Since the Central Bank of Nigeria disrupted activities in the cryptocurrency market in the country, users have been at odds with what to do with their assets tucked away in the various exchanges whose services are now limited.
The move has seen banks closing accounts of exchanges and individuals involved in the cryptocurrency market. Luno, after suspending its naira deposits, had on Thursday also announced that it would be suspending withdrawals in the local currency as well pending when a resolution is reached.
But exchanges like Binance and BuyCoins appear to be moving on with their services. Both have announced the resumption of deposits and withdrawals. The difference with Luno is that both Binance and BuyCoins offer peer-to-peer services to their users. Bundle, a Binance-backed local exchange also said it is building its peer-to-peer platform.
“We will work on creating a mobile-first peer-to-peer platform that will allow you to swap assets with other Bundlers quickly, securely, and simply,” Yele Bademosi, CEO of Bundle tweeted.
Read more Binance, Buycoins activate new deposit features amid CBN prohibition
By resorting to peer-to-peer, experts say these exchanges are invariably going back to the original manuscript of Satoshi Nakamoto, the person or group of persons behind the blockchain and bitcoin.
When bitcoin was born in 2009, Nakamoto described it as a “Peer-to-Peer electronic cash system” which means that users can send and receive bitcoins all around the world without relying on a central server or intermediaries. This is why bitcoin is seen as a decentralised and distributed form of money, maintained by a big network of computer nodes.
It should be noted that peer-to-peer did not originate with bitcoin. The term has since been popularised in 1999 with the introduction of Napster, a file-sharing application and a set of central servers that linked people who had files with those with requested files. In the case of Napster, music was shared content.
Although Napster was shut down in 2001 after an allegation of copyright infringement, peer-to-peer did not die with it. There are now different peer-to-peer networks of which bitcoin and other cryptocurrencies are part.
The directive by the CBN to banks, non-banking institutions, and other financial institutions to close the accounts of entities involved in the cryptocurrency market has led to a spike in demand for peer-to-peer lending.
While peer-to-peer was Nakamoto’s original intention for the market, the need for speed and convenience has been responsible for the new ways of conducting transactions on the market. Before the CBN-induced rush for peer-to-peer services, exchanges functioned like normal exchanges for any other asset, such as stocks. But unlike traditional exchanges that have set trading hours, cryptocurrency exchanges are active 24 hours a day, 7 days a week.
To make a purchase on an exchange, according to a post on Luno, a buyer first has to fund their exchange account, also known as a wallet. This can be done with local currency or another cryptocurrency. The buyer then places a ‘buy’ order on the exchange. This is a request to buy bitcoin or another cryptocurrency at a place of their choice. This and all other ‘buy’ and ‘sell’ order are added to the ‘order book’
The order book is a list of the amounts of cryptocurrency that all the traders want to ‘buy’ and sell’, and the prices they’re looking for. The exchange essentially acts as a matchmaking service between the buyer and seller.
How do peer-to-peer exchanges work?
Peer-to-peer on exchanges is a process where a coin seller moves his coin to the platform; creates a buy order stating the quantity he is selling and the rate he is selling for and how he intends to receive payment externally. A buyer comes, sees his trade, and chats with him. The buyer proceeds to make payment in the seller’s external bank account as stated and uploads evidence of payment. The exchange debits and locks the coin. The seller confirms payment in his external account and clicks a button notifying the exchange that he has received money, hence the exchange should release the coin to the buyer.
“It’s the safest option for now because a crypto exchange will never release coin without seller’s confirmations and all exchanges have buttons for dispute resolution which most times leads to both parties printing bank statements,” Gauis Chibueze said founder and CEO of Abit Network, a cryptocurrency trading platform that backs the coin Tatcoin.
Peer-to-peer trading does not necessarily require exchanges to be successful. Traders like Ophi Rume, CEO of Cryptopreacher told BusinessDay that the number of transactions done in the ‘black market’ can compete with the number the exchanges do. In the black market, the liquidity is unlimited and prices can vary widely unlike on exchanges. Transactions on the black market are faster because it is between two individuals but on exchanges, it may be delayed because parties must show proof of the different levels of transactions before it is considered conclusive.
However, exchanges have the biggest advantage of putting in controls that reduce the risks of losing money or becoming a victim of criminals compared to the black market where you are left to your whims.
