How to Stay Safe in Peer-to-Peer (P2P) Trading

How to Stay Safe in Peer-to-Peer (P2P) Trading

 

 /Introduction

Peer-to-peer (P2P) cryptocurrency trading

entails buying and selling digital currencies without needing a third-party

intermediary. P2P trading allows buyers and sellers to set their prices, select

their trading partners, and decide when to transact. It also enables diligent

and experienced traders to look for and take advantage of favorable 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, thereby 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. Among the 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 type of trading, P2P trading has its fair share of risks, which vary depending on

the exchange and its safety measures. While older exchanges faced a higher risk

of theft and scams, many newer P2P trading

platforms have significantly improved their security measures.

the exchange and its safety measures. While older exchanges faced a higher risk

of theft and scams, many newer P2P trading

platforms have significantly improved their security measures.

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. 

keep users safe. 

However, even with the appropriate safeguards,

all trading activity comes with risks — and P2P trading is no exception.

What Are Some Common P2P Scam

Fake

proof of payment or SMS

Scammers may digitally alter receipts to

convince you they have sent payment and trick you into releasing crypto to

them. 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

1. approve the transaction after checking if the payment is already in you

approve the transaction after checking if the payment is already in your wallet

or bank account.

Chargeback fraud

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 for easier 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 account.

third-party accounts. If it happens, raise an appeal to the platform and

initiate a refund to the buyer’s account.

Wrong transfer

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 by 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, such as screenshots, of your

correspondence and transaction with the criminal. 

tactics. Systematically gather evidence, such as screenshots, of your

correspondence and transaction with the criminal. 

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

and communicates on behalf of that counterparty in order to steal assets or

sensitive information like private keys. The three main categories of

man-in-the-middle attacks include romance, investment, and e-commerce scams.

themself between a user and an application, organization, or another individual

and communicates on behalf of that counterparty in order to steal assets or

sensitive information like private keys. The three main categories of

man-in-the-middle attacks include romance, investment, and e-commerce scams.

1.  

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.

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.

2.  

Investment

scam. An investment scam involves a criminal approaching and

successfully convincing their victim to invest in a certain 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.

successfully convincing their victim to invest in a certain 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.

3.  

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 make payment in cryptocurrency to their wallets and once this is done,

they disappear without providing the products they had promised.

seller offering desirable items at discounted prices. They insist that their

victims make payment in 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 your communication with your

counterparty to the official platform before and during a transaction.

requests on any social networking platform. Limit your communication with your

counterparty to the official platform before and during a transaction.

Triangulation scams

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 takes an order for 5,000

TUSD worth of crypto (Order A), while Buyer B takes an order for the equivalent

of 6,000 TUSD (Order B).

Buyer B then 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 make sure to check your

bank account or wallet to confirm that you have received the full payments for

all pending P2P transactions. 

bank account or wallet to confirm that you have received the full payments for

all pending P2P transactions. 

Phishing

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 message. 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. 

security alerts regarding your account via email or text message. 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

Before trading

1.  

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:

candidates before you enter a trade with any of them. Some things to note while

looking at a P2P profile are:

o    Number of trades: Low numbers

aren’t necessarily bad, but a high number of completed transactions may be a

sign of a reliable P2P party.

aren’t necessarily bad, but a high number of completed transactions may be a

sign of a reliable P2P party.

o    Completion rate: Reconsider if

it’s below 80% as this may indicate the trader has a habit of backing out of

transactions.

it’s below 80% as this may indicate the trader has a habit of backing out of

transactions.

o    Merchant or user feedback: Very

few positive comments or many negative comments can indicate higher trading

risk.

few positive comments or many negative comments can indicate higher trading

risk.

2.  

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 large a disparity between the P2P price and the

market price on other trading platforms is suspicious.

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 large a disparity between the P2P price and the

market price on other trading platforms is suspicious.

When trading

1.  

Stay

alert when interacting with a P2P buyer.

Red flags include:

o    The buyer pushing you to

release the crypto.

release the crypto.

o    The buyer requests unnecessary

information.

information.

o    The buyer becoming unresponsive.

o    The buyer asking you for a loan.

o    The buyer paying less than the

amount agreed upon in the order.

amount agreed upon in the order.

o    The buyer paying more than the

amount agreed upon in the order.

amount agreed upon in the order.

o    The buyer asking to communicate

outside the P2P platform. 

outside the P2P platform. 

o    The buyer asking to pay through

a third party.

a third party.

2.  

Stay

alert when interacting with a P2P seller.

Red flags include:

o    The seller asking you to cancel

the order after you’ve already paid.

the order after you’ve already paid.

o    The seller asking to

communicate outside the P2P platform. 

communicate outside the P2P platform. 

o    The seller asking you to trade

outside the P2P platform.

outside the P2P platform.

o    The seller asking you to pay an

additional commission.

additional commission.

After trading

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

Choose leading P2P platforms that offer their

users robust safety features. Common features include:

1.  

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, as well as 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.

2.  

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.

3.  

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.

4.   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.

5.   Automated payment. New automated payment methods enable P2P platforms to automatically process the release of crypto held in escrow without manual intervention. Buyers can receive their newly purchased assets instantly and sellers don’t have to check each order payment or release assets manually.

6.   Block feature. The block feature allows you to block suspicious users — if you’ve had an unpleasant 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:

• Overlapping text
• Different colors
• Different typography 
• 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.

Take screenshots

Keep records of all proofs of communication and transactions in case you need to file an appeal. 

Have targeted advertisements 

If you have an established crypto network, ensure that your advertisement only reaches people with whom you want to trade. 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 be useful as well 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 behavior that may disrupt your trading experience.

Make an appeal

If you encounter an issue, seek customer support and open an appeal. Remember to provide all relevant evidence regarding your transaction so that customer support can better assist you.

Closing Thoughts

To protect your assets, staying alert to the potential risks associated with P2P transactions is essential. This includes understanding any agreement's terms and conditions, remaining vigilant about red flags, and using platforms with robust safety features.

Be cautious when engaging in any P2P transaction, and contact customer support should you have any concerns. By being mindful and taking the necessary precautions, you can fully enjoy the benefits of P2P transactions.

Disclaimer and Risk Warning: This content is presented to you on an “as is” basis for general information and educational purposes