Paxful in Brief
Paxful operates like eBay, allowing Bitcoin sellers to advertise their services to people who want to buy into the cryptocurrency market. Each of Paxful’s sellers decides which payment methods to accept, which translates into an array of more than 300 ways to get Bitcoins.
The peer-to-peer service calls itself “the people’s Wall Street” and takes pride in its ability to bring the unbanked into the crypto economy. However, that has brought Paxful some notoriety for its involvement with Backpage’s enabling of prostitution.
- Easy way to purchase Bitcoin.
- More than 300 payment methods.
- Seller ratings help inspire trust.
- Must deal with unknown sellers.
- Leadership’s questionable behavior.
What is Paxful?
Serial entrepreneur Ray Youssef and software developer Artur Schaback decided to create their own Bitcoin payment system in 2014, but soon pivoted to become a peer-to-peer Bitcoin exchange.
Youssef explained what happened in a late-2015 interview with BTC Manager. “We first built a payment processor for retail bitcoin,” Youssef said, “but without enough bitcoins in mainstream circulation there was no problem to solve.”
The Backpage effect
What really drove Paxful’s early growth, though, was its relationship with the now-shuttered personals site Backpage. Banks and credit card companies started cutting off Backpage as its support for sex workers gained greater notoriety. Paxful’s peer-to-peer payment system allowed Backpage to continue running.
In an interview aired in the United States on National Public Radio, Youssef explained that the financial industry threw Backpage’s users into a panic. “I was getting calls from people and they were just calling me up begging me to help them,” Youssef said.
Earlier this year, Backpage’s founder pled guilty to federal money laundering charges. Carl Ferrer admitted to using cryptocurrency exchanges like Paxful and Kraken to launder money so banks and credit card processors wouldn’t know the money came from illicit activities.
SWAT-ed in Miami
Paxful’s leadership found themselves staring down the wrong end of a SWAT armed response team while partying it up in Miami Beach. Youssef, Schaback and Plaxful’s IT director, Ivan Suhharev, were staying in a rented-out Miami Beach penthouse during one of Paxful’s company-wide “workations”.
The next day, they were scheduled to learn how to fire the AR-15 assault rifle which they had just bought. They decided to pose with their brand-new weapon… on the balcony… wearing masks… in full view of nearby tourists.
Keep in mind, this was three months after the attack on the Pulse nightclub in Orlando. When Miami’s police department got reports of masked gunmen pointing weapons at the beach, they sealed off a two-block area and sent in snipers and a SWAT team. All three Paxful executives were arrested, their rifle was confiscated, and so was the pot they had bought in Colorado and carried with them to Florida. And the cocaine, too.
Needless to say, the media ran with the story. In the end, prosecutors decided not to press charges.
As Bitcoin prices soared to ever-higher levels in 2017, Paxful launched a charitable program called #BuiltWithBitcoin with the goal of financing, through Bitcoin, the construction of 100 schools in Africa.
“One of our key goals is to bring financial inclusion to the underbanked, via bitcoin,” Youssef said in the press release, adding that Paxful is “also making a real and lasting difference in their communities.”
Paxful funded the program’s first project, construction of a nursery school in Rwanda, with a donation of $50,000 in Bitcoins.
How Paxful works
Paxful is essentially a listing service for sellers, or “vendors”, of Bitcoins. These vendors place ads on Paxful offering to sell Bitcoins through a wide range of payment methods. Buyers can search these ads for the price and payment method that works best for them. The deal is a peer-to-peer relationship between the buyer and the seller.
Paxful’s involvement is limited to the listing service and an escrow-based Bitcoin transfer that protects each side from fraud. (See the Network security section for more details on the escrow service.)
Don’t confuse Paxful’s peer-to-peer structure with full decentralization, though. The buyers’ funds flow directly from the buyer to the seller, but all of the Bitcoin transactions happen in Paxful’s online digital wallet.
Leadership and investors
In an industry where the leadership is often opaque, especially for companies with few outside investors, Paxful’s executive team actively engages with their community. Youssef and Schaback, as co-founders, are frequently interviewed and other members of the leadership team regularly appear at Paxful-organized events.
- Ray Youssef, co-founder and chief executive officer: A history major, Youssef jumped straight into New York’s tech startup scene where he founded MatrixM, an early ringtone store. He moved from startup to startup until meeting Schaback and launching Paxful.
- Artur Schaback, co-founder and chief technology officer: Schaback’s software development career took him from Estonia to New York where he met Youssef.
- Elliot Hoffman, chief operating officer: Hoffman joined Paxful a few years after completing a six-year stint in the US Navy.
- Ivan Suhharev, director of IT: Beyond a few comments to the press and the Miami Beach incident there is not a lot of information about Suhharev.
Protecting customers’ coins
Legal and regulatory compliance
Although Paxful operates out of Estonia, it is registered in Delaware so falls under US jurisdiction. The service’s peer-to-peer structure and the fact that Paxful does not hold or transfer fiat currency may exempt it from many of the federal and state regulations that centralized exchanges must cope with.
That does not mean Paxful avoids all regulations. Youssef moved his company’s operations to Estonia in 2015 after New York’s BitLicense regulations went into effect. In the announcement, Paxful cited the burden excessive costs and paperwork place on small startups:
“Providing reports and strict KYC we can live with, but anything that would utterly eradicate our one advantage and crush our best chance at realizing the vast society transforming potential of bitcoin we cannot abide by.”
Search Paxful’s support site for information on how the service secures its digital wallet and all you will find is this statement:
“Our servers are very well guarded up to the highest banking specifications.”
Dig a little deeper, though, and you’ll learn that Paxful outsourced its digital wallet and blockchain transactions to a specialist. Bitgo provides secure blockchain solutions to a wide range of institutions from rising cryptocurrency firms like Bitstamp and Kraken to pillars of the traditional financial system like the CME Group, owner of the Chicago Mercantile Exchange, and Great Britain’s Royal Mint.
Paxful lets you set up 2-factor authentication (2FA) for account logins as well as Bitcoin transfers. Although Paxful does support the less secure SMS-based 2FA, customers ought to use either the Google Authenticator or Authy apps.
Paxful also implements an escrow-based transaction process to protect both buyer and seller from fraud. The instant a buyer agrees to a seller’s offer, Paxful transfers the amount of Bitcoins specified in the trade from the seller’s wallet to a separate wallet. When the buyer confirms that the payment has been sent and the seller confirms that the payment has been received, Paxful automatically releases the Bitcoins from escrow to the buyer’s wallet.
In the event that a buyer or seller does not fulfill the deal, Paxful’s moderators will review the situation and release the escrowed Bitcoins to the injured party.
The self-serve support site is well-documented and seems to have the answers to most questions buyers and sellers are likely to have. The community on Paxful’s forum can also answer general questions.
The most direct way to reach Paxful is through the support site’s chat function. If you would rather use email, you can generate a support ticket.
Just ignore the contact information at the bottom of the support site. The Australian address and phone number are for Manual, the company that hosts Paxful’s knowledge base, and not for Paxful itself:
Since Paxful merely facilitates person-to-person exchanges, the company did not get hit with the issues centralized exchanges faced during Bitcoin’s hyper-growth last year.
The main issue that Bitcoin buyers face is figuring out whether they can trust the sellers they deal with. Paxful implemented a reputation system similar to eBay’s ratings that helps buyers understand more about the people they deal with.
Each advertisement displays the number of positive and negative reviews a seller has received. Buyers can also go to the sellers’ profile pages to see the number of trades they have conducted and how many different buyers, or “trade partners”, the sellers have worked with.
How to Join Paxful
Who can join?
Paxful is available worldwide with the exception of the 16 countries on America’s Office of Foreign Assets Control sanctions list.
The fragmented nature of America’s regulatory system means Paxful cannot serve the entire country equally. Any American can create a Paxful account, but money-handling regulations prevent many Bitcoin sellers on Paxful from doing business with residents of Connecticut, Georgia, Hawaii, New Mexico, New York and Washington.
Paxful does not ask buyers or sellers to provide any information beyond the email address used to create the account.
Buyers may have to provide sellers with proof of identity during the buying process. Sellers do this to reduce their exposure to fraud, especially when making easily-reversible PayPal or credit card transactions.
Sellers can voluntarily provide verification information to become a Paxful “verified vendor”. Among the benefits verified vendors enjoy is a greater sense of trust among buyers which translates into more business.
In order to qualify for verified vendor status, sellers must meet several criteria. The quality of their work must be demonstrated through high success and responsiveness scores. In addition, they must have a proven track record withpaxful a minimum number of trades and partners. They must also be citizens of Australia, Canada, the European Union or the United States.
The verification process itself is similar to every cryptocurrency exchange: upload scans of a government-issued ID and proof of residency. Where Paxful’s verification process diverges from the standard approach, is the identification selfie. Rather than a static image, sellers must take a video of themselves holding their ID while reciting a special message.
Merchants who want to integrate Paxful’s Bitcoin purchase system into their apps and websites only need to register with an email address.
What Can You Trade on Paxful?
Bitcoin is the only cryptocurrency Paxful supported supports, although individual vendors may accept other altcoins in exchange for Bitcoins.
While US dollars and euros are the most common fiat currencies that Paxful’s vendors accept, a search through the advertisements can turn up vendors that deal in their local currencies.
The only trades that Paxful supports are fiat currency-to-Bitcoin. Sellers decide which among more than 300 payment methods they will accept.
There are no advanced trading tools.
Trading Tools and Fees
Once you setup your account, Paxful tries to make buying Bitcoin as easy as possible. You select a payment method and enter the dollar amount you are willing to spend. Then click the big green Buy Bitcoin Now button.
Paxful searches the pool of advertised offers and presents the ones that match your needs and geography. The listing summary displays the seller’s reputation, the transaction sizes they are willing to deal with, and how much that deal will cost. In this screenshot, for example, Western Union wire transfers incur a 30% fee.
Selecting one of the offers takes you to the full listing where you can learn more about the seller, see recent feedback and get the specific terms for doing the deal.
The terms will vary from vendor to vendor as well as payment method to payment method. There are more than 300 ways to buy Bitcoin from Paxful’s vendors, including bank transfers, wire transfers, credit cards, and gift card trades.
Mobile app support
Paxful is a web-only service. You can assume that any iPhone or Android app that claims to be from Paxful is actually a phishing attempt or full of malware or both. Only use the Paxful website.
Deposits and withdrawals
Since Paxful does not hold funds in users’ accounts, there are no deposit or withdrawal fees.
Paxful does not charge buyers at any point in the exchange process. All of Paxful’s revenues come from the sellers. Each seller, however, may charge buyers fees based on the method of payment.
Let’s say that you want to buy Bitcoins with a gift card. Sellers that accept gift cards will only do so at a discount. A $50 gift card may only get you $35 worth of Bitcoins. Bank transfers, on the other hand, may only cost buyers a few percentage points of the total transaction.
Paxful charges sellers 1% of the Bitcoin transaction. This fee gets charged after the transaction goes through. If you sell someone 0.01 Bitcoins, then the buyer gets 0.01 Bitcoins and Paxful charges your account 0.0001 Bitcoins.
Paxful lets you earn commissions by referring friends or your website’s visitors to the Bitcoin service. Simply sign up, copy your unique link and then share that link.
Anyone who follows your link and becomes a Paxful customer will earn you an instant 2% commission on every Bitcoin purchase they make. The commission comes to an end after that person has been with Paxful for 12 months.
The widget developers guide lets you integrate Paxful’s Bitcoin purchasing system into your own website.
There are plenty of other ways to buy Bitcoin. But not everyone has access to a bank account or credit card. Paxful’s peer-to-peer structure links Bitcoin sellers and buyers around the world, and allows people to get into the Bitcoin market whether they have a bank account or not.
For new traders
Serving people who don’t necessarily have bank accounts or credit cards, Paxful makes it easy for people at all levels of society purchase Bitcoins. The seller reputation system offers some reassurance for crypto novices that the people they work with are legit.
For advanced traders
While anyone can use Paxful, this isn’t the place advanced traders would go to top up their Bitcoin balances.