Popular peer-to-peer (P2P) cryptocurrency exchange LocalBitcoins announced on February 9 that it will suspend services for financial reasons. A big loss for the industry.
Founded in 2012 by Jeremias Kangas, the Finnish capital, Helsinki-based company has slowly fallen into disuse, but is still a vital part of Bitcoin’s (BTC) “circular economy.” was becoming And perhaps it will serve as a wake-up call to the current Bitcoin community about promoting on-chain payments and protecting and developing the basic infrastructure needed for Bitcoin adoption.
A lifeline in unstable regions
LocalBitcoin was one of the few exchanges that offered users a way to trade with other users almost directly. By entrusting Bitcoin as an intermediary, it promotes transactions, in other words, adds an intermediary function to the P2P structure that Bitcoin originally has, and supports users to find buyers and sellers.
Localbitcoins typically charge a premium to the Bitcoin price, but in regions facing capital controls, economic instability, financial isolation and sanctions, the premium pays. It was worth it.
Crypto media outlet Decrypt recently published an inspiring story about the benefits of local bitcoins for Venezuela. Venezuela is oil-rich, but a politically unstable country that has been largely cut off from the global economy by US sanctions, making it a region where cryptocurrencies have spread.
“Local bitcoin was the main reason for the widespread use of bitcoin in Venezuela from 2017 to 2019,” said Ernesto Contreras, head of business development at decentralized payments solution Dash. ) said.
Impact of Russian sanctions
When banks and remittance providers such as MoneyGram failed to do so, LocalBitcoin supported domestic and international transactions. Local bitcoin rivals such as US-registered Paxful and UK-based Uphold, as well as most centralized exchanges, have pulled out of Venezuela, citing sanctions and political risks.
In 2020, Russia, Venezuela and Colombia accounted for 41% of trading volume, according to LocalBitcoin data. Russia was subsequently taken out of service due to economic sanctions after the invasion of Ukraine. Aside from the need for sanctions, this may be the reason for LocalBitcoin’s outage.
Citizens can be confident that anyone can trade freely only if even marginalized people can move assets on-chain. Perhaps that is the biggest (or only) good that cryptocurrencies can offer.
Lack of identity verification and regulatory compliance
Localbitcoins have been under political pressure in recent years. One factor is lax background checks. In 2015, the company failed to obtain the required BitLicense to operate a cryptocurrency business in New York State.
In 2016, two people were accused of using localbitcoins and violating anti-money laundering laws. Similar incidents continued thereafter.
In 2019, Finnish financial regulators followed a report from analytics firm CipherTrace that pointed out that local bitcoins had become a “favorite” destination for illegal crypto assets, and new regulations in Finland. Implemented no cash and Know Your Customer (KYC) procedures in compliance with government regulations.
Before these compliance mechanisms were introduced, localbitcoins were a go-to place for those looking to increase their on-chain privacy. However, even after the introduction of the mechanism, the minimum necessary services supported the native Bitcoin economy. The ideal is to conduct transactions using alphanumeric addresses based on Bitcoin’s architecture and establish mutual ‘trust’.
LocalBitcoin has joined and verified users in 189 countries. At its peak in 2018, 2,400 Bitcoins were traded per week. By 2021, however, the average weekly trading volume has fallen to 1,000 BTC, with just 283 BTC trading volume last week.
There are several possible reasons for the slow decline of localbitcoins. Minimal user interface. For many years, the supported cryptocurrency was “only Bitcoin,” limiting access to other cryptocurrency holders. And when it responded to Dogecoin (DOGE) and Cardano (ADA), it turned “Bitcoiner” away.
Constraints of being a company
The bear market has undoubtedly hurt earnings as well. But I think the reason the company failed was simply because it was a company, even if the management of LocalBitcoin disagreed.
Localbitcoin’s inclusion in the law has transformed it into a remittance provider that Kangas never envisioned when it was founded in 2012. No one is to blame for a process that could be called maturity. The company, which now reportedly has about 50 staff, has to make tough decisions beyond ideological commitments when someone else’s life is at stake. That includes judging the tide.
LocalBitcoin faced competition in Venezuela from peer-to-peer platforms like HodlHodl, which has no KYC process, and non-custodial Bisq. Of course, all of these platforms were overshadowed in 2019 by Binance, which supported many crypto assets, including USD-backed stablecoins, entering P2P. Additionally, Binance P2P trading, which seems to have started without an official name, “does not have a transparency policy to audit trading volume on the P2P market,” according to crypto media Dicrypt.
Bitcoin needs a full P2P service that protects people’s privacy. This is a niche that LocalBitcoin once dominated. If there’s a lesson to be learned from this news, it’s that companies can’t provide services like this sustainably. And circumventing the law is also impractical in the long run, as the bankruptcies of BTC-e, Silk Road, and countless other “non-corporate” organizations have shown.
Refer to Ethereum
So I urge bitcoiners to follow the example of the Ethereum blockchain and develop, fund and maintain as a “public interest” a key piece of infrastructure that should be open to all. I would suggest that you take the meaning seriously.
Ethereum is not perfect, but the developer community has been trying new models of decentralized organization and protocol maintenance with varying degrees of success. Now, in the Bitcoin community, a non-financial use case called Bitcoin NFT has emerged, bringing miners unprecedented fee income in recent years, and raising questions about the proper use of open protocols. there is
The Bitcoin blockchain itself will continue to provide a stable way for users to transact. But the community, no, the world, needs a platform where people can interact with each other.
｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: T. Schneider / Shutterstock.com
｜Original: An Ode to LocalBitcoins (and a Lesson About Maintaining Bitcoin’s Public Goods)
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