When the first cryptocurrency, Bitcoin, was launched in 2008, it was thought of as a novelty. Ten years later, the total value of all Bitcoin hit the $1.2 Trillion mark in January 2018.
The cryptocurrency craze has not been limited to Europe, North America and other ‘developed’ countries; Africa has also been hit by the Bitcoin bug. To buy, sell or trade in Bitcoin, a person needs the services of a cryptocurrency exchange platform. Two of the more popular ones within the South African market (and globally) are Luno and Paxful.
This guide will provide an overview of the South African cryptocurrency market and an objective comparative analysis of the two leading cryptocurrency exchange platforms.
The South African Bitcoin Market
With Bitcoin gaining acceptance as a mainstream option in global commerce, numerous startups have mushroomed all over Africa to facilitate the trading of Bitcoin (and other cryptocurrencies) as well to leverage the underlying blockchain technology. As the second largest economy in Africa, and arguably the most tech-savvy country in the continent, South Africa has been at the forefront of Africa’s burgeoning Bitcoin market (read this extensive SA market guide about bitcoin to ZAR).
The decentralized Bitcoin model has been popular in Africa, and other developing nations, since it addresses deficiencies in the existing economic structures. The peer to peer cryptocurrency model allows people to deal with each other directly, without any ‘middleman’ in the form of banks or government regulation.
The Bitcoin price surge in 2017 also made it an attractive investment option which attracted thousands of South Africans. Bitcoin’s popularity in South Africa has also been influenced by the hassle-free option it offers South Africans abroad who want to remit funds back home to their families.
It was therefore not surprising that South Africa was the location for the continent’s first cryptocurrency ATM. Hundreds of local vendors accept Bitcoin as a payment option and numerous individuals are either mining or trading in cryptocurrencies.
Luno: A brief overview
Luno is an international cryptocurrency exchange platform that was founded in 2013. Its first headquarters were located in Singapore before being relocated to London. The company runs its operational hub from Cape Town, with main hubs located in London, Singapore and Johannesburg. The company’s international credentials are outlined by the more than 2 million clients they serve in 40 countries.
What makes Luno stand out of the (increasingly crowded) crypto marketplace is its focus towards developing and middle-income countries. Nigeria, South Africa, Malaysia and Indonesia are some of the markets that Luno operates in, in addition to 36 European countries. The service does not cover Australia, North America or South America.
The fiat (traditional) currencies that clients can use to purchase Bitcoin on the Luno platform are the Euro, the South African Rand, the Malaysian Ringgit, the Indonesian Rupiah and the Nigerian Naira. The cryptocurrencies on offer are Bitcoin and Ethereum.
Luno offers three main services:
• The Luno Trading Platform: Here, registered users can trade cryptocurrency with each other, with the company charging a commission on all sales.
• The Luno Brokerage service: Users can engage with the instant buy or sell feature. This feature allows you to instantly buy cryptocurrency at a quoted exchange rate which includes a fee. The fee percentage varies depending on market conditions.
• The cryptocurrency e-wallet: Luno provides a crypto wallet that its users can use to trade in cryptocurrency or to send and receive cryptocurrency payments. The Luno e-wallet can be accessed on Android and iOS mobile devices and via the website.
Luno accepts payments through a handful of payment methods such as credit/debit cards, bank transfer and local payment methods in the countries it serves. There are three tiers of verification: phone, ID and proof of residence with limits placed depending on your location.
Read more: Extensive Luno Guide
Paxful: A brief overview
Paxful is an American based international Bitcoin exchange platform. It gained notoriety when it began processing payments for sex workers on the (now defunct) backpage website. It has a global coverage that only excludes the state of New York and only trades in Bitcoin.
There are two main services offered by Paxful, the trading platform for users to trade Bitcoin with each other and the Paxful Bitcoin wallet that stores Bitcoin and allows users to trade, make and receive Bitcoin payments.
One of the factors that make Paxful unique is the number of payment methods that it supports. Not only does it support mainstream payment options such as PayPal, Skrill, and debit/credit cards; it also accepts payments via western union and even gift cards from major retailers such as Amazon. In fact, Paxful accepts more than 300 payment methods from all over the world!
There is, however, a premium that is charged on more unorthodox payment methods and more obscure fiat currencies. When using gift cards or currencies from smaller nations, the sellers might charge a higher commission to facilitate the transaction.
Paxful also runs an escrow service to protect its users. When two users agree on a trade, Paxful will hold onto the buyer’s money until s/he confirms that they have received the agreed upon Bitcoin value. To facilitate this system, Paxful charges a standard fee of 0.0008 Bitcoin for every transaction as well as a 1% commission on the value of the trade.
An important caveat when dealing with users on the Paxful trading platform is that you need to be careful of scammers. Thanks to the less stringent verification process for Paxful users (since the company believes in upholding the privacy of users); scammers try to ‘lure’ buyers to circumvent the escrow protection system.
Read more: Extensive Paxful guide
Luno vs. Paxful: A comparative analysis
While sharing some similarities, there are significant differences between Luno and Paxful that may appeal (or distance) certain users.
• Services offered
Both Luno and Paxful offer a trading platform and an e-wallet option. The main difference comes from the brokerage service that Luno offers. Paxful does not have a similar service; all trades are between users, not between a user and the company. This can be challenging for clients who want to make an instant cryptocurrency purchase or sale, and don’t want to be involved in the lengthy process of negotiating on the trading platform.
In terms of coverage, Paxful is the outright winner. While Luno’s coverage only includes 40 countries within Europe, Asia and Africa; Paxful has a truly global coverage with the state of New York being the only exception. While South Africans are covered by both services, Luno locks them out of trade opportunities offered by users from other regions. If you are a South African that travels often outside the Luno coverage areas, then your cryptocurrency trading will be affected.
• Cryptocurrencies offered
Luno wins in this category since it offers two cryptocurrencies: Bitcoin and Ethereum. Paxful only deals with Bitcoin. Since Bitcoin is (by far) the most popular cryptocurrency, this should not be a problem for most users. However, seasoned cryptocurrency enthusiasts who want to dabble in more than one cryptocurrency will find it hard to work with Paxful.
• Supported Currencies and Payment methods
This is another domain where Paxful has a significant advantage. Apart from the Euro, Luno only accepts currency from Nigeria, Indonesia, South Africa and Malaysia. It also supports only a handful of payment methods, primarily bank transfer and debit/credit cards. Paxful, on the other hand, supports ALL global currencies, as long as you find a user that is willing to accept it during a trade. With more than 300 supported payment methods, that include big store gift cards, it is easier to find a payment method NOT supported by Paxful.
• Transaction Limits
Depending on your location, Luno offers limits based on your verification level. As you get a higher verification status (phone – ID – proof of residence) your limits are increased. On Paxful, the only limits are those placed by the payment service that you use. If you intend to trade large volumes on a regular basis, the limits imposed by Luno can be restrictive.
The fees charged by Luno are complicated. They all depend on your location and the type of payment methods selected. In South Africa, deposits made via EFT are free, and withdrawals cost just R8,50 regardless of the amount. Trade fees range from 0,50% to 1,00% for market takers and are free for makers. The consensus seems to be that they are slightly higher than those offered by competitors. Paxful, on the other hand, has a standard 0.008BTC fee on all transaction in addition to a 1% commission of the trade value. This is much simpler, and probably cheaper than Luno’s fees.
From the information provided, it is clear that Luno is the better service for people who are getting into cryptocurrency trading, while Paxful is ideal for those with a bit more experience.
The Luno brokerage service is perfect for anyone that does not want to engage in the ‘open market’ scenario offered by the exchange platform. You can simply buy or offload your Bitcoin (or Ethereum) based on the prices offered.
The global coverage and multiple payment options (and supported currencies) offered by Paxful appeal to seasoned Bitcoin traders. You can make trades with people from all over the world which makes the Paxful exchange more competitive. With no trading limits, you can also trade higher volumes on a daily basis.
With both Paxful and Luno serving the South African market, you can use either (or both) depending on your specific needs.