What is LocalBitcoins and why does it closing matter?

What is LocalBitcoins and why does it closing matter?

LocalBitcoins announced that the company is shuttering its peer-to-peer bitcoin exchange service.

This is a big deal, or at least noteworthy, for a few reasons:

  • LocalBitcoins provided a service that is exactly aligned with the original vision of Bitcoin as outlined in Satoshi Nakamoto’s Bitcoin whitepaper, which is called “Bitcoin: A peer-to-peer electronic cash system.” The exchange provides a direct means for people to trade bitcoin peer-to-peer and in a way that protects privacy.
  • LocalBitcoins is a well-regarded exchange, and has been around since 2012 — and looking at the chart above — has accounted for hundreds of millions of dollars of bitcoin exchanged over the past decade+.
  • Based in Helsinki, the company was in compliance with Finland's financial regulations and was recognized as a legitimate if not leading fintech company.
  • Like other bitcoin companies, LocalBitcoins also had its share of controversy. Over the years there have been several instances of people using the exchange for money laundering and other criminal activities. LocalBitcoins was also hacked in 2019.
  • LocalBitcoins was recently named in the US Treasury case as a company that interacted with Bizlato (an exchange accused of money laundering).

Other reasons why the closing of LocalBitcoins matters

A peer-to-peer bitcoin exchange is important in developing economies that don't have a lot of crypto exchange options, or where people still hold or transact in cash because of limited banking infrastructure.

At the same time, having limited bitcoin exchange options in economies with accessible banking services is also an issue. Having only one kind of bank-connected bitcoin exchange makes the system based on peer-to-peer and decentralized transactions more vulnerable.

Changes in regulations could limit or cut off the on-ramps and off-ramps, which could impact the utility and overall exchange performance.

LocalBitcoins provided a service outside of that regulatory uncertainty, and seemed to have a firm market fit — people that already had bitcoin and wanted to transact in a way that optimized privacy and few outside touch points (which is also great for personal financial security).

So, not having LocalBitcoins in the mix as potential options for future transactions, especially in a time of immense uncertainty, limits options for people already holding bitcoin.

Are privacy and profitability compatible?

Losing a long-standing and well-established means of transacting peer-to-peer is a big blow to digital asset privacy.

In a release from the company, the decision to close is explained like this:

“Originally LocalBitcoins was established to Bring Bitcoin Everywhere and drive global financial inclusion. We have honored that mission for over 10 years and we are proud of what we have achieved together with all of you, our loyal community.
We are therefore sad to share that regardless of our efforts to overcome challenges during the ongoing very cold crypto-winter, we have regretfully concluded that LocalBitcoins can no longer provide its Bitcoin trading service.”

New sign-ups for LocalBitcoins are now suspended. People with existing accounts have until 2/16/23 to transact, and then one year to completely remove funds from their LocalBitcoin wallet.