How to buy or sell Bitcoin without using a centralized crypto exchange?

The failure of FTX triggered a remarkable growth of self-storage in 2022, with many cryptocurrency investors moving from centralized exchanges (CEX) to hardware or software wallets.

The growing popularity of self-storage could even potentially erase the need for centralized exchanges one day, according to Binance CEO Changpeng Zhao. But how would people buy or sell cryptocurrencies without centralized exchanges?

The crypto industry already offers ways to exchange cryptocurrencies like Bitcoin (BTC) for fiat money without using a CEX like Binance. However, such a process is associated with certain advantages and disadvantages and may require further research.

This article will discuss the most simple exchange methods to shed light on buying or selling crypto without using a centralized crypto trading platform.

Bitcoin ATMs

Bitcoin-enabled ATMs are probably one of the easiest ways to exchange fiat money for crypto and vice versa. Like conventional ATMs, Bitcoin ATMs allow users to deposit and withdraw money using cash or a debit card. But instead of a bank account, a Bitcoin ATM requires users to have a BTC wallet address to deposit or withdraw money.

Like a traditional ATM, a Bitcoin ATM has a screen, a QR scanner, a bill acceptor and a dispenser. To connect the Bitcoin wallet to a crypto ATM, users are usually asked to scan a QR code corresponding to their BTC wallet address.

While providing an easy way to exchange money for cryptocurrencies, Bitcoin ATMs suffer from limited global adoption.

According to data from CoinATMRadar, there are approximately 34,000 Bitcoin ATMs in 80 countries worldwide, with nearly 85% of all crypto ATMs in the United States. About 4% of Bitcoin ATMs are located across Europe, with most in Spain, Poland, Romania, Switzerland and Austria.

The infrastructure of global cryptocurrency ATMs has also seen a significant decline recently. According to data from CoinATMRadar, 412 crypto ATMs were removed from the web worldwide in the first two months of 2023, compared to 1,000 monthly crypto ATM installations between December 2020 and January 2022.

Given the limited reach of crypto ATMs, one should not rely entirely on their ability to exchange fiat for crypto. According to some industry leaders, crypto-ATMs have also come under increasing scrutiny from regulators recently, which could lead to even more problems with the exchange method.

“For a long time, ATMs provided an excellent service to anyone looking to buy and sell Bitcoin privately,” Trezor’s Bitcoin analyst Josef Tetek told Cointelegraph. “Current global trends suggest that this era is coming to an end, as ATM providers are regulated just like any other financial institution,” he noted, suggesting that Bitcoin ATMs are likely to become significantly less private in the near future.

Another weakness of Bitcoin ATMs is high transaction costs, with fees often ranging from 5-20%.

Peer-to-peer Bitcoin exchange platforms

Peer-to-peer (P2P) Bitcoin exchange marketplaces are among the most common crypto exchange options next to Bitcoin ATMs. Such platforms allow users to trade digital currency directly with each other without the need for a centralized third party to facilitate the transactions.

Unlike CEXs, P2P exchanges do not rely on automated engines to complete transactions, allowing users to manually select their preferred offering, trade directly with a counterparty, and make funds using a self-custodial wallet. Such platforms are less vulnerable than CEXs due to their independence from intermediaries who control funds during a trade.

Many industry leaders believe that P2P crypto marketplaces are likely to be the future of crypto due to their unique features. “P2P exchanges are far more resistant to regulatory violations than centralized exchanges,” Jan3 CEO Samson Mow told Cointelegraph, adding that it would be good to have more P2P options.

“P2P services are the future of Bitcoin adoption, but only if they can avoid intruding on users’ privacy,” said Trezor’s Tetek. He specified that some regulatory restrictions, such as Know Your Customer (KYC), could essentially render P2P crypto services useless, saying:

“Having a P2P service with KYC is just a variant of using a CEX, but with poorer liquidity.”

While they provide a more robust option on the regulatory side, P2P services are often associated with security concerns, according to Quantum Economics founder and CEO Mati Greenspan. P2P exchanges like Binance P2P or the now defunct Paxful and LocalBitcoins are “definitely a step in the right direction,” he said, adding:

“This type of online marketplace maintains the decentralized ethos of crypto, but it is also vulnerable to attacks from both regulators and hackers.”

Crypto on-ramp/off-ramp integrations on software or hardware wallets

Another common way to buy or sell crypto without a CEX is to use an on-ramp or an off-ramp solution offered in a self-deposit wallet through a third-party payment provider.

Software wallets such as Exodus and hardware wallets – such as Ledger and Trezor – offer multiple methods of depositing or withdrawing Bitcoin using standard software through various payment integrations. Such wallets often allow users to buy crypto or cash out their coins using bank transfers, debit or credit card payments, Apple Pay, and other options, depending on the user’s country.

By offering a simple alternative to Bitcoin ATM or P2P services, wallet exchange integrations are currently accompanied by issues such as limited coverage due to low adoption of crypto payment partnerships worldwide. Due to this issue, residents of many countries may find it impossible to exchange crypto for fiat because their banks are not supported on the payment provider’s network.

However, one may also find that wallet exchange integrations are a bit costly in terms of fees. For example, some third-party application programming interface (API) providers on Exodus Wallet charge up to 12% in automated clearinghouse fees.

Software and hardware wallets are typically integrated with more than just a single drop-off or drop-off provider, offering a significant range of choices. Some providers include PayPal, MoonPay, Transak, Sardine, Banxa, Coinbase Pay, Onramp.money and Mercuryo – among others.

Offline P2P exchange

One does not necessarily need to use electronic exchange services to buy or sell Bitcoin. There is an opportunity to do it in person or by interacting with investors who want to withdraw or acquire cryptocurrency on social media apps.

“Different options exist for offline transactions where the buyer meets the seller in person. Depending on where you live, this can happen at a regular currency exchange shop or through a known black market dealer,” Greenspan told Cointelegraph. He was referring to groups on messengers such as Telegram or WhatsApp, where buyers and sellers keep making connections.”I’ve even heard of people using sites like Craigslist,” the manager added.

Offline P2P Bitcoin exchange is the “best choice for privacy-minded individuals,” according to Trezor’s BTC analyst Tetek. He emphasized that exchanging Bitcoin in person essentially goes back to the roots of BTC exchange. “Bitcoin matches are usually the best place to find other Bitcoiners looking for an exchange,” he said.

Since everything has pros and cons, offline P2P exchange is not unique and some massive concerns are associated with such Bitcoin exchange method.

The biggest risks of offline P2P exchanges are related to security and limited scalability, Greenspan of Quantum Economics said, adding:

“There are a lot of downsides from security to the uncomfortable feeling of dealing with a complete stranger, but mostly it’s just not a very scalable solution.”

Such a crypto exchange method also requires users to be much more knowledgeable and savvy than just buying online at a well-known crypto exchange.

Can you buy Bitcoin on a DEX?

While considering options for buying or selling Bitcoin without interacting with a CEX, one might consider using a decentralized exchange (DEX) as an alternative. But should a DEX count as a standalone alternative to a CEX in this regard?

Despite offering the ability to buy or sell Bitcoin, DEXs usually require users to have some exposure to crypto before the transaction. This means that Bitcoin can only be bought or withdrawn using other cryptocurrencies on a DEX.

Additionally, some issues currently prevent DEXs from serving as a solid alternative to CEXs when it comes to buying or selling crypto, according to Trezor’s Tetek. “Some of the major challenges include unfriendly user experience, high spreads resulting from low liquidity, and concerns about receiving ‘dirty’ Bitcoin or fiat,” he said. The analyst added that these issues need to be addressed for further use of DEXs.

It also depends on what one refers to as a DEX, Jan3’s Mow added. “If you’re referring to an Ethereum-based DEX, it’s not an option at all because Ethereum at the base layer is not decentralized,” the manager argued, adding that a real DEX will have no centralized part that can be shut down.

Is there a future without centralized crypto exchanges?

Despite the industry offering many decentralized options to exchange Bitcoin for fiat, CEXs are still a significant player.

Apart from providing an easy entry to the crypto market and Web3, CEXs are also an important industry component in terms of price discovery, according to Bitcoin supporter Mow. He stated:

“Centralized cryptocurrency exchanges will always continue to exist, and they are an important arena for price discovery and liquidity. Only regions that support a heavy-handed approach will force exchanges, but that is really to the detriment of their people.”

It is not yet known whether CEXs will continue to be a central part of the crypto industry in the coming years. Some experts are confident that the industry will get rid of centralized exchanges one day.

“For now, centralized exchanges remain a necessary nuisance to the industry, and I look forward to the day when we can do without them entirely,” said Quantum Economics CEO Greenspan.

“Centralized exchanges pose a risk not only to the privacy and security of Bitcoin users, but also undermine the very reason Bitcoin was created – to create a parallel financial system and support the economic autonomy of its holders,” said Trezor’s Tetek. He added that CEXs undeniably served as an accelerator for Bitcoin adoption in the past, but they are slowly becoming its “biggest enemy.” The BTC analyst added:

“I can definitely imagine a world without any CEXs. When Bitcoin becomes a global monetary standard, there will be no need to exchange Bitcoin for fiat.”