HodlHodl and the Problems of KYC

OK, first things first. HodlHodl reminds us of poor Hodor from Game of Thrones, and so we are perhaps involuntarily sympathetic to the brand. But we do not think this was intentional – more likely the domain hodl was taken, and so they just added another hodl on. On to the review.

Hodlhodl is one of a rising breed of p2p exchanges that holds no actual user funds, and thus circumvents the need to put customers through a KYC process. This is no small thing – mainstream crypto exchanges are becoming more and more stringent when it comes to verification requirements. The negative effects of this are twofold. Entire swathes of the global community are disqualified from using many of most efficient, safest, and cost-effective exchanges because they are unable to be adequately “known” as a customer. Perhaps their driver’s license is in the wrong language, or maybe they live in a separate country from their bank location; either way, KYC excludes many would-be customers for bad reasons. This exclusionary strain is antithetical to bitcoin’s purpose for being and must be stamped out!

Additionally, the passing of sensitive data to exchanges is a security issue for users. Governments and other less savory bad actors are no doubt interested in the exact physical location of cryptocurrency holders. KYC means outsources the protection of your privacy to exchanges. With Hodlhodl your privacy remains private, and the bitcoin can often be attractively priced.

Sound interesting? Open an account using that link and receive a lifetime 10% fee discount, from 0.6% to 0.55%

Buying or Selling Bitcoin with HodlHodl

After you’ve opened an account, which consists of verifying your email address, you will be prompted to input your bitcoin address. Do this and then navigate to buy bitcoin.

Offers are sorted from the least expensive to the most, and filters are available to sort by country, payment type, and quantity of bitcoin desired.

After selecting a trading partner, you are redirected to the order screen where you may specify the amount of bitcoin you would like to buy. There is a list of trader statistics that can help determine trustworthiness; in any event, there is a dispute mechanism that will protect you from fraud, but best anyway to pick a trustworthy partner! Wondering why the bitcoin below is so cheap? It is the testnet version, which is a handy way to practice buying and selling.

After determining the purchase amount, select “accept offer and create contract”. You will then be redirected to the contract screen.

The terms of the contract have been set and the contract is ‘pending’. The seller must deposit the bitcoin into the escrow account in order to change the contract from Pending to ‘In Progress’. Once In Progress, the seller’s bitcoin is locked in the escrow account. Three things can happen, and we list them in order of probability. 1) the buyer indicates he has sent the payment, and it arrives to the seller, at which point the seller releases the bitcoin from the escrow wallet and the transaction is complete. 2) The buyer does not indicate he has sent the payment, the payment window closes, and the seller may exit unilaterally the contract. 3) the buyer indicates he has sent the payment but it does not arrive in the seller’s account and/or the seller indicates falsely that it has not arrived in his account. At this point one or both of the parties may trigger a dispute, at which point an administrator will join the contract chat, within 10 hours. The support agent will inform both parties of what is required to settle the dispute, and the contract will be locked until a decision is made.

Posting an Offer in the HodlHodl Order Book

Your offer may be pinned to the price to bitfinex, bitstamp, bitpay, coinbase, kraken, or local bitcoins, with the price set at a percentage above or below the prevailing rate. We recommend using bitpay which offers a blended index, so as to avoid any weird fluctuations that might be experienced now and again when isolating a single exchange.

It is mandatory to specify the time frame within which the buyer to initiate the payment. There is also an optional field to set the number of bitcoin confirmations required prior to that payment window opening, which is meant to protect the buyer from a seller attempting to reverse the bitcoin payment prior to confirmation.

While things are relatively straightforward they could be optimized a bit. In our opinion, sellers should be required to fund a wallet prior to an offer going live, and funds from that wallet should automatically be shifted to the escrow when a buyer creates a contract. This is how it is done, for instance, at Bisq. With pre-depositing the bitcoin for sale, buyers need not wait on the bitcoin deposit and may immediately transfer the money, thus moving along the entire process. The process at the moment is susceptible to spam – i.e. fake sellers – and may lead to a poor buying experience, as contracts may be canceled due to seller inactivity.

In terms of fees, Register from our link and get a lifetime fee reduction from 0.6% to 0.55%

Hodl – p2p, not decentralized

Note that while hodlhodl solves a number of issues – namely, the negative effect of KYC on exchange penetration – it is centrally hosted and developed. An exchange like Bisq is less user friendly as it requires a client download, but their product is truly decentralized; the code is open source with an active developer community, and the downloadable client function like a node able to continue trading even should the owners of Bisq get arrested or something.

Die hard disintermediaries will prefer Bisq for ideological reasons; However, Hodlhodl is an excellent product for most users who would like to maintain a bit of privacy, or live in under-served markets.

We are very much fans of HodlHodl – good on them for introducing this innovative product into the market, and we very much look forward to watching their business grow.