When the cryptocurrency market becaome more of a lucrative option to have assets for the long-term, many people started to get involved and began buying various currencies. Bitcoin was even called ‘digital gold’, and it it is often compared to gold because it carries the same structure in terms of a cap (and you need to mine for it). Speculators went mad for it and we saw a huge drive in the price of bitcoin.
Some people have been buying using credit cards and some people have even re-mortgaged their houses to buy some. That was how crazy it got. But eventually it all cooled down when the market corrected (or some would say it crashed hard) in January 2018.
There are lots of ways you can buy bitcoin nowadays; bank transfers, credit / debit cards, mobile wallets like neteller, paypal, plus more options. All these different methods all result in the same thing, money entering and exiting your bank account, which ultimately means that you still need to answer to the tax man. As lots of countries are now classifying cryptocurrencies as a tangible asset, there are places where you must pay capital gains tax on it.
We are not in any way advocating the avoidance of tax but you can buy bitcoin through Localbitcoin using cash, which does not go into your bank. So you can buy bitcoin with cash through LocalBitcoins but you can also buy using pretty much any other payment method you can think of. The reason being is because the seller determines how they want the buyer to pay for it and if agreed then that payment mehtod is used. Many users have claimed that they have got amazing deals through this website, whilst on the flip side there are also complaints from people paying way over the odds for bitcoin.
What LocalBitcoin actually does is match up a buyer and a seller, who can then decide how to proceed with the transaction. They can meet up in person to exchange or they can simply agree on a bank transfer. It is secure because the seller must put the agreed amount of bitcoin into escrow on localbitcoin. Once payment is received, the coins are then released and sent to a wallet of the buyers choice. We will now look further into the workings of this platform and see if it is a viable way to buy bitcoin routinely.
ABOUT LOCALBITCOINS EXCHANGE
Localbitcoins is an exchange founded in 2012 by Jeremiah Kangas, but it is currently being headed by the CEO Nikolaus Kangas who resides in Helsinki, Finland. It expanded so rapidly that currently it is operating in over 248 countries. An interesting point about this exchange is that they do not have any backing from venture capitalists.
They clearly state on their website that venture capitalists invested zero money in the project. They follow the core principles of Bitcoin in terms of decentralization, hence they present themselves as totally free, uncontrolled and as an unauthorized website that is open for people from all nations. You can trade with a human, and even have a face to face interaction with them if you choose to pay with cash. You can see the history of the person you are going to deal with – by the rating they have on their profile.
There are a lot of similarities with ebay, users can be well regarded because of the feedback they receive and therefore can attract more people to use them for a transaction in the future. The best part about this exchange is that buying or selling crypto-assets on this exchange is absolutely free. You do not need to pay any maker-taker fees or anything for purchasing or selling your Bitcoin.
HOW THEY OPERATE?
The burning question that comes to mind is if they are not controlled, how do they operate? The only way they actually generate revenue is through ‘advertisement fees’. Every ‘seller’ who wants to sell his Bitcoin, lists his currency through an advertisement on this platform. Once the deal is complete, and the buyer has successfully collected his currency from the seller, they charge 1% from the advertisement. Basically, for every complete trade, they charge 1% fees from the trade itself. They also have merchant invoice fees, which are 0.5% from the paid invoice.
ADVANTAGES OF LOCALBITCOINS
Localbitcoins operates differently from other traditional cryptocurrency exchanges, below we highlight some of the important advantages –
- As discussed, here you have an option to buy Bitcoins with cash. It works like this – if someone is local to you (or one of you is willing to travel) you can meet up with the seller and decide to pay with cash. After which, you will get the agreed amount of Bitcoins credited to your Localbitcoins account from escrow.
- Another advantage is that it is operational and fully functional in over 248 countries, including many states in the US.
- In many countries where other exchanges and cryptocurrency trading is banned, localbitcoins is the only way to buy Bitcoins.
- You can use many other methods to buy Bitcoins. Almost all payment methods are accepted here, from bank wires to mobile wallets.
- The way it operates, is completely decentralized. They focus on making the trade P2P (person to person). You can deal directly with humans, people who are residing in your area or the same city as you.
- Trade is quick and instant. As soon as you pay the sum and the seller verifies the payment, Bitcoins will be credited to your account in no time at all.
- A huge advantage is that you can buy bitcoin with ANY fiat currency, so for those that do not normally trade in EUR, USD or GBP, you have a method of buying with any other government backed currency.
SOME MORE UPSIDES –
- They have enabled 2FA (two factor authentication) for all their user-accounts to add an extra security layer. They also have a login-guard. This is done by recording the browser address and notify you if someone logins using your credentials from a different browser or device.
- Localbitcoins all payment methods, including paypal.
- There are no buying/selling limits placed on users. You can buy or sell as much as you want to (assuming you can find someone to take the other side of the trade, for instance it may be difficult to find a buyer of 1000 bitcoins).
- It is a private way to buy or sell cryptocurrency. You do not require any personal information to be shared, it provides the users complete anonymity.
- Selling or buying Bitcoins here is free. The only fees they charge is on the trade. Flat fees of 1% is charged on every completed trade.
- Localbitcoins is also seen as a great way for users to cash out of their positions, with lots of exchanges making it very difficult to exchange bitcoin back to fiat, localbitcoins makes the process as easy as buying. This means that you can get out of a trade at the price you wanted rather than being forced to wait until the next day because the withdrawal limit isn’t high enough.
DISADVANTAGES OF LOCALBITCOINS
With localbitcoins as well, there are many loopholes, downsides and disadvantages that you must be aware about, before you decide to use this platform –
- It is not available in Germany or the state of New York. Many other parts of the US do have an access to it.
- Anonymity comes with a complete set of dangers and risks. There are many cases of frauds on localbitcoins, as the power lies with the people. The exchange does its part on verifying the kind of people who come to their website to deal. But they do not take responsibility if the trade goes wrong. The buyer has to be careful himself.
- The list of scams is endless. Localbitcoins bans the accounts of users on a frequent basis who reportedly do not follow through with a trade, but if you end up losing your money to someone who didn’t pay you Bitcoins, nobody will help you. Localbitcoins warns all its users about possibility of scams, but they cannot control it, or compensate you in any way, if you become a victim of it.
- Essentially the issue is that the seller can take your money (say from a bank transfer) and say that you did not pay, therefore the bitcoins can be returned to them. If this does happen then the buyer can complain and will feedback negatively, which will likely result in the seller not being used again however it does not get them their money back.
- Only Bitcoins are available on the platform, although there is now a localethereum website. Unlike other cryptocurrency exchanges, you cannot purchase alt-coins here. As the name suggests, Localbitcoins deals only with Bitcoins.
- If you choose to buy in cash, the fees that you will be charged, will be higher compared to other transactions.
- For new users, it is very difficult to buy or sell Bitcoins, since they have no ratings at all. Which actually does save you from being scammed in the long run.
- Speed of transactions depends upon payment methods. Cash payments might get you instant results, but then it also depends upon the seller, how quickly they acknowledge that they have received the money from you.
REGULATION AND REACH
As localbitcoins does not have any operations per se, and people are dealing with people directly, there are no real issues around compliance. They might be banned in Germany and New York, but they are up and running in all other countries. In fact they are the only option to purchase Bitcoins in many countries, especially those who do not allow other centralised and regulated exchanges to operate.
The market positioning of localbitcoins is strong, mainly down to it operating in over 248 countries. Many users who do not wish to reveal their identity, prefer anonymous means, and localbitcoins can provide that. Localbitcoins exchange managed to pull 13.85 million views in last six months.
Localbitcoins is mostly used in Venezuela (12.2%), followed by USA (9.3%), UK (7.8%), China (5.8%) and India (3.8%). It is operating in over 16 thousand cities across the globe.
If you look at the social media influence, YouTube has managed to generate the most traffic, rounding up to 43%, while Facebook pulled 22% of traffic. Reddit (14%), Twitter (5.7%) and WhatsApp Web (5.4%).
SIGNING UP AND SECURITY FEATURES
Signing up on localbitcoins isn’t difficult, anyone can sign up, even using a pseudonym or an anonymous ID. You can be completely anonymous on this platform but to perform trades, you will need to provide your real name, that is the policy of localbitcoins.
They also ask for some government issued identification documents, but their policies state that the information you submit will never be shared. The seller might ask you to submit your ID in case you initiate a purchase, and you might have to submit some documents if you want to buy Bitcoins, but that is optional and depends upon the seller.
When we talk about security features, localbitcoins have enabled 2FA (two factor authentication) for their users and they also have a login guard. Login guard alerts the users if their localbitcoins account is logged in from an unregistered or unauthorized browser. They do have a complete guide for the users to stay alert and beware of scammers.
Apart from the security measures taken at their end, they suggest users to use very strong passwords, which should be a given but still isn’t!
CRYPTOCURRENCIES SUPPORTED BY LOCALBITCOINS
As the name suggests, Localbitcoins only supports Bitcoins for now. They are known for Bitcoin trading, and have been doing so since 2012, they do not have a plan to include alt-coins any time soon. However, there is now a localethereum website that is related but technically not the same platform.
They do not charge any fees on buying/selling Bitcoins, but they do charge a flat 1% fees on completed trades, which basically means they do charge to buy or sell bitcoin, but have worded it differently. For those who want to purchase Bitcoins using cash, you have to use an invoice system which adds an additional 0.5% onto the fee. This is the same when any invoices are used. For cheaper trades, look to avoid the payment methods that require this.
Customer Support of localbitcoins is available 24/7 because of their extensive network and high congestion, but they are not as responsive or active as they should be. Users usually complain about them ignoring their grievances, and for not responding to their requests.
As localbitcoins also works on custom research projects, for which they charge 200 EUR/hour (to be paid in Bitcoins), their focus towards their customers on localbitcoins is less and their aim to develop their research domain is a higher priority. This is what the users often accuse them of and it is a fair point. Their customer are team has a lot of room for improvement and as there are plenty of other exchanges to choose from, we think localbitcoin do need to be careful.
However the fact that they are a reliable source to cash out of a bitcoin position does give them reach, because lots of users end up there selling their bitcoin. Lots of users can get out of other coin positions by exchanging their altcoin for bitcoin on another exchange and then cash out on localbitcoin. The other positive that should not be overlooked is that they accept any fiat currency, meaning those from India, Russia or wherever can buy bitcoin. More popular exchange only allow USD, GBP or EUR, pigeon holing them to certain markets.
Localbitcoins at present is the only way to buy Bitcoins using a person to person domain, and to buy Bitcoins in cash. Hence, they might be the best option for the customers who prefer trading in cash over cards. This however will surely not catch on, as cash is dying (it won’t die but I cannot see it being a big source to buy cryptocurrencies). There are a lot of security issues that a user might face, because the entire network is dominated by people, there will always be the risk that one person will not pay his side of the bargain.
Not being regulated or centralized might seem great for Bitcoin, but for an exchange, it raises a lot of red-flags, as some people cannot be trusted. The trades might be monitored and strictly controlled by the website, but there are still many scams and frauds that do take place despite high security features, and sophisticated methods of protection. We hope that this review clears a lot of doubts you might have about localbitcoins.