Almost nine years after Bitcoin launched, trading cryptocurrency with fiat currencies remains difficult and expensive, with the space dominated by centralized exchanges charging high transaction fees and not always delivering the user experience and level of service you expect.
Exchanges like Coinbase and Kraken (and many more like them) force you to go through time-consuming anti-money laundering and know-your-customer (KYC) processes before they allow you to trade any significant amounts. After submitting your photo ID and other documents, you’re often left waiting weeks for the exchange to process your request, due to difficulties they have handling the influx of new users. When your identity has been verified and you want to deposit or withdraw funds, you have to deal with the long waiting times of international bank transfers, and the processing fees from the exchange. For anyone doing frequent or large transactions, these fees add up.
The many incidents of exchanges losing or misplacing customer funds — Mt. Gox in 2014 being the biggest and most famous breach, with Bitfinex last year on second place — have given the exchanges a bad reputation among both traders and holders of cryptocurrency, who refrain from storing their coins on the exchanges when possible.
Since 2012, Finnish Bitcoin startup company LocalBitcoins has been facilitating over-the-counter trading of local currencies for Bitcoin. The peer-to-peer exchange is like eBay for Bitcoin, giving users the opportunity to securely buy and sell Bitcoins to and from each other for free. You can sell your Bitcoin via multitude of payment methods without having to give anyone your ID, making it the preferred option for buyers and sellers who value their privacy.
Now Localethereum is promising to do the same for buying and selling Ether as LocalBitcoins did for Bitcoin. The service is opening for trading today and has 15,000 pre-registered users. However, unlike its Bitcoin counterpart, Localethereum will be a completely decentralized service (there won’t be an ICO though) where the user retains full control at all times. Where LocalBitcoins acts as an escrow/arbitrator, the team behind Localethereum wants to achieve the same through use of Ethereum smart contracts so you won’t have to trust anyone at Localethereum. They can’t read your messages or access your funds. Localethereum asserts that it will become the most secure marketplace crypto has seen. It won’t be free to use, though. The company will charge sellers a 0.25 percent fee and will charge buyers 0.75 percent. This is still well below exchanges like Coinbase and others.
(One side note about Localethereum: It has so far refused to disclose where it is based.)
Trading Bitcoin and Ether over services like LocalBitcoins and Localethereum is one of the most private and secure ways available. In some countries it’s also the only way to trade cryptocurrency. Add to this the flexibility in accepted payment methods and the fact that these services impose no buying or selling limits, and they certainly have advantages over centralized exchanges.
However, trading on these services works based on trust between buyers and sellers. Buying is usually very easy and safe, but when selling you need to use caution. There are many scammers and most of them will use new accounts or accounts with little history so make sure you select well rated buyers and maybe also request an ID from them. Also, when making over-the-counter trades, remember that it’s your responsibility to ensure you comply with your local regulations.
Cryptocurrency adoption, which at this point is mostly limited to buying/speculating, is growing, especially among tech-savvy millennials, and the emergence of a service like Localethereum is definitely a sign that Ethereum is becoming more mainstream every day. It’s not, however, a sign that cryptocurrencies in general are. After all, this is a service to trade your crypto into fiat currencies.
Full disclosure: I have no association with or financial interest in LocalBitcoins or Localethereum.
Trond Vidar Bjorøy is head of product development and implementation – Nordics at travel management company ATPI. He became interested in blockchain due to its applications in the travel industry but now tracks ICOs and emerging blockchain projects across a variety of industries.