With ongoing changes to peer-to-peer (P2P) cryptocurrency regulation as well as customer sentiment towards bitcoin and cryptocurrency rapidly shifting around the world, it is imperative that we ensure that LocalCoinSwap remains the safest, transparent and most user-friendly P2P platform worldwide. With this in mind, we recently announced that we will be migrating LocalCoinSwap from a custodial to a non-custodial P2P cryptocurrency exchange.
It is important to note that the particular style of non-custodial trading that we will be implementing, along with the multitude of cryptocurrencies that we are aiming to be implementing it in, has never been performed before by any other exchange. We are excited to deliver another world-first to the community.
Find out what non-custodial trading means for the LocalCoinSwap platform, our LCS community and how it will benefit peer-to-peer buyers and sellers of cryptocurrency worldwide.
About our LocalCoinSwap P2P Exchange
LocalCoinSwap is and will remain to be a P2P marketplace for buying and selling cryptocurrencies, such as bitcoin or ethereum. We currently have the largest portfolio of currencies with over 20 different cryptocurrencies and over 160 fiat currencies that can be used to buy and sell cryptocurrency in over 190 countries worldwide.
Similar to eBay or Craigslist, buyers and sellers come to the LocalCoinSwap P2P cryptocurrency marketplace to buy or sell digital currencies, such as bitcoin, from other people around the world who have placed advertisements on our website. Alternatively, if there are no buy or sell advertisements that suit your preference, you also have the option to post your own buy or sell advertisement letting others know that you want to buy or sell a specific cryptocurrency, at a specific price, using a specific payment method, within specific locations worldwide.
For example, if you want to buy bitcoin with cash in Mexico, you can easily create a buy advertisement letting others know how much you are willing to buy and for a specific price and then share that with others in your community.
This P2P buyer/seller ecosystem is incredibly important to the wider cryptocurrency market for a number of reasons. Not only are there still many people around the world who do not have access to buy or sell cryptocurrency via centralized exchanges (due to a lack of identification or even lack of a bank account) but in many countries bank accounts are also often closed if they are linked to centralized exchanges. This can be hard to believe if you are from a country that ultimately doesn't have issues with accessibility but the reality is that there are still over 2 billion unbanked people around the world and many more who are underbanked or who live in countries that have harsh regulation imposed on citizens.
P2P markets also provide buyers and sellers with a huge range of payment methods that are unavailable on centralized exchanges (such as cash-in-person, gift cards and local banking options) as well as a range of other business opportunities due to the fact that P2P markets allow anyone, anywhere to become their own exchange within their own local community or even establish networks with OTC cryptocurrency brokers worldwide.
You can read more about how to make money with P2P trading and find out more of the potential benefits of P2P trading on our blog.
Overview of Custodial vs Non-Custodial Exchanges
So what exactly is a non-custodial exchange, how does it differ from a custodial exchange and what are the advantages and disadvantages of each?
A custodial cryptocurrency exchange is very similar in its function to a bank. This type of exchange is one that holds your private keys and at all times has control over your cryptocurrency. In regards to a centralized exchange, the trading process is done completely off-chain, within the database of the platform, so it is not verified by the blockchain. This allows transactions to be completed faster however it ultimately leads to an overall lack of transparency, not to mention huge security issues.
Examples of custodial exchanges include Coinbase, LocalBitcoins or Paxful. If you store your cryptocurrency on these custodial exchanges you are never 100% in control of your funds as the custodian (the platform) holds your private key at all times. Whilst you might have access to your cryptocurrency in your on-site wallet, your funds always remain in the hands of the company and you can lose access to your cryptocurrency at any time.
Advantages of custodial exchanges include:
- You can manage funds and trade quickly
- Difficult to lose your private key
Disadvantages of custodial exchanges include:
- The platform always has control of your cryptocurrency
- Your crypto can be seized by the platform or a government
- If hacked, you will likely lose your crypto as it is held by the custodian
- During forks, you may miss out on receiving your crypto
In contrast, non-custodial exchanges do not have access to user’s funds due to the fact that they do not hold any private keys of any of their users, nor manage any of their user’s wallets. Non-custodial cryptocurrency platforms give users 100% control of their funds by giving them their private key to hold and keep safe at all times.
When it comes to buying and selling a cryptocurrency, it is important that you trust the platform that you are entering into the relationship with. In order to be able to trust any platform, you must hold your private key. Once you hold your private key, transactions then become ‘trustless”.
Trustless P2P transactions increase security, ensure that users maintain control of their own funds and, most importantly, ensure that a user’s cryptocurrency can never be taken by any third party, whether it be the platform itself or the government.
On LocalCoinSwap, non-custodial trading means that we will not hold funds within the site, and trading will occur through multi-signature transactions in the case of BTC-based cryptocurrencies, and a smart contract in the case of ETH-based cryptocurrencies. We will be posting more about the technical side of non-custodial trading on LocalCoinSwap in the weeks to come.
Non-custodial P2P exchanges leverage the real power of permissionless blockchain technology by eliminating the need to trust a centralized third-party and allow people to conduct transactions without the need for any intermediary to get in the way of user control and security.
Examples of non-custodial exchanges include Shapeshift, Changelly and HodlHodl.
Advantages of non-custodial exchanges include:
- You control your private keys
- Funds cannot be held ransom or confiscated by authorities
- No risk of sites funds being hacked, as the site will not be holding any funds
- No security delays with withdrawals as users hold their own funds
- If the site goes down users still have full control over all their funds
- Cheaper withdrawal transaction fees
- Greater compliance with current and future regulations across international jurisdictions
Disadvantages of non-custodial exchanges include:
- Full control of your money also means that you are the only one responsible for your funds.
Non-Custodial Community FAQ:
- What is the impact on the LCS held on the platform for ease of use
There will be no impact on any LCS Cryptoshares held on the LocalCoinSwap platform. Users will still be able to buy, sell, trade and store LCS Cryptoshares in their LocalCoinSwap wallet. The primary difference will be that you will hold the private key to your LCS wallet on the platform and will need to store this private key in a secure location that only you will know. The LocalCoinSwap team will have no access to your cryptocurrency or your funds at any time.
- If we have LCS Cryptoshares on the LocalCoinSwap platform do we need to move them off also? Or it would they be okay remaining on the LocalCoinSwap platform during the process of this non-custodial change?
As per all ethereum-based tokens, LCS Cryptoshares will not be affected by the migration to a non-custodial platform. For this reason, you will not need to move them from the LocalCoinSwap platform during the process of the non-custodial change.
- What does it mean for a platform to go from custodial to non-custodial?
By moving from a custodial to a non-custodial platform we are giving users control over their private key and more security of their cryptocurrency.
- Why does the migration to a non-custodial platform require the delisting of coins?
The process of moving to non-custodial trading is technically difficult and hasn’t yet been achieved in many of our currently listed cryptocurrencies. To speed up implementation, we will be launching initially with Bitcoin, Ethereum, and all ERC20-based tokens.
- What is non-custodial, is it good for us? Will it add volume?
Migrating LocalCoinSwap to a non-custodial platform is a positive move for LocalCoinSwap. Not only does it reiterate some of the primary tenants of our project (transparency and ownership), but it also helps to ensure that our users are less effected by crypto regulators who continue to try to control the market worldwide.
Many cryptocurrency users are hesitant to trust centralized exchanges and even custodial platforms due to regulations and the history of large hacks resulting in massive losses of user funds. With this in mind, over time we also expect that this move to a non-custodial platform will drive more users and volume.
By transitioning to a non-custodial platform we are ensuring that our marketplace will be less affected by any new regulation created to try and control the market. In addition, it will ensure that users who buy and sell bitcoin, or any cryptocurrency, on our P2P exchange will at all times be in control of their wallet, their transactions and will have a safe way to comfortably engage in the rich P2P ecosystem.
- Did LocalCoinSwap calculate possible onchain fees which can make a trade unprofitable(or even lose money) for a trader in case non-custodial?
This will be naturally prevented by the requirement for fees to be paid by the seller.
- Why are we delisting XRP?
The technical hurdles of implementing non-custodial XRP mean that it is not economical to launch this feature with XRP trading. In the future we will explore the possibility of re-adding XRP.
- What will happen to our small balances on the coins that are being delisted?
Users should withdraw all their balances of the currencies being delisted before the delisting date. We have lowered the withdrawal transaction fees so that users with smaller balances can withdraw before the delisting date.
Where users have balances of the cryptocurrencies being delisted that are still too small to withdraw, we will be replacing these with the equivalent USD value of Ethereum a few weeks after the delisting date.
- What happens to the delisted coins when it comes time for dividends. Where would the 1% fee go to that has accumulated?
Some users have unredeemed dividends that represent balances of currencies that are being delisted. After the delisting date, these dividends will now redeem for a higher amount of Ethereum to the USD value of the delisted currency redemption.
- Are we still going to need to pay the transfer fees? Since it's not our fault?
Withdrawal transaction fees for currencies being delisted have been reduced to 25% of the original value to ensure that users can withdraw their cryptocurrency ahead of the delistings at minimal costs.
- How does the team plan to transfer the BNB into the venture fund if most, if not all, wallets holding have less than the minimum withdrawal? If one person can't withdraw due to network fees being higher than held balance how would one say transfer it out without losing it all to network fees?
Anything that is not economical to transfer will be left in the relevant addresses. We have also reduced all the fees on currencies being delisted to make it cheaper for people to transfer these away from the site.
If people do not withdraw balances we will convert them to Ethereum and credit their accounts if the amount in their wallets are more than the transfer fees.
We will continue to provide further details on the non-custodial migration over the next few weeks and will continue to update the Community FAQ as we receive more questions. In the meanwhile, please do not hesitate to contact support if you have any feedback or join us in our LocalCoinSwap Telegram channel to chat directly with the team.