From Sharing to Caring: How P2P Services Are Changing the Game, Peer-to-peer (P2P) trading is becoming increasingly popular among crypto traders, but like any trading, it comes with potential risks. Awareness of these risks allows traders to protect themselves from potential losses and better understand the process. There are numerous precautions they can take — read on to find out what they are, as well as how and when to apply them.
How P2P Services Are Changing the Game: Peer-to-peer (P2P) cryptocurrency trading entails buying and selling digital currencies without a third-party intermediary. P2P trading allows buyers and sellers to set prices, select their trading partners, and decide when to transact. It also enables diligent and experienced traders to look for and take advantage of favourable 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, 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. 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 trading, P2P trading has its fair share of risks, which vary depending on the exchange and its safety measures. While older talks 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.
Fake proof of payment or SMS
Scammers may digitally alter receipts to convince you they have sent payment and trick you into releasing crypto. 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.
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 more straightforward 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 invoice.
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 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 of your correspondence and transaction with the criminal, such as screenshots.
How P2P Services Are Changing the Game: 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. He communicates on behalf of that counterparty to steal assets or sensitive information like private keys. The 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 particular 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 pay 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 communication with your counterparty to the official forum before and during a transaction.
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 orders 5,000 TUSD worth of crypto (Order A), while Buyer B orders the equivalent of 6,000 TUSD (Order B).
Buyer B 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 check your bank account or wallet to confirm that you have received the total payments for all pending P2P transactions.
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. 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
How P2P Services Are Changing the Game, 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 works: Low numbers aren’t necessarily wrong, but many completed transactions may indicate 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 significant a disparity between the P2P price and the market price on other trading platforms is suspicious.
Stay alert when interacting with a P2P buyer. Red flags include:
The buyer is pushing you to release the crypto.
The buyer requests unnecessary information.
The buyer becoming unresponsive.
The buyer is asking you for a loan.
The buyer is paying less than the amount agreed upon in the order.
The buyer is spending more than the amount agreed upon in the order.
The buyer is asking to communicate outside the P2P platform.
The buyer is asking to pay through a third party.
Stay alert when interacting with a P2P seller. Red flags include:
The seller asks you to cancel the order after you’ve paid.
The seller is asking to communicate outside the P2P platform.
The seller is asking you to trade outside the P2P platform.
The seller is asking you to pay an additional commission.
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
How P2P Services Are Changing the Game So, choose leading P2P platforms offering 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 and 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 mechanical payment methods enable P2P platforms to automatically process the release of crypto held in escrow without manual intervention. Buyers can receive their newly bought assets instantly, and sellers don’t have to manually check each order payment or release purchases.
Block feature. The block feature allows you to block suspicious users — if you’ve had a bad 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:
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.
Keep records of all proofs of communication and transactions in case you need to file an appeal.
Have targeted advertisements
If you have built a crypto network, ensure your advertisement only reaches people you want to trade with. 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 also be helpful 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 behaviour that may disrupt your trading experience.
Make an appeal
If you face an issue, seek customer support and open an appeal. Remember to provide all related evidence regarding your transaction so that customer support can better assist you.
Staying alert to the potential risks linked with P2P transactions is necessary to protect your assets. This includes understanding agreement terms and conditions, remaining active about red flags, and using platforms with robust safety measures.
How P2P Services Are Changing the Game: Be aware when doing any transaction, and contact customer support should you have any concerns. By being mindful and taking the necessary steps, you can fully enjoy the benefits of P2P transactions.