LocalBitcoins isn’t exactly an exchange as you would normally think of one. It’s more like a Craigslist for Bitcoins, where individuals connect with each other and exchange fiat cash for Bitcoins. This makes it the most private method for buying and selling Bitcoin, although it also poses some risks. Below you’ll find out more about LocalBitcoins, and you can decide if a service like this is one you’d like to use.
The LocalBitcoins service has been operating since 2012, and you can use it in every country in the world, except for Germany and the state of New York in the U.S., due to regulations. The LocalBitcoins exchange really holds to the spirit of Bitcoin as it is completely decentralized, unlike nearly every other trading exchange. Privacy is also a top draw for users of LocalBitcoins, but this decentralized peer-to-peer approach does have some pitfalls. The main issue users will encounter is simply getting ripped off. While the LocalBitcoins platform itself is totally safe and secure, you’ll be conducting transactions with strangers, and this always introduces risks.
Why Local Bitcoins is Different from Most Exchanges
As I mentioned above, LocalBitcoins is very different from the well known exchanges such as Coinbase, Bittex or Kraken. This is because with those more traditional exchanges you need to enter personal information (SSN or ID numbers, address, etc), and link a payment method to your account to buy and sell Bitcoins or other coins. In addition, these exchanges will charge a transaction fee for each purchase or sale you make.
LocalBitcoins doesn’t operate like that. Instead, you can create an account and wallet on LocalBitcoins without providing any personal information. You also won’t need to link your LocalBitcoins account to your bank or credit card accounts. Instead, you use the platform to locate individuals who are interested in selling Bitcoin and interact directly with the individuals. This makes LocalBitcoins more like Craigslist.
You simply go through the list of other people who are looking to sell Bitcoins and find one with an exchange rate and terms you like and then you message that person to negotiate how the transaction will occur. If the person is really local to you you can meet in person and conduct the transaction in cash. You don’t have to limit yourself to local people however. You can transact online with anyone, and currently LocalBitcoins supports 48 different payment methods, including those you’d expect like bank transfer, credit cards, and Paypal. But they also support some interesting payment methods such as gift cards, postal transfers, and even cash by mail.
If you’re making your trade online, LocalBitcoins will provide an escrow service, holding the Bitcoins until the payment is received by the seller. It works like this:
1. Seller places the Bitcoins into a LocalBitcoins escrow account.
2. You send the payment to the seller and mark the transaction as “paid in your LocalBitcoins account.
3. The seller then releases the Bitcoins in escrow when they receive the payment.
While there is a risk that the seller won’t release the Bitcoins to you, there is a remedy for this. If the seller takes your money without releasing the Bitcoins you can submit a complaint to LocalBitcoins, along with proof of payment, and they will release the Bitcoin from escrow to you.
Once the payment is complete the Bitcoins are released to your LocalBitcoins wallet, and from there you can move them to your wallet of choice. Note also that both your payment and the Bitcoins are held in escrow by LocalBitcoins, lowering the chance of anyone getting ripped off.
How to Avoid LocalBitcoins Scams
Even though measures are put in place on the platform to avoid scams, it can still happen. After all, a peer-to-peer exchange like this is only as trustworthy as the person/people you’re transacting with. The escrow feature of LocalBitcoins does help, because as long as you can prove you paid for the Bitcoins you will receive them, but if you have to file a complaint you’ll find it can be a long and frustrating process. Definitely something you want to avoid if at all possible. And you can avoid it by following a few simple steps.
The first thing you’ll do before contacting any user to conduct a trade is to click on their username and have a look at their trading history on LocalBitcoins.
When I evaluate a trader I like to look for six different factors:
- Trade Volume: Have they traded more than 100 BTC?
- Number of Trades: Have they completed more than 100 trades?
- Feedback Score: Is their feedback score 98% or higher?
- Account Age: Is the LocalBitcoins account at least 1 year old?
- Account Verification: Have they verified their email/phone with Local Bitcoins?
- Trust: Do 30 or more users “trust” this trader?
If you can answer “yes” to all six of those factors you’ve likely found a good trading partner. As you can see from my screen shot the trader daadambomb meets all the criteria, although they haven’t verified their phone number. Even with that I would likely conduct a transaction with this user, given their long history, trade volume and trust.
Because you’ll be a new trader on LocalBitcoins yourself you may have to take some time to build up your own reputation before the long-term users will trust you. LocalBitcoins itself also limits you to 0.43 Bitcoin in escrow when you begin. That will increase as your reputation on the site improves. So, you’ll probably have to do some small trades with less reputable users to build your reputation when you’re starting out. I recommend you keep these trades small – $250 or less – to limit your risk.
Selling on LocalBitcoins
If you already have Bitcoins and you’d like to sell them on LocalBitcoins the process is just as simple. Rather than looking for Bitcoin sellers, you’ll search for Bitcoin buyers. Follow the same checks on the users who are looking to buy Bitcoins to avoid any potential scams. If possible choose a transaction type that is difficult to reverse such as a bank transfer or money order. Avoid Paypal and credit cards as scammers often use these methods of payment and then dispute the transaction, leaving you with no Bitcoins and no money. Because LocalBitcoins users are anonymous it can be nearly impossible to track someone who pulls such a scam on you down.
Trading Fees on Local Bitcoins
There are no fees for buyers of Bitcoin on the LocalBitcoins platform, however LocalBitcoins does take a 1% fee from the sellers. The 1% is added to the amount the seller puts in the escrow account. Because of this most of the sellers will mark up their exchange rate to account for this 1% fee. If you think the exchange rates on LocalBitcoins are a bit high, this is why.
LocalBitcoins Security and Privacy
While the LocalBitcoins platform has no requirements for you to submit any personal information, many of the traders in the U.S. may ask you for some form of proof of identity before they’ll transact with you. These requests are due to Know Your Customer (KYC) and Anti-Money Laundering (AML) laws in the U.S. that require traders who are selling securities to collect proof of identity. Those wishing to remain anonymous should be able to find other users on the site who are willing to sell Bitcoins without identity verification.
Conclusion of LocalBitcoins Review
Hopefully you found this review of LocalBitcoins helpful and enjoyable. Basically this is an established platform giving people the opportunity to buy and sell Bitcoins while remaining anonymous. If privacy is your main concern when using Bitcoin you’ll find LocalBitcoins a very useful platform. As long as you use some good judgment when selecting people to trade with it is a safe way to buy Bitcoins. It’s also easy to use, but if you’re more comfortable with a traditional type of exchange you may want to have a look at my review of Coinbase.