This article was originally posted on The Bitcoin Magazine - the oldest and most established source of news, information and expert commentary on Bitcoin, blockchain technology and the digital currency industry.
In a world of Bitcoin-powered businesses, where the technology’s cypherpunk roots seem to fade over time, Hodl Hodl is making extensive efforts to popularize the noncustodial and privacy-friendly exchange model. Just a couple of weeks after BitPay announced identity and location verification for refunds and payments larger than $1,000 and $3,000 respectively, for instance, Hodl Hodl is celebrating the anonymity of its service with Liquidity week.
Between August 14 and 21, 2019, the peer-to-peer exchange will make extra efforts to help users buy and sell bitcoin both on the main blockchain and via the Lightning Network by pushing to complete its entire offer book and reducing the exchange fee for every trade to 0.3 percent.
The Peer-to-Peer Liquidity Problem
“By launching Liquidity week on Hodl Hodl we hope to ensure more liquidity on our platform and help new users find counterparties faster,” Hodl Hodl CEO Max Keidun told Bitcoin Magazine when asked about the significance of this event. “If this week becomes successful, we will turn this into our monthly tradition.”
Unlike centralized exchanges where the supply and demand for bitcoin is controlled by the company, Hodl Hodl acts more like a secure intermediary that generates multisig escrows and thus facilitates peer-to-peer swaps. Users can post announcements about buying or selling BTC, and it’s their own grasp of market dynamics that decides prices in fiat or other cryptocurrencies.
By allowing the market to stay open to competition, the users benefit from better valuations. On the other hand, there are times when sellers expect to be compensated with a premium for the privacy benefits (the lack of traceability to a specific exchange, or the fact that banks remains clueless in regard to what you bought).
Since the exchange supports more than 210 payment methods in as many fiat currencies for which users create demand, finding the right pairing can be difficult. So, if somebody is selling their bitcoin in India and sets the price in rupees, a user from Europe will have to make daily conversions in euros. Hodl Hodl’s solution for this is to encourage more free trade — as opposed to attempting to centralize the platform. If more offers get listed, then it’s more likely for traders to find the kind of offer that they expect.
Ensuring More Liquidity
According to Keidun, Hodl Hodl’s Liquidity week is also a way of keeping up with increasing demand. The liquidity issue, which many decentralized exchanges have, receives an extra helping hand. Correspondingly, users should find a convenient price with greater ease.
“We see that interest toward Hodl Hodl is increasing among crypto traders and the community, as there are more and more people joining our platform each week,” Keidun said. “But the liquidity was always a problem for P2P exchanges, and by launching our Liquidity week we hope to tackle this problem.”
Most interestingly, bitcoin on the Lightning Network benefits from a marketplace of its own, where it can be exchanged for fiat or other cryptocurrencies. This may be one of the most private ways of acquiring BTC, as returning the coins to the base layer benefits from a guaranteed transaction obfuscation that increases fungibility.