Why Peer-to-Peer Exchanges Are Important for the Mass Adoption of Bitcoin?
Guest article by Deepika
See also: ¿Por qué los intercambios peer-to-peer son importantes para la adopción masiva del Bitcoin?
The mass adoption of Bitcoin is at an interesting juncture right now. Its user mark is about to skyrocket from the current 130 million to 1 billion in the next 4 years. As impressive as it sounds, this growth also indicates that Bitcoin’s rate of adoption will outpace the user growth of the internet.
Presently, Bitcoin’s adoption rate is at an inflection point where the internet was in 1997. Take a look at the chart below.
According to the chart, it took the internet’s user base almost 7.5 years to grow from 130 million to 1 billion. But Bitcoin is expected to take this huge leap within the next 4 years.
The number of active addresses is an important factor to evaluate the adoption of Bitcoin. According to the on-chain data, the number of active addresses has doubled since January 2020.
Interestingly, this time the Bitcoin adoption rate is also being bolstered by institutional investors, billionaires, and corporations.
While more and more people are getting fascinated by the idea of exchanging money in a decentralized manner, peer-to-peer exchanges such as LocalBitcoins, are gaining special recognition in the space.
Peer-to-peer’s boisterous growth
Buying crypto via peer-to-peer crypto exchanges is not a radically new concept. Since the very beginning, peer-to-peer (P2P) exchanges have been playing an important role in the adoption of Bitcoin all over the world.
1) Initially, that is during the pre-2017 era, P2P exchanges were mainly utilized by people in developed countries like the USA to get uncensored access to Bitcoin:
2) During the speculative Bitcoin mania of 2017, emerging markets like China and Australia saw a huge surge in users on P2P exchanges like LocalBitcoins:
3) In 2020, Sub-Saharan Africa has been the major contributor to Bitcoin trading volumes over P2P exchanges, followed closely by Latin America.
Conclusion based on trade volume trends
According to the above-mentioned geographic movements of Bitcoin trade volumes in the last couple of years, it can be concluded that during the early days, developed economies contributed much to the Bitcoin trade volumes.
Gradually, the trade volumes in emerging markets started to grow and now we are seeing a huge surge in the trading volumes in the frontier markets.
As is evident from the chart, frontier markets contribute to over 25% of the total P2P trading volume. Firstly, we need to understand why this shift of trading volume from developed economies to frontier markets happened, and how P2P exchanges are playing a major role in the adoption.
Why the shift?
Presumably, traders from developed and emerged economies entered into Bitcoin as a speculative asset. As the rally cooled off, the FOMO dampened and investors in these parts of the world started to lose interest in speculative currencies like Bitcoin.
However, in the frontier markets that include developing countries, the reason for Bitcoin adoption is very different. The traders in these economic zones have found a strong utility in Bitcoin, and the asset has also acted as a hedge against the volatile financial and political system in these countries.
Last year Chainalysis conducted a survey in almost 154 emerging and frontier countries and established that P2P is playing a major role in the adoption of cryptocurrencies.
In this survey, peer-to-peer exchange trade volumes were weighted by the number of internet users and purchasing power parity (PPP) per capita. The goal was to identify in which countries residents were putting a large part of their wealth into cryptocurrency transactions.
Interestingly, only 12 out of 154 countries had so little cryptocurrency activity that their index was 0. Take a look at the Chainalysis report below that lists the top 10 countries in the Global Crypto Adoption Index:
It’s interesting to note that the top four countries for P2P cryptocurrency trade activities are developing countries (frontier markets). This clearly illustrates how important P2P platforms are for the adoption of Bitcoin and cryptocurrencies in developing countries (frontier markets).
How is P2P playing a major role in crypto adoption?
Easier access due to multitude of payment methods
On peer-to-peer marketplaces like LocalBitcoins, users don’t deposit their national currency on their LocalBitcoins account, but instead, they trade Bitcoin directly with other users through creating advertisements or responding to them. This opens up possibilities to use many different payment methods.
Through LocalBitcoins, Bitcoin traders and users from developing countries, especially the ones who have been excluded from the traditional financial system, can buy BTC even if they don’t have a bank account.
Additionally, LocalBitcoins is fully regulated by the Financial Supervisory Authority of Finland.
Mitigate economic instability
Venezuela is a perfect example of how P2P exchanges like LocalBitcoins are being used to preserve savings. Venezuela is battling extreme economic instability. Its native currency Venezuelan bolivar is losing its value through inflation. Venezuelans are converting their assets to Bitcoin using P2P exchanges to preserve their savings which they might otherwise lose.
A similar pattern is being witnessed in other Latin American countries and also in East Asia and Africa.
Remittances under crypto restrictions
Expatriates in Western countries are using cryptocurrencies to remit money to their countries of origin.
Look what is happening in Nigeria. Being one of the world’s top remittance recipients in 2020, Nigerian nationals seem to be trying to avoid the traditional remittance methods.
According to the World Bank, remittances to Nigeria via banking channels declined by 27.7% in 2020. That’s because these age-old methods are costly and time-consuming.
Using P2P exchanges, expatriates can transfer money easier. They can easily buy bitcoin on LocalBitcoins and send it to other LocalBitcoins users in their home country. Unlike traditional remittance channels, LocalBitcoins enables instant and zero-fee remittance. The receiver can then sell the bitcoin on LocalBitcoins for local fiat currencies.
Interestingly, the Central Bank of Nigeria recently directed financial institutions like banks to stop serving cryptocurrency service providers like a centralized exchanges. However, this did not deter the Nigerians from trading crypto. In fact, in June 2021, the peer-to-peer bitcoin trade volumes soared up to almost $38 million.
