LOCAL BITCOINS

Everyone remembers where they bought their first bitcoin, and for many that place was LocalBitcoins (LBC). It provided a vital missing link in the Bitcoin ecosystem at a vital point in time: an escrow system. A platform that extended the Bitcoin maxim of “Don’t trust, verify” to the fiat rails that must be navigated in order to buy BTC.

The platform originated in Finland, which played an outsized role in Bitcoin’s early evolution, not least in the form of Martti Malmi, who worked on Bitcoin’s codebase with Satoshi within weeks of the network’s launch. It was another Finn, Jeremias Kangas, who got the ball rolling for LocalBitcoins in June 2012 after spotting a gap in the market. The first version of the site was a simple bulletin board for connecting Bitcoin buyers and sellers but it rapidly evolved into a fully fledged P2P marketplace.

The real innovation that made LocalBitcoins superior to anything that had gone before was the implementation of an escrow system in late 2012 that held the seller’s bitcoins in an LBC web wallet during a trade, before releasing them to the buyer once payment was confirmed. By the time Jeremias had added in an eBay-style reputation system, the package was complete.

BTC Goes P2P

One of the reasons users took to LocalBitcoins was the wide number of payment methods it offered, starting with cash for those who were happy to meet in person. When fiat options were added, LBC really took off, allowing anyone to transact with anyone nationally or even globally.

Because transactions were conducted privately, with funds moving between private individuals’ fiat accounts, payment processors were unaware that the transactions involved Bitcoin, and so users were able to fly under the radar. This was in stark contrast to the first Bitcoin exchanges, which struggled to find a fiat onramp willing to work with them.

The rapid growth of LocalBitcoins attests both to the usability of the site and to the accelerating adoption that Bitcoin was experiencing through 2012-13. By late 2013, the site had more than 110,000 active traders with weekly volume that ran into the millions of dollars.

LBC was an idea that arrived at the right time, when Bitcoin was going stratospheric, driven by everything from Silk Road to Mt. Gox. Much of the BTC being bought on LocalBitcoins flowed straight to these sites and was rapidly distributed across the expanding Bitcoin economy. It was often cashed out the same way. The U.S. Secret Service even ran undercover stings on the site with agents posing as buyers to bust individuals selling BTC for cash with no questions asked.

According to data scientist Matt Ahlborg, “LocalBitcoins was perhaps the most important platform for organic adoption of Bitcoin globally. LocalBitcoins and peer-to-peer markets in general had a lot of genuinely moral activity such as capital flight, remittance, and general cross border or online commerce, but it also had a lot of traffic of immoral origin, such as fraud, scams, and ponzi schemes. Its biggest impact was in showing that Bitcoin has genuine utility beyond price speculation and that there are a great many use cases where Bitcoin can solve real problems in people’s lives.”

By 2016, LBC had a remarkable 1.35 million users and was recording average weekly transaction volumes of $14M. It was the onramp where millions first took ownership of bitcoin and sent their first BTC transaction. Eventually, when Bitcoin became too big to ignore, regulators began circling and the era of being able to buy BTC without KYC began winding down. By 2018, LBC’s best years were behind it, but it had done its job by then, red-pilling millions on the ease of entering the industry with everything it had to offer.