The failure of FTX triggered a notable growth of self-custody in 2022, with numerous cryptocurrency investors transitioning from centralized exchanges
The failure of FTX triggered a notable growth of self-custody in 2022, with numerous cryptocurrency investors transitioning from centralized exchanges (CEX) to hardware or software wallets.
The rising popularity of self-custody could even potentially erase the need for centralized exchanges one day, according to Binance CEO Changpeng Zhao. But how would people buy or sell cryptocurrencies without centralized exchanges?
The crypto industry already offers ways to exchange cryptocurrencies like Bitcoin (BTC) for fiat money without using a CEX like Binance. However, such a process is associated with certain pros and cons and may require additional research.
This article will discuss the most straightforward exchange methods to shed some light on buying or selling crypto without using a centralized crypto trading platform.
Bitcoin ATMs
Bitcoin-enabled automated teller machines (ATMs) are probably one of the easiest ways to exchange fiat money for crypto and vice versa. Like conventional ATMs, Bitcoin ATMs allow users to deposit and withdraw money using cash or a debit card. But instead of a bank account, a Bitcoin ATM requires users to have a BTC wallet address to deposit or withdraw money.
Like a traditional ATM, a Bitcoin ATM has a monitor, a QR scanner, a bill acceptor and a dispenser. To connect their Bitcoin wallet to a crypto ATM, users are usually prompted to scan a QR code corresponding to their BTC wallet address.
While providing a simple way to exchange money against cryptocurrencies, Bitcoin ATMs suffer from limited global adoption.
According to data from CoinATMRadar, there are roughly 34,000 Bitcoin ATMs in 80 countries worldwide, with almost 85% of all crypto ATMs in the United States. About 4% of Bitcoin ATMs are located across Europe, with most of those located in Spain, Poland, Romania, Switzerland and Austria.
The infrastructure of global cryptocurrency ATMs has also seen a significant decline recently. According to data from CoinATMRadar, 412 crypto ATMs were removed from the grid worldwide in the first two months of 2023, compared with 1,000 monthly crypto ATM installations between December 2020 and January 2022.
Given the limited reach of crypto ATMs, one shouldn’t rely entirely on their capability to exchange fiat for crypto. According to some industry executives, crypto ATMs have also been increasingly scrutinized by regulators recently, which could bring even more issues to the exchange method.
“For a long time, ATMs provided an excellent service to anyone looking to buy and sell Bitcoin privately,” Trezor’s Bitcoin analyst Josef Tetek told Cointelegraph. “Current global trends suggest that this era is coming to its end, as ATM providers are becoming regulated just like any other financial institution,” he noted, suggesting that Bitcoin ATMs are likely to become significantly less private in the near future.
Another weak spot of Bitcoin ATMs is high transaction costs, with fees often ranging from 5–20%.
Peer-to-peer Bitcoin exchange platforms
Peer-to-peer (P2P) Bitcoin exchange marketplaces are among the most common crypto exchange options alongside Bitcoin ATMs. Such platforms allow users to trade digital currency directly with each other without the need for a centralized third party to facilitate the transactions.
Unlike CEXs, P2P exchanges don’t rely on automated engines to complete transactions, allowing users to manually choose their preferred offer, trade directly with a counterparty, and transact funds using a self-custodial wallet. Such platforms are less vulnerable than CEXs due to their independence from intermediaries controlling funds during a trade.
Many industry executives believe that P2P crypto marketplaces are likely to be the future of crypto due to their unique features. “P2P exchanges are far more resilient to regulatory crackdowns than centralized exchanges,” Jan3 CEO Samson Mow told Cointelegraph, adding that it would be good to have more P2P options.
“P2P services are the future of Bitcoin adoption, but only if they can successfully avoid intruding on users’ privacy,” Trezor’s Tetek said. He specified that some regulatory restrictions, like Know Your Customer (KYC), could essentially make P2P crypto services useless, stating:
“Having a P2P service with KYC is merely a variation of using a CEX but with worse liquidity.”
While providing a more resilient option on the regulatory side, P2P services are often associated with security issues, according to Quantum Economics founder and CEO Mati Greenspan. P2P exchanges like Binance P2P or now-terminated Paxful and LocalBitcoins are “certainly a step in the right direction,” he said, adding:
“This sort of online marketplace maintains the decentralized ethos of crypto, but it is also susceptible to attacks from both regulators and hackers.”
Crypto on-ramp/off-ramp integrations on software or hardware wallets
Another common way to buy or sell crypto without a CEX is using an on-ramp or an off-ramp…
cointelegraph.com