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Bitcoin OTC King: Retrace LocalBitcoins' rise and fall a decade ago
Summarized by AI
原文标题：《 比特币 OTC 之王谢幕：重走 LocalBitcoins 的兴衰十年 》
Original article by eng SUN, Foresight News
How would you buy cryptocurrencies if there were no trading platforms? If you wanted cryptocurrency cash transactions to go untracked, what would you do?
The former, your choice must be over-the-counter. If you combine the latter, you have to think of off-market cash transactions. Of course, pure cash transactions are few and far between today. In the face of the frozen card risk of over-the-counter trading on the centralized trading platform, the safe way is to conduct P2P trading with relatively trusted acquaintances around.
In the history of cryptocurrency trading, LocalBitcoins, the peer-to-peer bitcoin exchange platform, should not be forgotten, the world's largest bitcoin over-the-counter platform, which has made an indelible contribution to the global adoption of bitcoin. LocalBitcoins naturally adheres to the decentralized spirit of Bitcoin peer-to-peer. Although it is not DEX, it is a trading platform different from Coinbase, Circle, Binance and other centralized trading platforms.
Since its birth in 2012, LocalBitcoins has created its own glory. However, reality finally forced it to stop its service on February 9, 2023. In view of this, this paper will review the 10-year development history of LocalBitcoins and reconstruct the birth, development, glory and decline of LocalBitcoins from words, data and pictures. More importantly, the history of LocalBitcoins' rise and fall allows us to understand the contribution that LocalBitcoins has made to the global popularization of bitcoin and the crypto industry from the unknown side, and encourages us to further think about "where we have come from and where we are going".
LocalBitcoins.com
I. Locally-based cash transactions: The birth and early development of LocalBitcoins
LocalBitcoins is a peer-to-peer over-the-counter bitcoin trading platform based in Helsinki, Finland. Founded in June 2012 by Finnish software developer Jeremias Kangas, LocalBitCoins aims to make bitcoin ubiquitous and promote global financial inclusion.
LocalBitcoins founder Jeremias Kangas
When Kangas was introduced to bitcoin in 2011, he found that many people were unable to buy bitcoin using traditional exchange platforms due to restrictions imposed by banks and governments. In 2012, Kangas spent two weeks building LocalBitcoins.com, which initially offered only location-based listings, with no user accounts or URL identifications. On launch day, bitcoin sellers rushed in to list where they were trading. The early development of Kangas was largely done by one person. By late 2013, Kangas had hired nine employees and worked with freelancers around the world.
June 16, 2012 LocalBitcoins.com website, 1 BTC = 6.14 USD
At the end of 2012, LocalBitcoins started to implement a trusteeship business model and became profitable in early 2013. Users must have a LocalBitcoins wallet and deposit bitcoins in order to use the hosting service. The buyer/seller searches for and responds to ads posted by the bitcoin seller/buyer on LocalBitcoins, including bitcoin prices, payment options accepted and limits. With each transaction, LocalBitcoins keeps bitcoins in an escrow account. As implied by the "local" of LocalBitcoins, it is designed for "local", that is, the two parties of a bitcoin transaction need to agree on an offline location to meet and complete. After the seller confirms that he has received legal cash, Bitcoin will be released from the custody service and sent to the buyer. LocalBitcoins, which charge no fees for buying and selling bitcoins, acts as a trust between buyers and sellers, with the platform charging a 1% custodian fee for each completed transaction if it advertises a bitcoin sale. As shown in the picture below:
LocalBitcoins transaction method
On June 14, 2013, the one-year anniversary of the establishment of LocalBitcoins, there were 44,000 users in 142 countries and 1700 cities. On average, there were about 250 new users registered every day, and the daily transaction volume was about 400-900 BTC. Users can price BTCS at XAU (gold ounces) and XAG (silver ounces) on Localbitcoins. In November 2014, Simon Hamblin, CEO of Netagio, a British bitcoin exchange platform, said that the transaction volume of British exchanges in the sterling and bitcoin markets lagged behind that of over-the-counter exchanges such as LocalBitcoins.
1. Across Africa: "Motorbike Tour"
On October 8, 2013, Kangas posted a "motorcycle tour" across Africa on BitcoinTalk, Sponsored Borja and Mr. And Mrs. Elvis to ride motorcycles through 16 countries: Morocco, Western Sahara, Mauritania, Senegal, Mali, Burkina Faso, Togo, Benin, Cameroon, Nigeria, Republic of Congo, Democratic Republic of Congo, Angola, Namibia, Botswana, South Africa. The campaign went off without a hitch, and Borja found residents in every country/city she traveled through who were willing to exchange their local currency for Bitcoin. The move certainly expanded the global adoption of LocalBitcoins and the popularity of Bitcoin, and they proved that Bitcoin is tradable.
In 2013, LocalBitcoins sponsored Borja's "Motorcycle Tour" across Africa.
(2) Mt.Gox crisis and the choice of Bitcoin community
In July 2013, Jeremias Kangas was invited with LocalBitcoins.com to participate in a panel discussion on "Rising Stars in the Bitcoin Startup Ecosystem" at the first London Bitcoin Conference in 2013. It can be seen that the influence of LocalBitcoins in the Bitcoin community has been preliminarily established. On 18 January 2014, the first Satoshi Square event was held in Bishops Square, on the edge of the City of London, allowing people to conduct bitcoin transactions face to face. It was an "informal networking event" focused on introducing people new to Bitcoin to the digital currency. Bitcoin enthusiasts are also here to discuss cryptocurrencies, the latest mining technology and bitcoin trading. In addition, users can also use LocalBitcoins to trade bitcoin offline in the real world.
Early audience growth of LocalBitcoins also benefited from Mt.Gox. From June 25, 2013 to 2014, the Mt.Gox crisis also promoted the rapid expansion of LocalBitcoins' market share. For example, on December 10, 2013, Mt.Gox partnered with AstroPay to offer US dollar and bitcoin deposits and withdrawals for users in Latin America (Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay). But a few days later the Argentine banking option disappeared and was no longer available to the Argentine Bitcoin community. "In Argentina, bitcoin users have become accustomed to buying and selling bitcoins locally using sites such as Conectabitcoin, LatinCoin, LocalBitcoins and even Facebook groups."
By the end of 2013, the only bitcoin exchange in Taiwan was LocalBitcoins, which was also a popular choice among bitcoin enthusiasts in Egypt, Japan, Albania and Indonesia. LocalBitcoins and Bitcoin Venezuela have informal gatherings, meetings and exchanges across the country following hyperinflation and bank failures in Venezuela on March 31, 2014.
On May 2, 2015, a bitcoin buyer who trades offline on LocalBitcoins said, "Almost any time of day in cities like New York, London, Los Angeles and Tokyo, you can meet someone on the street, in their apartment, or in my case, in a brightly lit, busy Starbucks, And then give them some cash in exchange for digital currency."
(3) Demand for capital circulation
In November 2013, after the violent anti-government protests in Ukraine, Ukrainian protesters raised funds through Bitcoin. Because they needed to be converted into Ukrainian hryvnia to be used in Ukraine, the only available Bitcoin exchange platform was BTC-e, so, Peer-to-peer exchanges such as LocalBitcoins are the best bet for protesters in Ukraine.
Similarly, LocalBitcoins and bitcoin have come to be seen as conduits for money flows in Latin America due to lack of access to full-fledged online trading platforms. On Dec. 19, Coincove, a bitcoin remittance startup, used the LocalBitcoins platform to allow its customers to bring fiat coins to local Bitcoin resellers in person. Coincove offers the service of converting their cryptocurrency into U.S. dollars so that customers can move money to different countries around the world. Coincove uses Bitcoin as a conduit for money to flow. Four countries were initially chosen to operate: Argentina, Mexico, Spain and Chile, with the latter three having significant Argentine communities that needed to be economically connected to their home country.
In 2013, protesters in Ukraine raised money through Bitcoin
Iv. Functions and services: ATM, Invoice and online payment
Updates to LocalBitcoins' own features and services also contributed to the early development.
As more people and businesses use bitcoin, the need for easy and convenient exchange services is growing. To compensate for the lack of more direct contact with customers, LocalBitcoins decided to launch ATMs to automate its bitcoin trading business. Bitcoin ATMs were originally developed by bitcoinkiosk.com, and LocalBitcoins.com acquired the entire set in December 2013. On February 17, 2014, LocalBitcoins announced the production of LocalBitcoins ATM, through which users could buy and sell BTCS. It employs a new technology that allows ATMs to work without an Internet connection, while transactions take place on the LocalBitcoins website.
Using a Bitcoin ATM to buy beer at the Helsinki Bitcoin Conference
The first Bitcoin ATM, which can be carried on the subway
On March 31, 2014, Cointter, the operator of LocalBitcoins ATM, tweeted that it launched the first test version of LocalBitcoins ATM at its 24-hour kiosk Delish in Helsinki, Finland. This is the first two-way Bitcoin ATM in Northern Europe, where bitcoins can be bought and sold for cash at a premium rate of 5-8%, enough for operators to pocket the difference. On April 18, Cointter launched a second ATM at Kynsilaukan restaurant, which attracted media attention. On August 11, 2014, LocalBitcoins.com announced the integration of LocalBitcoins ATM:s into the LocalBitcoins website. Bitcoin transactions took place on LocalBitcoins.com, and the ATM only processed fiat currency transactions.
LocalBitcoins ATM at the 24-hour kiosk Delish
Aamulehti News went to the Kynsilaukan restaurant to visit the second ATM
LocalBitcoins ATM:s
On September 8, 2014, LocalBitcoins launched a Bitcoin payment function on its website, allowing users to send and manage an invoice (similar to a collection code), allowing customers to make payments in Bitcoin. The product, which marks the first merchant specific product for a peer-to-peer platform, was originally developed for the company's Bitcoin ATM product before being rolled out to all users. The Invoice payment amount can be denominated in any currency, and it will be converted to BTC according to the current exchange rate after the payee opens the Invoice.
The homepage of LocalBitcoins website on September 10, 2014
On September 8, 2014, LocalBitcoins launched its first merchant tool Invoice
As mentioned above, LocalBitcoins is an over-the-counter trading platform created for "local" cash transactions. From June 2012 to January 15, 2013, the official website of LocalBitcoins published specific geographical locations for transactions. However, it can be found from the snapshot of February 15, 2013 in the Internet Archive that "online payment" functions have been added to LocalBitcoins, including PNC Bank online transfer, OKPay, Paypal, etc. Since then, a variety of online payment methods have been added. The addition of this feature makes it possible for more remote users to transact Bitcoin Cash through LocalBitcoins. "At first, we were just a local cash exchange, but then people wanted to trade online," Kangas said in June 2013. So he introduced support for other payment mechanisms, including PayPal or a recognized banking system, to transform LocalBitcoins.com into a peer-to-peer transaction mechanism based on the physical world or the Internet.
A list of ads for "Cash" deals on LocalBitcoins.com, January 15, 2013
On February 15, 2013, a list of "Online" deals was added to LocalBitcoins.com
The payment method supported by the official website on February 29, 2016
2. Between Regulation and Censorship Resistance: The "Golden Age" of LocalBitcoins
Back in 2013, the regulatory question was already on people's minds, "Could Bitcoin be shut down by unfriendly regulators or governments?" "How can the government of Cuba or North Korea stop me from buying and selling bitcoin?" "Are you worried about censorship?" Jeremias Kangas gives the answer, "Bitcoin will not be shut down," but "services like LocalBitcoins.com will be." At the first Bitcoin conference held in London in July of the same year, "regulatory and legal challenges" had become an important topic in the development of Bitcoin.
For example, in August 2013, the Thai Bitcoin exchange platform Bitcoin Co LTD was shut down due to regulatory reasons. Frankie Bishop , the representative of Facebook's Thai Bitcoin group; Said that "local communities used the likes of OKPAY and LocalBitcoins.com for bitcoin transactions" during the shutdown, and that platforms such as LocalBitcoins had "never been blocked" despite the Thai government's sometimes draconian Internet controls. In December 2014, the founder of the LocalBitcoins Kangas, according to Germany's financial regulator BaFin contact LocalBitcoins (Bundesanstalt fr Finanzdienstleistungsaufsicht), Some kind of license is required to operate in the country. But LocalBitcoins did not have that license at the time and decided to suspend its operations in Germany. Pointing out that LocalBitcoins serves 8,000 active users in Germany, Kangas said "part of the service actually originated in Germany, so it's a bit ironic and sad that we can no longer offer the service there".
LocalBitcoins has been under political pressure for years, in part because of its lax identification procedures. Buyers and sellers do not need to use their real names, offline P2P transactions leave no record of transactions, and as long as the transaction size is kept small, LocalBitcoins is a natural choice for incremental money laundering. That's why Silk Road's dark Web has seen a profit boom through LocalBitcoins. Because of the rampant illegal operations on the dark Web, Secret Service agents went undercover on the trading platform and arrested several users for laundering money through LocalBitcoins. LocalBitcoins pulled out of New York in 2015 after failing to obtain a BitLicense from the state.
(I) Legal risks of American undercover agents and P2P transactions
Peer-to-peer bitcoin transactions in the United States began to be gradually criminalized in 2014 because no digital transactions are left behind. Between 2014 and 2022, U.S. users of LocalBitcoins, whether simply trading bitcoin cash or engaging in criminal activity, were arrested on charges of operating unlicensed money transfer services and related crimes such as money laundering.
On February 8, 2014, the United States Secret Service charged two men in Florida, Michell Abner Espinoza and Pascal Reid, with using LocalBitcoins.com to transfer large amounts of bitcoin under anti-money laundering laws.
In late 2013, the Miami Police Department and the U.S. Secret Service formed a task force to investigate bitcoin activity in the area. Detective Ricardo Arias and agent Gregory Ponzi contacted Michell Abner Espinoza through LocalBitcoins and set up several meetings between January and February 2014. During several meetings where the undercover agents said they intended to buy stolen credit card numbers with digital currency, Espinoza sold the agents $1,500 in bitcoin and was arrested when he planned to sell $30,000 in bitcoin.
Their second charge is operating an unlicensed money transfer service. Statute 560.125 prohibits people in Florida from frequently engaging in an unlicensed money transfer service of more than $300 but less than $20,000 in any 12-month period. Depending on the amount of money involved, it can be a third -, second - or first-degree felony. Exchanging more than $100,000 in any 12-month period is a first-degree felony, punishable by a fine of twice the monetary value, up to $250,000. Espinoza, which trades under the name MichaelHack on LocalBitcoins.com, has traded more than 150 bitcoins in the past six months. This is the first time a state has decided to bring money laundering charges in a case involving bitcoin.
In response, Jeremias Kangas said LocalBitcoins relies on users to abide by their country's laws when making transactions. "That's our guideline, but it's hard for us to take care of everyone." At the same time, Kangas says that currently, users need to verify each other when processing face-to-face transactions, and the company has been working on a central verification system, though not yet implemented: "We have to have more vetting and tools to make sure everything on our site is legal and our users can comply with their local laws. We spend a lot of resources on that, but we're a startup." Kangas also acknowledges that LocalBitcoins.com doesn't limit transaction size, but it's possible.
On April 10, 2014, Espinoza and Reid cited the Internal Revenue Service (IRS) as saying that bitcoin is not money but "property.guideMotion to dismiss the money laundering charges. On August 2, 2014, the Bitcoin Foundation filed a Curiae curiae curiae curiae curiae curiae curiae curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae Curiae The regulations of money services businesses are improperly applied to individuals conducting peer-to-peer sales of Bitcoin." However, a spokesman for the Bitcoin Foundation said Michell Abner Espinoza's case is separate from Reid's. On December 13, 2014, Reid lost a Florida Circuit Court judge's ruling suggesting that individual bitcoin traders could be considered money remitters under state statutes.
In 2015, a judge sentenced Pascal Reid to 90 days in prison. Reid pleaded guilty to operating as an unlicensed remitter and was placed on probation for five years and must assist law enforcement and financial entities with information about bitcoin and digital currencies. Reid will need to complete "no less than 20 training sessions on digital currency and cybercrime" and provide assistance to the Miami Beach Police Department, the U.S. Secret Service and the Miami e-Crime Task Force.
In 2016, Miami Judge Teresa Mary Pooler ruled that Michell Abner Espinoza did not qualify as the person the prosecution claimed to have sent the money, but the ruling did not set a precedent for similar cases since.
On May 2, 2017, Jason R. Klein, a LocalBitcoins user in Nixa, Missouri, pleaded guilty in federal court to conducting an illegal business of sending money through bitcoin exchange for cash without permission. Klein admitted to meeting with two undercover federal agents and selling bitcoins five times between February 6, 2015, and July 27, 2016. In total, Klein sold about 98 BTCS to agents for $30,000 in cash and an additional 10 percent commission. Klein has been selling bitcoins on LocalBitcoins since 2013, when most of the ads for the exchange were posted.
On May 17, 2017, LocalBitcoins user Sal Mansy of Detroit, Michigan pleaded guilty in U.S. District Court to operating an unlicensed money service business in violation of Title 18, United States Code, Section 1960. Between August 2013 and June 2015, Mansy sold about $2.4 million worth of Bitcoins on LocalBitcoins after purchasing Bitcoins on Coinbase and Bitstamp, and deposited the proceeds into a commercial bank account of her personal company, TV TOYZ. The undercover agent made two transactions with Mansy between December 2014 and March 2015 for a total of 6.32 BTCS (then priced below $1,900). Coinbase also closed Mansy's account for not registering with the Financial Crimes Enforcement Network (FinCEN) as a remitter. In June 2015, prosecutors raided his Detroit home and seized three bank accounts totaling about $120,000. Mansy was sentenced to up to five years in prison and fined $250,000.
On May 25, 2017, Randall Bryan Lord, a LocalBitcoins trader and Shreveport masseur, and his son Michael Aaron Lord were sentenced for transferring funds through an illegal bitcoin financial scheme, The father and son had previously pleaded guilty to conspiracy to operate an unlicensed money services business on April 13, 2016. Micheal Lord also pleaded guilty to conspiracy to sell drugs by dealing drugs through the "dark web" and converting funds into Bitcoin. His account on LocalBitcoins.com, called "Internet151," has totaled more than 3,000 transactions since 2012.
On October 25, 2017, Bradley Anthony Stetkiw of Michigan, who traded bitcoin and broked on LocalBitcoins under the name "SaltandPepper," was charged with running an unlicensed money transfer business. Stetkiw, who usually met clients at Tim Hortons restaurants, was involved in hundreds of thousands of dollars in bitcoin transactions, and undercover agents bought more than $55,000 worth of bitcoin from Stetkiw on six occasions.
On July 9, 2018, LocalBitcoins user "Bitcoin Maven" Theresa Lynn Tetley pleaded guilty to operating an unlicensed money transfer business and money laundering. Tetley, a dealer at LocalBitcoins.com, exchanged between $60 million and $9.5 million for clients nationwide. The investigation began in 2016 when Tetley was met by a female DEA undercover agent who then introduced her to her "boyfriend", who was also an undercover agent. Since then, bitcoin cash transactions have involved the dark Web and drug trafficking.
In 2019, a U.S. District judge sentenced Jacob Burrell Campos for running an unlicensed money transfer business. Burrell sold hundreds of thousands of dollars of bitcoin to more than 1,000 clients on LocalBitcoins.com while taking a 5% commission, and more than $1 million was traded almost daily between late 2016 and early 2018. He pleaded guilty to not having anti-money laundering or knowledge of client schemes and failing to do due diligence on the source of client funds. Burrell offers its clients anonymity and privacy in exchange for more than $1 million in unregulated cash.
In August 2019, Knal Kalra, also known as Scheklemaayne, pleaded guilty to federal criminal charges in the United States for owning and operating an unlicensed money transfer service that exchanged nearly $25 million through his LocalBitcoins account and Bitcoin ATMs.
Unregistered US MSB ads on LocalBitcoins in 2020
In 2020, Washington State resident Kenneth Warren Rhule was charged with operating an unlicensed money transfer service and laundering more than $140,000. The move follows eight cash-for-cryptocurrency transactions between agents from Homeland Security Investigations (HSI) and LocalBitcoins seller Rhule.
In 2022, early bitcoin pioneer and libertarian Ian Freeman and his associates (collectively known as "Crypto 6") helped scammers and other criminals launder more than $10 million BTC through the Bitcoin AMM network as well as P2P and virtual cash, Faces federal charges related to tax evasion and operating an unlicensed money transfer service.
(2) Anti-censorship: The Great bull market, regulation and politics
By 2017, LocalBitcoins.com had enabled users in 248 countries and more than 14,000 cities to buy bitcoin. Meanwhile, the end of 2017 saw one of the biggest bull markets in bitcoin's history, and LocalBitcoins reached its "golden age" in the same year. According to Coin Dance data, the trading volume of LocalBitcoins in most countries peaked between late 2017 and early 2018. The spot price of P2P trading platform is much higher than that of the trading platform, because the centralized trading platform in more developed areas is more complete. As a result, developing countries have been the main driver of LocalBitcoins' growth.
In addition to the great bull market, government regulation, geopolitics, economic turbulence, inadequate trading platform infrastructure, and lack of access to bank accounts were the main drivers of the golden Age. Considering the above factors, this section will select a few representative countries and regions classified introduction.
Coin Dance: Transaction volume of LocalBitcoins BTC from March 16, 2013 to February 18, 2023
Different from the supervision of LocalBitcoins traders by undercover agents of the US Secret Service, the governments of China, India and Colombia regulate cryptocurrency trading platforms to prevent financial risks. The loss of legal trading channels has prompted local cryptocurrency investors to turn to LocalBitcoins.
As early as December 5, 2013, the Notice issued by the People's Bank of China and other five Ministries on Preventing risks of Bitcoin has made clear the official attitude of bitcoin regulation, that is, "as a kind of commodity trading on the Internet, ordinary people have the freedom to participate in the transaction on the premise of assuming their own risks". From January 2017, the People's Bank of China began to interview the leaders of the three major bitcoin trading platforms and conduct on-site inspections in the three major trading platforms. Subsequently, the three trading platforms stopped financing or financing. On February 9, several trading platforms announced upgrades to their anti-money laundering systems and suspended bitcoin withdrawal services. Under the regulations, Chinese cryptocurrency traders have flooded into LocalBitcoins, with the volume of transactions surging 3,742 percent in one month (February 4 to March 4). On September 4, the regulatory hammer of the Notice on clearing up and consolidating Token Issuance Financing was put into effect. It coincided with the great bull market in December 2017, and the weekly trading volume of Chinese users on LocalBitcoins reached a record high in the week of January 13, 2018. About 169 million yuan (about 25 million US dollars). Meanwhile, the total global weekly trading volume of LocalBitcoins also peaked in December 2017 at about $129 million.
Coin Dance: LocalBitcoins BTC trading volume
In April 2018, the Reserve Bank of India (RBI) banned financial institutions from providing services to crypto-related businesses, and in July India's Supreme Court decided to renew the April ban. The move has had a disastrous effect on the Indian crypto community, with individual bank accounts being closed if they are found to be conducting cryptocurrency transactions. On the other hand, the ban has also boosted peer-to-peer trading, with LocalBitcoins trading nearly $1.5 million a week in India at least three times since August.
Coin Dance: LocalBitcoins India BTC trading volume
2017, Colombia's central bank, Banco DE la Repblica decree, encryption currency does not represent legal tender, and Superintendencia Financiera (SF), said financial institutions can't investment, brokerage, or management of virtual currency. But transactions in Colombian pesos surged 1,200% in 2017, according to LocalBitcoins.
Coin Dance: LocalBitcoins Columbia BTC trading volume
The use of LocalBitcoins in Argentina is rooted in the country's political and economic instability, particularly the government's freezing of millions of bank accounts in 2002 and the deep distrust of the country's legal currency, the Peso. High inflation, which has lasted for more than 100 years, and other factors have contributed to the widespread adoption of LocalBitcoins. The transaction volume of LocalBitcoins in Argentina grew steadily from 2017 to a peak in 2020, when it reached 180 million Argentine pesos (then worth about $2 million) in the week of April 10, 2021. While most countries have used fewer LocalBitcoins in the past two years, Argentines have not seen a significant drop in transactions.
Coin Dance: LocalBitcoins Argentina BTC trading volume
Similar to Ukraine a few years ago, Hong Kong has seen a massive protest movement since March 2019 over the Fugitive Law Amendment Bill. At the end of August, which coincided with the 22nd rotation of the People's Liberation Army Hong Kong Forces, LocalBitcoins Hong Kong's bitcoin trading activity recorded an all-time high of about HK $12.3 million (about US $1.56 million) in weekly transactions during the week of September 28, 2019.
Coin Dance: LocalBitcoins HK-NBsp; BTC trading volume
Venezuela is the main trader of LocalBitcoins. Ernesto Contreras, head of business development at Dash and co-founder of the Caracas Blockchain Summit, has said that LocalBitcoins was "the main reason for the massive use of bitcoin in Venezuela between 2017 and 2019, after being sanctioned by the U.S. government."
Since 2017, the United States has imposed oil sanctions on Venezuela and imposed sanctions on pro-Maduro people and companies, making it difficult for individuals to send money to Venezuela from abroad and for international banks to conduct normal business with Venezuelan banks. Businesses such as MoneyGram and Transferwise stopped providing services to the country. With regulated, centralized exchange platforms also banned from serving Venezuela, and local crypto platforms limited in number, poor in infrastructure and unreliable, LocalBitcoins is highly attractive to Venezuelans facing economic instability, political sanctions and financial isolation, who are also trying to use Bitcoin as a tool to fight inflation.
"After researching, I started using LocalBitocoins due to third-party references," said Anbal Garrido, a cryptocurrency advocate in Venezuela. "Like any beginner, I was a little nervous at first, but its intuitive interface is easy to pick up and use." In addition to money transfers, LocalBitcoins helps Venezuelans use BTC as cash, which they buy as a substitute for dollars and sell when they need fiat money. The platform also allows them to further use BTC to purchase international products through gift cards and encryption-friendly stores. Venezuela conducted more peer-to-peer bitcoin transactions in 2018 than Canada, India and Australia combined, with more than $235 million in trade compared with $373 million in the United States.
Coin Dance: LocalBitcoins Venezuela BTC trading volume
On the Iranian side, cryptocurrency investors also tend to turn to face-to-face trading and LocalBitcoins due to the impact of U.S. economic sanctions and local censorship. The volume of LocalBitcoins transactions in Iran exploded starting in November 2017, and after the Iranian government made cryptocurrency mining a legal activity in 2018, the trend continued until LocalBitcoins announced it was closing its service to Iranian users in 2019.
Coin Dance: LocalBitcoins Iran BTC trading volume
The same is true in Russia, where financial sanctions on its Ukraine policies have fuelled a surge in LocalBitcoins trading. The country's regulatory uncertainty regarding bitcoin has also made LocalBitcoins one of the best options for the local crypto community to conduct bitcoin cash transactions. According to the financial reports of the third and fourth quarters of 2020 and the first quarter of 2021, the total quarterly trading volume of LocalBitcoins around 2020 has always been in Russia. In addition, Russia, Venezuela and Colombia accounted for 41% of LocalBitcoins trading volume in 2020.
Coin Dance: LocalBitcoins Russia BTC trading volume
In fact, true to the peer-to-peer nature of Bitcoin, LocalBitcoins has largely met the unregulated and cension-resistant needs of individuals/countries. It has also created new possibilities for the circulation of funds in more underdeveloped regions that do not have access to bank accounts. They can use cash transactions or other electronic means such as gift cards. This has led to an explosion in LocalBitcoins, with around 2,400 BTCS trading weekly at its peak in 2018, LocalBitcoins was also ranked among the top financial performing companies in Finland 2018 by Kauppalehti, a Finnish professional publication. According to LocalBitcoins' 2019 financial report, its revenue increased by 10% to 26.2 million euros in 2019 from 23.9 million euros in 2018; Revenues reached 28.8 million euros in 2018 and 17.6 million euros in 2019. At the same time, the number of LocalBitcoins employees increased from 26 in 2018 to 43 in 2019. The value of platform transactions for the whole of 2019 was 2.48 billion euros.
LocalBitcoins 2019 earnings report
(III) Road to compliance: cancellation of KYC and cash transactions
In July 2018, the European Commission implemented its fifth Anti-Money Laundering Directive (EU Directive 2018/843, also known as 5AMLD), which for the first time takes into account virtual currencies, including virtual currency exchange services and managed wallet providers. Although the directive does not come into force until January 2020, the Finnish Parliament voted on 13 March 2019 to approve a proposed new bill on virtual currency service providers, as well as an amendment to the anti-money Laundering law under 5AMLD. LocalBitcoins is a Finnish company that voluntarily bills itself as "a pioneer in adapting to the cryptocurrency industry's new compliance standards" and "aims to promote trust, legitimacy and maturity in the Bitcoin ecosystem by becoming a compliance standard, while paving the way for it to become a more viable and widespread currency, and combating criminal use of Bitcoin and its network." On March 18, LocalBitcoins launched a new account registration process that allows users to verify basic information when signing up, increases the number of customers with suitable advertisers and prohibits the creation of illegal accounts.
The January 26, 2019, phishing attack also prompted LocalBitcoins to quickly adopt compliance measures. LocalBitcoins intervened to stop the attack after it was announced on Reddit at 18:00 that there was a security breach and that the attack lasted five hours. During that time, users accessing LocalBitcoins were redirected to a login page that mimicked LocalBitcoins, and after collecting the user's login credentials, the hacker tried to log in to the user's account. If the account is protected by two-factor authentication (2FA), the hacker asks for a one-time 2FA code. LocalBitcoins then shut down its forum and temporarily disabled transactions on its platform to stop the attack. LocalBitcoins said that at the time of writing, only six affected accounts could be identified, with hackers stealing $28,200 worth of bitcoins from users' LocalBitcoins accounts. On the same day, LocalBitcoins shared that "LocalBitcoins accounts are safe to use" and stressed the importance of two-factor authentication.
On June 18, 2019, LocalBitcoins announced the launch of a new identity verification system, building a hierarchy of accounts T0, T1, T2 and T3. Accounts at different levels have different verification requirements and trading volumes, and introducing a progressive verification system, whereby users gradually verify their accounts with the increase of platform activities.
New authentication system, June 18, 2019
In November 2019, CipherTrace released a report stating that "LocalBitcoins was the preferred source of direct criminal funding for the third year in a row". Among them, "Finland" trading platform received the highest proportion of criminal BTC, received more than 99 percent of criminal funds. In the same month, after the release of Finland's Virtual Currency Service Provider Law, FIN-FSA registered LocalBitcoins as an official virtual currency provider, "determining that LocalBitcoins has procedures in place to prevent money laundering and terrorist financing, and that customer assets are adequately secured".
In July 2020, LocalBitcoins announced it was using Elliptic's Navigator risk analysis tool and Lens Wallet screener to crack down on illegal cryptocurrencies. Tom Robinson, chief scientist at Elliptic, said LocalBitcoins' policy shift would lead to a 50% drop in dark-web cryptocurrency inflows in 2020.
Notably, a snapshot from the Internet Archive webpage shows that as of June 2, 2019, LocalBitcoins no longer supports cash payments.
Snapshot of LocalBitcoins website on June 2, 2019
It sounds ironic that a Bitcoin exchange created based on "local" cash transactions has finally eliminated cash convertibility! It is the cash is not easy to trace, LocalBitoins has the original spirit core of anonymity, point-to-point, decentralization, privacy and other encryption. It is because of the early international cash payments that LocalBitcoins has become a major player in cryptocurrency transactions. Reddit One user on LocalBitcoins said:
"That kind of defeats the purpose of the" local "in the name."
"Localbitcoins used to work fine, but now the amount of requirements and verification to comply with money laundering laws makes the experience rubbish. I was banned twice before I stopped using their service completely. Also, the privacy and terms of service change every month."
"Big Brother is watching you. - George Orwell".
Before the adoption of compliance measures, LocalBitcoins was a tool for people to enhance privacy and resist censorship by centralized powers. Its existence and large-scale adoption around the world promoted the original Bitcoin economy, where users could build mutual trust and interact with each other anonymously based on the Bitcoin architecture. As Satoshi Nakamoto put it when he designed Bitcoin: "What we need is an electronic payment system based on cryptography rather than trust, which allows any willing party to transact directly without the need for a trusted third party." However, from this moment on, the peer-to-peer differentiation of LocalBitcoins from a centralized trading platform and its ideal state completely disappeared. Without a decentralised and cension-resistant core, LocalBitcoins is enjoying the last vanity of a prosperous era. The force of global regulation that created LocalBitcoins' golden age was destined to be its gravedigger from the start.
Who killed LocalBitcoins: The failure of commerce and the continuation of the crypto economy
LocalBitcoins' announcement cited "declining transaction volumes" and a "long crypto winter" as reasons for its closure. But why the decline? In fact, there are many other factors that killed LocalBitcoins, such as "bitcoin cash only transactions", "outdated interface", "spot price is too high", "P2P platform expansion", "P2P service expansion of centralized trading platform" and so on.
1. Last Dance: 2020-2021
In June 2019, LocalBitcoins launched KYC and eliminated cash payments, but this did not seem to have an impact on LocalBitcoins trading volumes. Weekly transaction volumes for LocalBitcoins from Coin Dance have fallen by about 32.5% from June 2019 to May 2020. Meanwhile, transactions on OKEx and Coinbase also dropped 30% and 45%, respectively, from June 2019 to May 2020. Since January 2020, LocalBitcoins has grown by 40%, OKEx by 2,500% and Coinbase by 800%. Perhaps as a LocalBitcoins spokesperson put it: "Cash transactions used to account for less than 0.5 per cent of all transactions" and "removing it has no impact on the volume of our trade".
The last dance for LocalBitcoins took place between June 2020 and May 2021, at the height of the first wave of Bitcoin's 2020 bull market, when bitcoin peaked at $64,918. According to LocalBitcoins' quarterly financial report, the total transaction volume of LocalBitcoins was $580 million in the third quarter of 2020, $612 million in the fourth quarter, and $596 million in the first quarter of 2021. During this period, the main markets of LocalBitcoins included Russia, Venezuela, Colombia, the United Kingdom, the United States, Nigeria, China, South Africa, India, Spain, Argentina, Peru, Chile, etc. Volumes in Latin America largely drove the total for the period.
After May 2021, the weekly trading volume of LocalBitcoins declined sharply with the collapse of bitcoin, and thereafter the weekly trading volume failed to exceed 20 million dollars. The official blog of LocalBitcoins did not update its financial report after the first quarter of 2021. As mentioned above, 2,400 BTCS were traded weekly in 2018, but by 2021, this figure had dropped below 1,000. In early February 2023, only 283 BTCS were traded.
(2) The young outshine the blue: The expansion of LocalBitcoins alternatives
There are two kinds of substitutes for LocalBitcoins. One is P2P Bitcoin over-the-counter trading platform, and the other is P2P service of centralized trading platform. They started to develop after 2018, gradually eating into the market share of LocalBitcoins.
Similar to LocalBitcoins, P2P bitcoin over-the-counter trading platforms include Hodl Hodl, Pawful, Bsiq and LocalCoinSwap.
Hodl Hodl is a P2P bitcoin over-the-counter trading platform launched in February 2018. It has no KYC and a transaction fee of up to 0.6%. It uses multi-signature smart contracts to escrows funds, rather than escrows funds on the platform like LocalBitcoins. In May 2019, LocalBitcoins suspended its services in Iran and Hodl Hodl became an alternative for Iranian users. Hodl also posted an invitation to the Iranian community to trade at hodlhodl.com.
Since Russia is LocalBitcoins' largest revenue market, in the spring of 2019, Paxful, an over-the-counter bitcoin exchange platform, moved into Russia in an effort to chip away at LocalBitcoins' market share there. According to Anton Kozlov, Paxful's Russia manager, Paxful is working together to challenge LocalBitcoins' dominance in Russia by increasing support staff, partnering with local Kols and building a team of 10 experts. By the spring of 2020, usage of Paxful's Russian site had grown 350 percent, the number of new users jumped 364 percent, and monthly transactions averaged about $4 million. Kozlov said Paxful's Russian user base is on the rise, while LocalBitcoins stagnated after launching KYC in 2019. While LocalBitcoins trades about $30 million in roubles a month, Kozlov said Paxful will continue to cannibalize it.
One reason the U.S. wasn't a major driver of LocalBitcoins' growth in the golden age is that U.S. exchanges like Coinbase offered Bitcoin at a lower spot price than the over-the-counter price of LocalBitcoins, In addition, there is a service charge for LocalBitcoins' platform trusteeship, so users do not need to trade over-the-counter between more convenient options. Since then, a number of trading platforms have launched P2P over-the-counter transactions, and Binance, as the representative, began to seize the global P2P market.
In December 2019, Huobi Indonesia decided to establish a legal gateway to allow users to convert their rupiah (IDR) into USDT, which can be traded on the trading platform. Previously, LocalBitcoins was a common route used in Indonesia. Huobi hopes to take a dominant position in Indonesia's crypto market.
In terms of P2P trading platform services, Binance should be the most adept. In 2019, Binance P2P was officially launched and has grown in all regions of the world, but it is growing fastest in places where traditional cryptocurrency trading platforms are difficult to operate, such as China, India and Southeast Asia. Binance P2P has zero transaction fees, zero custodial fees and zero advertising fees, "no matter what price the buyer and seller agree on, they can directly transact". Binance has also launched functions on LocalBitcoins, such as advertising posts, cash transactions and transaction comments. The move was a blow to LocalBitcoins, declaring it commercially dead. All of LocalBitcoins' advantages of anonymity, privacy and resistance to censorship have been lost after it catered to regulation, introduced KYC and eliminated cash payments. All things being equal, users will naturally choose cheaper channels for cryptocurrency and fiat transactions. Binance is well-positioned to do this because, unlike platforms that specialize in P2P, it has strong trading platform profitability to support its P2P business.
Binance P2P supports the purchase and sale of six cryptocurrencies BTC, ETH, BNB, BUSD, DAI and USDT using 55 local fiat currencies through more than 150 payment channels worldwide until 30 September 2021. There are obvious advantages to supporting multiple cryptocurrencies compared to LocalBitcoins' "Bitcoin-only" approach. In 2020, Binance P2P processed $7 billion worth of transactions through 3.8 million orders, with a daily volume of $54 million. Compared to 2019, Binance P2P users have grown seven times.
As a major trading country of LocalBitcoins, Venezuela has already accepted Binance Coins. When LocalBitcoins announced its closure, Venezuelan cryptocurrency advocate Anbal Garrido said it "won't have much of an impact on the Venezuelan ecosystem" because LocalBitcoins has fallen sharply since its peak in 2018. Ernesto Contreras agrees that "today, its closure won't have much of an impact on the Venezuelan market, as few people are currently using LocalBitcoins". This is partly due to an "outdated and unintuitive interface" and "different needs in 2023 than in 2012." The most popular P2P platforms Venezuelans have used in recent years are Binance, Hodl, Hodl and Bisq, both of which have low adoption rates.
It can be seen that the functions of LocalBitcoins and Binance P2P are basically available and better.
(3) Bitcoin OTC King: Brewing a global market for the crypto economy
LocalBitcoins, born from local cash transactions, naturally features the original decentralization of Bitcoin and is committed to making Bitcoin global inclusive finance and personal economic autonomy. Sadly, LocalBitcoins complied with the regulation, implemented KYC and cancelled cash transactions. Then, it was besieged by similar P2P platforms and centralized trading platforms, resulting in a lack of trading volume and was closed down. It looks like LocalBitcoins started and ended up a lot different.
But is LocalBitcoins really doing it wrong? It has made great contributions to global financial inclusion, promoting the adoption of Bitcoin in countries in Asia, Africa and Latin America. Is it anti-money laundering wrong? If illegal activity misuses Bitcoin, it hurts its own users and further stigmatizes the cryptocurrency. Was it wrong to cancel cash transactions? Cash transactions are scarce, and users choose online transactions. Did it get "Bitcoin only" wrong? Its goal is to make Bitcoin global inclusive finance, in keeping with the spirit of Bitcoin where other cryptocurrencies don't share that goal.
The closure of LocalBitcoins is the natural choice of the global crypto economy. The market and users always prefer low-cost, efficient, beautiful, simple, safe and practical channels, and it is difficult to distinguish which is right and which is wrong. Unfortunately, privacy, anti-censorship, and other encrypted native kernels are once again lost to modern nation states, capital, and markets. Perhaps it is only fit to exist in the margins of the "other". However, as a bridge between the physical world and the crypto world, P2P transactions, which are needed, are still perpetuated by centralised trading platforms and other over-the-counter platforms. Bitcoin is the cornerstone of today's crypto economy, and LocalBitcoins has brewed an extensive global market for it through Bitcoin.
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