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We analyze LocalCryptos, a custodian-less P2P exchange platform

Key facts:
  • LocalEthereum was the previous name of LocalCryptos.

  • At LocalCryptos you can exchange, for now, Bitcoin and Ethereum.

LocalCryptos -formerly known as LocalEthereum- is an exchange Bitcoin y Ether specialized in P2P exchange, but with the particularity that communications (chat) take place with end-to-end encryption, escrow transactions without a guardian and the private keys of the LocalCryptos web wallet are under our control.

The user experience and its commenting system remind us of LocalBitcoins, but its interface is simpler and more intuitive, and under the hood is something completely different. And LocalCryptos, unlike LocalBitcoin, does not store funds as collateral for the transaction in the platform’s internal account, but through a smart contract on the Ethereum blockchain, which eliminates the risks of hacking and leaks by the platform owner. with funds as a guarantee. Additionally, it handles two cryptocurrencies, BTC and ETH, instead of just BTC as LocalBitcoins does.

No custodian warranty

If you have used other cryptocurrency exchange services, you will notice this Funds are managed in the platform’s own portfolios and that we do not have access to the corresponding private keys. This means that we are exposed to the impact in case of possible hacking. Inside LocalCryptos This is not happening.

Your keys, your coins.

From the previous LocalEthereum Exchanges are made directly from person to person with escrow deposits without a custodian. This means that instead of keeping Ether escrow in a wallet on its server, LocalEthereum uses an Ethereum smart contract that immutably pre-sets the escrow rules, according to which Ether (ETH) will flow from seller to seller. smart contract and from the smart contract to the customer.

Using a smart contract instead of a custodian, escrow has no intermediaries. But things changed, along with the name change to LocalCryptos, bitcoin was added for trading.

In order for bitcoin to trade under the same form of escrow without a custodian – since Ethereum smart contracts cannot be used – LocalCryptos took advantage instructions P2WSH (Pay to Witness Script Hash) which are a variation of P2SH addresses SegWitthat start with 3.

Custody-free collateral with bitcoins

Without getting into the technical details, P2WSH addresses allow you to set up scripts (a list of instructions included with each transaction that describe how the next person who wants to spend the transferred bitcoins can gain access to them) to execute escrows that require approval from both parties and release the funds, without recourse to centralized entities and without the need for addresses with multiple signatures.

Why not use multi-signature addresses for Bitcoin? LocalCryptos points out that it gives the impression that addresses with multiple signatures are used, but this is not the case, as they require both parties to be necessary when moving funds deposited into Escrow, as both signatures are required.which would limit the interaction of mediators in resolving disputes.

When the guarantee contract is financed in LocalCryptos no changes occur within the Bitcoin blockchain; this is due to el escrow receive from BTC seller a UTXO, the unspent transaction output, which, once the transaction is successful, is released to the buyer and recorded and propagated to the blockchain, giving the new owner coins that can be spent whenever they choose.

In a blockchain payment system like Bitcoin, only unspent outputs can be used as inputs for a transaction. When a transaction is committed, the inputs are removed and the outputs are created as new UTXOs that can then be used in future transactions. One UTXO would be the payment made, and the other the change or return of the made payment, in case the entry exceeds the amount paid.

End-to-end encryption

The ability to use cryptography in the browser has opened up a new universe of web applications. All modern web browsers as of 2018 include Web Crypto APIstandard that provides JavaScript interfaces for performing cryptographic operations such as hashing, symmetric and asymmetric encryption, and digital signature verification.

End-to-end encrypted chat.

Platform LocalCryptos uses these cryptographic operations in several ways to protect information and enable end-to-end secret messaging. The goal is to allow the user to retain full control over the most important aspects of their account, while revealing only minimal metadata to the LocalCryptos servers (or anyone else listening).

This end-to-end encryption is what protects the messaging conversations between the parties involved in the exchange, preventing the leakage of our banking information that is usually recorded there to facilitate the transfer of fiat money.

Wallets that are not kept

Some wallets supported by LocalCryptos.

Within LocalCryptos you have your own wallet, for both Ether and Bitcoin; However, each private key is generated locally, making us the true owners of our assets, except that we can export them.

A feature you can find LocalCryptos is an integration of Ethereum wallets such as MetaMask, MyCrypto, Ledger and Trust Wallet, among others.

Interestingly, LocalCryptos allows you to create an account from an external wallet. By using this method, it will not be necessary to use a password because the transaction will be signed from an external wallet with which our data is encrypted. That is, every time you want to access LocalCryptos, you will need to have access to the wallet you originally created the account with.

This wallet will also allow you to manage funds outside of LocalCryptos, but of course it’s only for Ethereum; In the case of Bitcoin, if you will have an internal wallet despite creating an account from the wallet.

Creating accounts this way limits the portability of LocalCryptos solo We can log in through the specified wallet.

Intermediaries

An important part of P2P exchanges are arbitrators or mediators, whose job it is to resolve disputes between users when no agreement has been reached to release or cancel deposits.

When opening a dispute on LocalCryptos, the arbitrator will be able to speak individually with each party to the dispute via chat about the dispute and may request relevant documentation to determine which of the two parties is in the right and release the escrow funds. A smart contract, or its bitcoin equivalent, allows the arbitrator only limited intervention to release funds to a party that are due to him in his judgment.

commissions

Within LocalCryptos, there is only a 1% commission that applies to transactions made through posted ads. This commission is split into a Maker commission of 0.25% for whoever posts the notice (either buying or selling) and a Taker commission of 0.75% for whoever selects the notice to trade, whether buying or selling. Both commissions are deducted from the amount each party is to receive.

There is no other type of commission for other operations that can be performed on the platform, except those paid for mining concepts when depositing or withdrawing funds from Escrow.

Decentralized centralization

Something worth noting and potentially confusing when talking about non-custodial exchanges, is that LocalCryptos is a decentralized exchange (DEX) but with the intervention of an arbitrator or mediator who is in charge of resolving disputes.

Decentralization, so to speak, happens inside LocalCryptos directly in transactions, since Escrow, as we explained, have no custodians, either in the Ether exchange via Ethereum smart contracts, or via P2WSH addresses in Bitcoin.

Payment methods

When exchanging with LocalCryptos, you can count on more than 40 different payment methods, which include local and international bank transfers, PayPal, Mercado Pago, Wester Union, among others. You can view the complete catalog of payment methods here.

It’s worth remembering the risks you take with the payment method you choose. For example, with online payment processors such as PayPal, The risk of fraud is quite high due to how easy it is to reverse a transaction on the said platform..

More cryptocurrencies

The inclusion of Bitcoin in the old LocalEtherum was a big step towards mainstreaming the service, since it is the parent cryptocurrency that has the largest market capitalization and the largest trading volume. Now, LocalCryptos They propose to include other cryptocurrencies such as EOS, Dash and Litecoin, under the same exchange format, with non-custodial escrow.

Other features of LocalCryptos

Get your reputation across

One of the most interesting options that helps the adoption of LocalCryptos is that we can import the business reputation we have into LocalBitcoins, since its comment system is very similar, which allows us to start with this reputation, rather than building it from scratch.

This LocalCryptos strategy seeks to increase the number of traders on its platform at the expense of the market leader, LocalBitcoins, recognizing that what matters in business is the number of reputable traders generating trading volume, not their amount.

No AML-KYC verification

A special feature within LocalCryptos is that you do not have to provide personal information at the time of registration, because it is not required. This marks a clear difference compared to other portals that have made their strict privacy policies very clear. MULTI-KYClike LocalBitcoin.

Unlimited ads

On other portals, when publishing ads, it is necessary to have a certain trading volume with funds in our account. This does not happen inside LocalCryptos, because as soon as we register we can start publishing ads. Of course, if someone initiates an exchange with us, we will have to send the appropriate funds to escrow, in the event of a sale.

Conclusion

Besides pointing out the clear similarities it has with portals like LocalBitcoins, Using LocalCryptos is quite simplebecause it is not about trying out a new form of exchange, but one that we are certainly already used to.

Furthermore, if you are new to P2P cryptocurrency exchanges, the user experience of LocalCryptos is quite simple, without any complications or technical issues to cause any fear.

In this article, we limit ourselves to pointing out the features and advantages that we find inside LocalCryptos. In the next part, we will explore how to make an exchange using this interesting platform.

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