jan. 22 personal blog post, the Redditor reported the issue in detail, noting that those users who got their LocalBitcoins accounts suspended were shown the following message:

“Customers residing or otherwise located in the following countries are required to have an enhanced due diligence process. The countries are defined by EU commission: Afghanistan, American Samoa, The Bahamas, Botswana, Democratic People’s Republic of Korea, Ethiopia, Ghana, Guam, Iraq, Libya, Nigeria, Pakistan, Panama, Puerto Rico, Samoa, Saudi Arabia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia, US Virgin Islands, Yemen.”

Localbitcoins Users Have To Wait For 14 Days To Get Access To Their BTC

Other Redditors reported that the affected LocalBitcoins users will have to wait for at least 14 days to delete their accounts in order to withdraw their Bitcoin. One Redditor purportedly had to request the deletion of his account in order to get access to his crypto, noting that he was likely to have been affected by the new unannounced policy by LocalBitcoins:

“It’s really sad to see that even though I have a fully verified Tier 2 status, my account has been put on a forced holiday probably because I am in one of the targeted countries. […] I really hope I do get my bitcoins back after 14 days. I have submitted an account deletion request and received a confirmation email from your support team.”

Some Affected Users Claim That Their Accounts Were Banned For No Reason

Another Redditor, who claims to represent a crypto-related business in Lebanon, reported that LocalBitcoins suspended his account without sending any email before blocking the account. Nader Dirany, a co-founder of the local crypto business, complained that the account suspension has led to termination of his whole business despite him having set up the account almost 3 years ago as well as verified his account with the passport.

Meanwhile, Bitcoin is becoming more and more important in Lebanon amid the intensifying economic crisis in the country, Dirany said in an email to Cointelegraph. He considered LocalBitcoins’ (LBC) decision to suspend his account unfair:

“Sincerely I consider the LBC’s decision is unfair and unjustified, and a catastrophe on my business; especially that I resigned on September-2019 from my position as “Principal Consultant” in Utilities & Energy as to focus on having an online business in Cryptocurrency where LBC platform is considered one of its main pillars.”

Localbitcoins Trading Volumes Dropped Over 50% From June 2019 To Early January 2020

Founded in 2012, LocalBitcoins has emerged as one of the most popular Bitcoin exchanges for allowing safe P2P transactions with directly between the retailer and the customer and without involvement by any third party. However, the popular exchange started seeing a notable drop in trading volumes after the exchange abruptly terminated the option for users to perform local cash trades in June 2019.

As LocalBitcoins continued to tighten its AML policies in 2019, its global Bitcoin trading volumes have been gradually dropping to touch a multi-year low in early 2020. According to data from Bitcoin statistics website Coin Dance, global Bitcoin trading volumes on LocalBitcoins dropped more than 50% since September 2019 by early January 2020.

LocalBitcoins’ proprietary AML and Know Your Customer policies are not the only reason for the massive decline of BTC trading on the platform. On Jan. 10, the European Union’s AML law 5AMLD officially came into force, forcing some companies to cease or relocate operations before the beginning of 2020.

In an interview in November 2019, LocalBitcoins CEO Sebastian Sonntag said that he expected that the KYC situation would become more stable “in the following weeks,” projecting that “improvements in the verification flow should also influence positively.”

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