Use Paxful to Generate Income from Your Bitcoin
Many Bitcoiners, especially non-US residents, trade a little bit of their Bitcoin to generate extra income from time to time. While LocalBitcoins (affiliate link if you want to join) is by far the most popular p2p trading exchange, it is not the only one. This post is about the 2nd most popular p2p exchange: Paxful.
Why not US residents? Because in the US, you MIGHT be a money transmitter. This means you have to put in KYC and AML (anti-money laundering) policies as well as pay thousands in compliance and legal fees for a federal money transmitter license. Please do your own research on this and your mileage may vary.
Just recently Pennsylvania said that virtual currency businesses don't need to subject themselves to money transmitter laws since cryptocurrencies aren't legal tender. Some states will follow, and others won't. Please be mindful and stay compliant where you live. Here is FinCEN's most recent guidance on money transmission.
In certain parts of the world, the most popular p2p trading exchange is Paxful (affiliate link if you want to join). Paxful is a good service and I've recently started trading there. My handle there is BTC4COP. Look me up and say hi.
We are going to create a trade on Paxful so we can sell some Bitcoin for cash. Next week we will talk about taking full advantage of Paxful's features
Why Do People Use P2P Exchanges to Buy Bitcoin?
When people buy on Paxful or LocalBitcoins, they are often paying a slight premium to prices on Coinbase, Bitstamp, CEX.io or itBit. Americans and most Europeans have lots of choices where they can buy Bitcoin. But down here in South America where I am now, or parts of Asia or Africa that's not necessarily true. So one of the big reasons someone is willing to pay more than the Coinbase price is that they can't access Coinbase.
Access is a big problem in many of these areas where Bitcoin is needed most.
The other reason, something most of us Bitcoiners value, is privacy. Some people want their trades to be private and the closest thing to totally private trading is p2p trading especially if you do it F2F (face to face).
Creating a Profitable Trade on Paxful
Now that we understand the reasons why someone would buy on one of these exchanges, let's create a trade that makes someone want to buy their BTC from us. First you have to create your own account at Paxful and provide the degree of verification that you feel comfortable with.
For this example, we are creating an offer to sell Bitcoin for Euros. The current Bitcoin price in Euros is 8,510 EUR. We will need this number later.
Tip: I like to phone verify with my non-US number if I can and I ALWAYS enable 2 factor authentication for better security
Step 1: Research
You can't create a viable trade option without knowing what is out there. So the first thing I do when I want to Sell Bitcoin is to act like I want to Buy Bitcoin instead to view the other offers. So let's look at buying Bitcoin for Euros by International Wire Transfer or SWIFT since I do not have a Euro bank account anywhere and would need to convert it right away to another currency so offers like for Cash trades or for gifts cards in Euros don't apply to me. But if they apply to you, then search away.
Tip: Put your location as Worldwide so you can see all relevant offers when you deal with a major currency like USD, EUR, GBP, CAD or AUD.
Right now, there is exactly 1 offer for Euros by SWIFT (USD offers are far more popular).
One of the nice things you can see in this is the offer shows how much of a premium/discount is offered. In this case, if you buy with this guy, who is part of a larger Asian OTC firm, you are buying for 97c on the dollar or only a 3% premium. Normally that would be tough to beat but he has many verification requirements. Some people are not going to want to bother with that so I think I can offer something better for buyers while also more expensive.
Step 2: Create the Offer
Now I know what my competition looks like so I'm ready to go. There are 3 basic steps to creating an offer other than funding your Paxful wallet with BTC, which you have to do for the offer to go live.
Notice that with a little toggle you can choose to create an offer to sell or an offer to buy. We are selling for Euros by International Wire Transfer.
Tip: You can include the bank where the money will be transferred. People like knowing they are sending their money to a reputable bank so I always include this.
Onto Step 2......
First item is margin. What premium do I want? The only good offer for SWIFT was at only a 3% premium but with many verification restrictions. I think I can do 10% with fewer restrictions.
The second item is the minimum and maximum trade amounts. Incoming transfers can be anywhere from FREE to as much as $75 depending on the bank. Mine is in the middle so I want to be sure it's worth it making my minimum 200 EUR and my maximum will be just a little more than 1 BTC at around 8800 Euros. Here's what that looks like:
There are 3 things I like about this screen:
- It tells me how much my profit will be on every BTC I sell
- The offer automatically adjusts the maximum down to where my wallet balance is
- There is an Offer time limit that I can impose that limits the time the buyer has to pay before the trade cancels
- On the right side of this screen (not shown), I can see that the Paxful escrow fee for this trade is 0.1%. I like knowing this in advance and the fee is low which I also like.
Why is an Offer Time Limit important? When a buyer is ready to trade with you as a seller you need this. When they make their offer to trade your BTC is moved from Your Wallet to Escrow at Paxful meaning you CANNOT sell it to someone else. Paxful realizes that if the buyer is able to complete the trade they want their coins as fast as possible so they will lock your coin up in escrow until the buyer pays or the Offer time limit expires.
Tip: Use the Offer Time Limit wisely. Make it short enough that they have to act but not so short that interested buyers end up with frustrated, expired trades
Step 3.....the buyer terms and instructions
My first item in this screen is Offer tags, tags used to entice people to my offer. I know that lesser verification will make my offer attractive to EUR based buyers so I will pick 'no id needed' but I will also pick receipt required because I require that on all my trade offers
Next is buyer instructions. This is the part where the buyer sees how I intend to sell to him BEFORE he decides to buy. Simple is better here. My instructions for this trade are: BUY BTC simply with Euros sent to my American bank
Don't worry about the details here. You have space for more detailed instructions after they decide to buy from you.
Now the actual more detailed trade instructions. I try to spell out everything they need to do because no matter how simple you make it, there will still be questions. Also, in the case of a dispute (more on this in the next post), your directions need to be clear enough to follow because lack of following the directions by your buyer means a better chance you win a disputed trade.
My instructions are the following: 1) Open Trade
2) Tell me which bank the wire is coming from. Note that I'm not using a European bank and cannot do SEPA, only SWIFT transfers
3) Ask me for my bank details
4) Send the wire
5) Upload the receipt whether in paper form or a screenshot
6) When the funds hit my account, I will release the coins. This time can vary from 2 hours to 2 business days depending mostly on your bank
7) Leave feedback
You'll notice that I dummy down everything including telling them to open the trade and asking them to leave feedback as peer review is an important part of the system.
This screen also offers advanced features. These options include:
- Targeting only one country if you choose
- Verification requirements like only people who have verified phone and email can see this offer
- Minimum trades required OR
- Fiat limitation for new traders meaning people who haven't traded yet have a limit on how much they can buy from you
- Disallowing those that access your trade on the site that uses VPN or Tor
I am going to use these options on this offer. I'm going to require 2 past trades and limit new accounts to 1500 Euros. And here is this screen now complete
Now I've clicked Create Offer and now the Offer is live right here. And here is a screenshot of it:
My max is only 238 Euros at this moment as my wallet balance is low but you see everything else including the fact that I'm online (the green dot) and my perfect reputation score so far.
Paxful is a good alternative to LocalBitcoins if you want to sell some of your Bitcoin from time to time or trade it for some extra income. I hope this demonstration with these simple screenshots helped show you how easy it is to set up a sale trade on the site. If you click on any of the Paxful links to join, it's no cost to you but I get a little income from your escrow fees that you pay Paxful on successful trades.
Next week, we will look into the system more including disputes, the chat feature and trade management.
Good luck and good trading.