In a recent Crypto in Afrika talk podcast hosted by Nixon Kanali, Peer to Peer Platforms were cited as one of the greatest attributes of the growth of cryptocurrency trading in Africa. The reason behind it is simple, noted one panellist; African Banks don’t want anything to do with cryptocurrency transactions, and peer-to-peer platforms have made it easy to carry out crypto-related transactions. Countries in Africa leading with the use of P2P platforms include; Kenya, Nigeria and South Africa.
In Kenya, however, the Central Bank of Kenya has issued an advisory against Kenyans using their debit and credit cards to purchase Bitcoins or any other cryptocurrency. The advisory email circulated by banks advised Kenyans that Bitcoin was not yet a legal Tender in Kenya and it was in their best interest to avoid transacting with them. This has not deterred Kenyans who have invested in crypto via cash and peer-to-peer platforms. Peer to Peer platforms can be best defined as enablers of peer-to-peer services. Peer-to-peer services are decentralised platforms where two or more individuals interact directly with each other without a third-party intermediary; the third party can be escrows or a collection agency. In this article, we will seek to understand Peer to Peer (P2P) transactions and networks and why it’s the most preferred model for cryptocurrency transactions.
The peer-to-peer concept was popularised by file-sharing systems, such as the music-sharing application Napster, which appeared in 1999. Peer-to-peer is a concept that allows many internet users to connect directly, form groups, and collaborate to function as user-created search engines, virtual supercomputers, and file systems. It’s good to note that the difference between peer-to-peer platforms is that communication is not via a central server. In recent days, P2P services have moved beyond internet services to activities that range from simple trading to activities that involve working together on joint projects or communicating without direct intermediation. Why are P2P platforms most preferred for cryptocurrency transactions in Africa? An article on accubits.com notes that;
- In the face of stringent financial regulations by Central banks and other financial institutions in most African countries, P2P transfers have been popularised to bypass the regulations.
- The uncertainty surrounding cryptocurrency regulation currencies makes it easy for Africans to trade using cryptocurrencies.
- The platforms can be used for other financial activities, E.g. remittances and other commercial transactions making P2P platforms the go-to place when carrying out financial transactions.
- Most P2P transactions are carried out via mobile phones, thereby digitising payments, and most Africans own mobile phones.
- P2P networks allow users to reach the global marketplace; hence one can buy and sell cryptocurrencies to investors across the globe.
- P2P transactions offer multiple methods to carry out transactions, unlike conventional banks and other investments vehicle bridging many barriers, making it easy to transact.
- Unlike other Forex Bureaus and Banks, P2P platforms offer low currency conversion rates.
- While carrying out transactions, there is anonymity as very little personalised information is required making it hard for personal data to be breech.
- The Peer to Peer (P2P) platforms are difficult to take down, and if one peer closes down, the others continue.
- Peer to Peer transactions is encrypted and hence making it easier to monitor fraud.
- Peer-to-peer transactions provide transaction privacy and offer a safe way of transacting as they require personal details and documents.
- In Peer to Peer (P2P) platforms, adding new peers to the existing network is easy as no configuration is needed.
- Its file sharing and storing characteristic makes it easy to retrieve the file when it’s needed.
As a highlight, the major characteristic that makes P2P transactions in Africa easy to thrive is its flexibility to bypass the many rules and regulations Central Banks have placed. The top most popular P2P platforms are;
- Paxful offers over 300+ transaction methods and has a 1% trading fee but only trades Bitcoins.
- Binance, which offers over 60+ transaction methods, has a 0% trading fee and trades in BTC’s BNCs, ETH and EOS.
- Remitano, which offers multiple payment methods, has a 0% trading fee and trades BTCs, BNB, BCH ETH, USDT, and more.
- LocalCryptos, which offers over 60+ transaction methods, has a cost-sharing model of a trading fee (0.25% seller and 0.75%) and trades BTC, ETH and LTC.
- CryptoLocally offers over 40+ transaction methods, has a 0.99% trading fee and trades in BTC’s BNCs, ETH and EOS.
- LocalBitcoins, which offers over 35+ transaction methods, has a 1% trading fee and trades but only trades Bitcoins.
As much as P2P is mostly preferred in Africa, several disadvantages make P2P platforms risky to carry out transactions. They include;
- There are many security concerns as the platforms issue unsigned codes. This can make it easy to access your information remotely, thereby accessing your files.
- The platform doesn’t offer verification checks and is therefore prone to human errors when carrying out transactions, e.g. wrong details can be entered, resulting in money going to the wrong person.
- Refunds for transactions done are non-existent, as there are no middlemen to keep track of the day-to-day transactions.
- Transactions are unpredictable as a result of fluctuations in currencies.
- The system suffers from performance issues; hence, downtime can be experienced, making it difficult to carry out different connections.
- Peer-to-peer loans are subject to high credit risk making the borrower attain low credit ratings that don’t allow them to obtain credit loans.
As more and more Africans adopt and embrace the use of crypto as legal tenders, we expect a rise in the use of P2P platforms.