Bitcoin volumes at the oldest peer to peer trading platform, Localbitcoins, have seen a drastic fall beginning October 1st.
In the week ending September 28th, the platform handled nearly $61 million in bitcoin trading volumes across the globe.
Since then they have been falling. Down to $47 million on the 5th of October, $41 million on the 12th of October, and further plunged to $37 million last week.
This drastic fall is due to the implementation of what appear to be very stringent anti-money laundering (AML) and know your customer (KYC) requirements across the globe.
The Finland based platform, which has been operating since 2012, announced a tiered policy in June that came into force on the 1st of October.
“T0 accounts, i.e. users who have only onboarding verification, can complete buy trades but will not have a LocalBitcoins receiving wallet address neither be able to sell BTC and post ad,” the platform said.
That suggests T0 account users effectively can’t do anything but place buy orders which can’t be completed since there’s no bitcoin address. So in effect everyone has to be a T1 account to do anything on the platform.
Meaning everyone basically needs to provide an ID, a physical address and KYC information. All of which is quite easy for residents of western countries, but there are many countries where it’s simply impossible or very difficult to provide an address.
Albania, for example, hardly has a postal system. There’s no “mail” as it’s understood in the west. That’s for a medium-rich country and a European country.
AML or Shutting Out?
In Africa it is far more common for a road to not have a name at all, than it be nicely labeled. Let alone houses having numbers or postcodes/zipcodes and so on.
So practically the west is shutting out good and honest people who want to escape inflation, seizure, or even plain theft, by having western centric AML requirements that do not take into account the very different situation in other places and the fact that it can be impossible for upstanding smart citizens to meet the requirements.
In addition for some countries only a passport would do to access this platform, which many even in the west do not have let alone in places like Colombia.
As a Finland based registered company, Localbitcoins does not have much option due to the passing of an act which requires “compliance with AML/CFT regulation,” CFT in this case being counter-terrorism financing because KYC presumably doesn’t sound as persuasive.
Localbitcoins’ implementation however could be open to criticism because usually there is a $10,000 limit before such requirements apply. While here, they seem to have implemented it in a way whereby even a $50 purchase or sale of bitcoin needs official documents.
Beyond additional documentation they need to provide a physical address too even to buy or sell a one off $50, with it impossible to do for people in many countries because in many countries there are no actual addresses.
Anyone who buys or sells more than $20,000 a year needs to further provide official proof of the address in their name with it again impossible to do for more than half of the world.
Localbitcoins does not quite have to be a centralized entity because what they do is far too simple and can just run by itself with much of their volumes probably being just because they were the first and thus best known.
The platform is basically a way for two people to agree a fiat transfer has been made, in addition to a space where one announces intention to sell or buy.
For the latter they have removed the selling or buying by meeting in person to pay in cash. While for the former, they ask the seller to lock their bitcoin, then the buyer transfers the fiat to the sellers’ bank account, the seller confirms receipt of the fiat, the bitcoin is now unlocked and sent to the buyer.
So it’s all if/then, just code, but running on Localbitcoins’ servers. It could very easily run on ethereum smart contracts and really you could do it with bitcoin script too, although that would be harder.
For ethereum, you’d first create a smart contract (escrow) with the buyers’ eth address and send the eth to the escrow smart contract which locks it unless you send a transaction or confirmation agreeing to unlock it.
The problem there is why should the buyer trust you and what happens if the buyer doesn’t send the money?
So you’d have to create a slightly more complex smart contract where the eth is returned if not confirmed after x hours, but not returned if the buyer disputes, with it then locked for an adjudication, or perhaps even locked entirely if they dispute through the eth address they provided, with it unlockable if both do eventually agree (or the reputation of one address falls below a threshold) and obviously that would be through signing with the addresses they initially provided.
That has slightly less safeguards than if you have someone from Localbitcoins ruling one way or another based on receipts or whatever, but in practice most people even on Localbitcoins try to establish reputation and trustworthiness which in this case could be done by establishing the reputation or trustworthiness of the address itself.
There are also centralized alternatives to Localbitcoins. There’s a local ethereum and even a local BCH version. There could also be actual local versions, with an entrepreneur in Africa for example taking an AML approach more appropriate for the region.
Yet where Localbitcoins itself is concerned, this fall in volumes does look drastic with it unclear whether it will continue further or whether the platform will be able to survive at all as a global platform.