How To Buy Ether With LocalEthereum

Published

This blog post was published before LocalEthereum became LocalCryptos.

Buying ether using LocalEthereum is quick, safe and easy. This guide will explain how to buy ether using the peer-to-peer trading platform.

Before we begin, it’s important to understand that LocalEthereum isn’t an exchange, and it doesn’t act as an intermediary or take deposits. Instead, it’s a place where you can find other over-the-counter traders — these people could be individuals like you, or established businesses and brokers.

What this means is that you have more control about how you want to trade, but you also have more responsibility. Although the process is much quicker, easier and safer than using an exchange, there is some leg-work required to keep yourself safe.

We don’t monitor conversations between you and other traders (we can’t — they’re encrypted), so you’ll need to use your common sense and be careful of who you trust. If somebody is acting suspicious — for example, refusing to put the ETH in escrow (we’ll explain what “escrow” means later) — stop and think, and report the user to help make the platform safer. You can always come back and look at this guide if you ever get confused throughout the process.

You’ll also need to make sure you’re following the law. Different countries and states have different legislation: for example, you may be required to keep specific records, apply for a particular license, or collect and verify the identities of people to help prevent money laundering. These rules vary by country, so be sure to do your research.

Nothing in this guide is intended to constitute legal or financial advice. It is for information purposes only and in no way should be interpreted or construed to create any warranties of any kind.

1. Create a LocalEthereum account.

Making an account is super-simple. We won’t need your ID — just a username, e-mail address and password.

Your username is what everybody is going to know you by, and once you sign up there’s no way to change it. Pick something memorable and cool.

Your password is essentially your private key, so treat it like one. It’s a little bit more complex than that, but we’re not going to explain that here (there’s some crazy maths that turns weak passwords into something stronger).

Your e-mail address is used for two-factor authentication. However, once your account is set up you can switch it over to OTP (e.g. Google Authenticator).

Some things to keep in mind:

2. Find an “offer” that you like.

Head back the homepage and you’ll see a list of offers. Offers are posted by traders from all over the world. You can make your own if you prefer, although we won’t explain that process in this guide.

You can use the filters to narrow down the list to only show offers that match your preferences.

You can search offers by:

You can sort the offers by:

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.

3. 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.

4. Wait for the seller to put ether 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.

5. Transfer money to the seller.

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.

6. Hit “Mark as paid” and wait for the seller to release.

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.

Open a dispute.

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.

Let’s repeat:

  1. Create a LocalEthereum account.
  2. Find an offer that you like.
  3. Open a trade.
  4. Wait for the seller to put ether in escrow.
  5. Transfer money to the seller.
  6. Hit “Mark as paid” and wait for the seller to release.

Happy trading!