Localbitcoin Review – Scam or Legit?
Known as the ebay of bitcoin, Localbitcoins is a service matching bitcoin buyers and sellers within close proximity to one another, facilitating person-to-person transaction. Local Bitcoins provides an escrow service to ensure online transactions are executed fairly, and provides reputational scoring based on feedback.
Localbitcoin is often the best solution for bitcoin trading in jurisdictions in which banking or regulatory issues prevent the easy opening of online bitcoin exchange accounts. In the UK, for instance, Localbitcoins is an extremely popular method of exchange. And of course, there are some that prefer the anonymity possible with localbitcoin, seeking to avoid the KYC/AML requirements of the online exchanges.
Localbitcoins has a proprietary wallet solution required for online purchases using their escrow solution. The localbitcoin wallet is web-based and the private key is kept on the localbitcoins server. They offer two factor authorization, and claim to keep “most” of their bitcoins in cold storage.
There have been a few notable security breaches of localbitcoins which have left the company’s image somewhat tarnished. In May 2014, the site was pulled offline for approximately 24 hours after a hacker entered the server console and gained root access. According to Localbitcoins, all hot and cold wallet coins were safe on a different server. Apparently, this was due to a weak hosting provider security, and localbitcoins quickly uncovered the hack and responded appropriately.
The month prior to that, there was a large controversy surrounding a reported wallet breach. After investigation, it turned out that an attacker gained access to a user’s android phone and was thus able to circumvent Localbitcoins’ two factor authorization.
In January 2015, a hacker used the LocalBitcoins’ live chat feature to spread malware to users. According to LocalBitCoins, this was most likely some sort of keylogging software. Three users lost funds during the hack, and were compensated by Localbitcoins.
Singling out LocalBitcoins for weak security in an industry which has been plagued with breaches is perhaps unfair, but there does seem to be a bit of a pattern with LocalBitcoins that should be noted. As is generally the case with exchanges, when not actively buying and selling on LocalBitcoins, it is preferable to keep coins in a secure, wallet-only service.
The founder and CEO of localbitcoins is Jeremias Kangas, and the operations are run from offices in Helsinki, Finland. Mr. Kangas has always been forthright about operations and his role.
Though localbitcoins releases no public financial audits, the business seems healthy with relatively high revenue with low marginal costs. The business model is transparent and scalable, and the company is working on expanding into new markets. When there have been security breaches in the past, the company engaged in self-audits, published the findings, and compensated any victims of fraud.
Opening an Account
To register an account, simply select a username, password and verify your email. Please ensure that a strong password is used – preferably with upper and lower cases, numbers, symbols, and a space or two – as this password will secure your wallet. Telephone verification is optional, but is recommended to add credibility to your profile.
Buying and selling bitcoins on localbitcoins
After logging in, click “buy bitcoins” which is displayed at the top of the site next to the logo, enter the sum you’d like to buy, your location, and your preferred payment method. The search results displayed below list all relevant sellers according to your selection. The reputational score is shown next to the user name, listing both a positive feedback score from 0-100% and the number of localbitcoin transactions the user has executed. If lucky, a seller will appear with a good reputation, and large number of transactions executed, who accepts your preferred payment method and is selling cheaply. If not, try adjusting the payments methods and number of coins you’d like to buy.