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A quick, important note about payment methods:
PayPal is a high-risk payment method for sellers because of a nasty thing called “chargeback fraud”, which is where a buyer sends money, and then calls the financial institution to reverse the payment afterwards. PayPal is also highly susceptible to other fraudsters and hackers; every so often, dishonest people try to buy cryptocurrency with stolen PayPal accounts.
Generally, sellers prefer payment methods that are more difficult or impossible to reverse because they’re so much safer. Having said that, if you’re set on using something like PayPal, that’s perfectly fine — it’s your choice — but you should be prepared for the seller to ask you to verify your identity, or to set a maximum transfer limit on your first trade.
The payment method you pick will depend on your circumstances. We find that in most countries, Bank transfer is the preferred choice for most people.
For this example, we’ll pick Bank transfer as it’s the most popular worldwide.
Once you select the payment method, the website only lists traders accepting bank transfers for payment. Since bank transfers are generally domestic-only, it’ll only show offers in your country (there’s a slower International wire option for overseas transfers).
Let’s take a closer look at an offer:
When you click the BUY button on an offer, you’ll be sent to a page with more details about the offer and the seller. Traders usually outline the procedure of their exchanges and tell you a bit about themselves using the “terms of trade” field.
Remember to take a look at the seller’s reputation. Here’s the key information to look out for:
Continue to scroll down the list of offers until you find something that you’re happy with. Once you find an agreeable offer, you can open a trade.
Enter the amount of ETH you want to buy and click Open Trade. Once you do this, the price is locked in and a conversation is created between you and the seller. Now, familiarise yourself with the trade interface because you’ll need to understand what’s going on.
On the left hand side, you’ll be able to talk with the seller — exchange greetings, and then get to the payment transfer details when the ether is in escrow. Every message and attachment that traders send back and forth is end-to-end encrypted, which means that unless the trade is disputed by either person, it will remain private forever.
Before you send any money, wait for the seller to put the agreed-upon ETH in escrow.
On the right hand side, you’ll see the status of the ether escrow. Before you send money to the seller, they’ll need to deposit the ether into an “escrow smart contract”.
Escrows are decentralised using the Ethereum blockchain, which means that the seller is not sending ether to a trusted third-party (although it works similarly) but instead a “smart contract”. A “smart contract” is basically a bit of peer-to-peer computer code. In short, this makes LocalEthereum trustless; there’s no way for staff to access this ETH — we can only intervene and send it to one of you if either party opens a dispute. You can read about how the smart contract works in our technical post.
It’s important that you wait for the seller to put the ether in escrow, or else they may not hold up their end of the bargain. Once the seller sends the ether to escrow, they can’t simply withdraw it immediately.
When LocalEthereum detects that the ether has been escrowed, it will update the right hand side of the interface to let you know. Suddenly, a countdown timer and a Mark as paid button will appear.
The seller is prevented from cancelling and withdrawing their ether from escrow unless the countdown timer has expired and you haven’t marked the trade as paid. When you hit Mark as paid, the seller is permanently forbidden from pulling the ETH out of escrow.
The escrow mechanism keeps you safe as a buyer.
Using the encrypted conversation, the seller will let you know where to send your money. Knowing that the seller’s ether is sitting in escrow, you can safely send money to the seller.
As explained above, when you click Mark as paid, the countdown timer is cancelled and the seller no longer has the opportunity to cancel.
That’s it! Once the seller confirms the payment and releases the escrow, the ether will appear in your web wallet — it’s all yours!
The seller can release the escrow to you at any time. However, if time passes and the escrow still hasn’t been released, or there is a disagreement between you and the seller, you can open a dispute to allow the arbitrator to step in.
Thankfully, most trades never go to arbitration. If everything goes well, you’ll never get to this step!
When you open a dispute, your computer automatically uploads the arbitrator a digital key to resolve the trade in either direction, plus the key to decrypt the message history between you and the seller.
The arbitrator will work with both parties to make a fair resolution. They may ask you and the other party to send them documents privately — for example, proof of payment (e.g. a bank transfer receipt), and, depending on the circumstances of the dispute, proof of your identity.
Once the arbitrator is confident with the information they’ve received, they’ll decide for the escrow to be released to you or to the seller. Because of the way the escrows are decentralised using a “smart contract”, there’s no way for them to send the ether anywhere else.
Keep in mind that unless you open a dispute, it’s impossible for LocalEthereum staff to read your conversation, or to intervene in a trade. That’s not because of a moral policy — it’s the very nature of end-to-end encryption and the blockchain technology which powers the decentralised escrow service.