Categories: EducationFAQ

Why Selling Bitcoins via Cash Deposits is a Bad Idea

Selling bitcoin through peer-to-peer platforms such as LocalBitcoins has become a lot more popular as of late. While it is a better option to conduct P2P trades rather than relying on centralized exchanges, there are some dangers associated with this process. A particular type of scam is becoming more common among peer-to-peer traders and users need to beware of the danger.

The Bitcoin Cash Deposit Scam Is Quite Savage

To put this new scam into perspective, it is important to grasp the basis of how LocalBitcoins trades occur. People looking to sell or buy bitcoin often find themselves in a situation where bank transfers are the best course of action. One popular way of dealing with these types of transactions revolves around having cash deposited into a bank account. One main advantage of using this method is how every trade can become subject to an official receipt for tax purposes and whatnot.

On paper, it sounds quite convenient to have cash deposited into a bank account. However, a certain type of scam involving a fraudulent middleman is making the rounds for those sellers offering cash deposit. The scammer creates a sell order for a cash depost just like any other legitimate seller. When a buyer contacts them to buy coins, the fraudster contacts a legitimate cash deposit seller and provides the buyer with his information. The buyer ends up depositing cash into the legitimate sellers bank account and the legitimate seller releases the coins.

The trick here, is that the seller releases the coins to the scammer instead of the original buyer. When the scammer disappears with the coins, the buyer is left with nothing. Buyers will most likely dispute the cash deposit to the seller’s bank account since they never receive what they paid for. In virtually every case, the bank will reverse said transaction, and the seller’s bank account will be flagged for fraudulent activity. It does not take banks all that long to shut down bank accounts subject to a fraudulent transaction investigation. In fact, we have received several reports of bitcoin users who had their accounts closed by the bank due to these practices.

This is one of the reasons why it is very hard to trust buyers when dealing with peer-to-peer trades on LocalBitcoins or other platforms. It is impossible to build trust, and unless you know the person very well, it is advised to use other methods of selling Bitcoins which aren’t prone to such middleman scams. If something were to go awry in the end, the only person getting punished is the one on the other end of the bargain.

Regardless of how one decides to conduct business on LocalBitcoins or similar platforms, there will always be risks associated with the process. Accepting in person cash-only payments may be the best option after all, although it is still advised not to sell large quantities of bitcoin in one go.

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JP Buntinx

JP Buntinx is a FinTech and Bitcoin enthusiast living in Belgium. His passion for finance and technology made him one of the world's leading freelance Bitcoin writers, and he aims to achieve the same level of respect in the FinTech sector.

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JP Buntinx
Tags: bitcoinCash DepositPeer-to-peer

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