What is Coin Locking?
Imagine you’re selling an item at a marketplace, and the buyer places their payment into a secure deposit box that only unlocks once both parties complete their end of the deal.
But instead of paying or finalizing the trade, the buyer disappears or pretends they have made a payment, leaving your item locked in the deposit box. Meanwhile, other potential buyers leave because the item is unavailable.
Frustrating, isn’t it?
This analogy is the gist of coin locking, a potential risk to watch out for when trading cryptocurrencies.
Read along to learn more about coin locking, how it works, and how to spot red flags.
Key takeaways
Coin locking happens when a buyer starts a trade without planning to finish the transaction.
You can mitigate coin locking by reviewing the buyer’s profile before engaging in a transaction.
If coin locking happens, be sure to start a dispute so our moderators can step in and assist with resolving the issue.
What is coin locking? And how does it happen?
Coin locking occurs when a buyer initiates a trade online and locks the seller’s cryptocurrency in an escrow account—without ever planning to pay or finish the transaction.
This is how coin locking happens:
A buyer starts a trade, and the seller’s cryptocurrency is securely held in escrow.
Instead of making the payment, the buyer marks the payment as “Paid” but either disappears entirely or attempts to deceive the seller using various scam tactics, such as:
Providing fake proof of payment.
Extorting the seller by demanding money (e.g., asking for $30) to cancel the trade.
Impersonating moderators to trick the seller into releasing funds.
Forcing the trade off escrow by requesting contact details (e.g., WhatsApp or QR codes), which can lead to phishing scams or hacking attempts.
Since the cryptocurrency remains locked in escrow during the trade, the seller is left hanging, unable to cancel the trade or recover their crypto from escrow.
Why does coin locking happen?
The escrow system is designed to protect both parties in a trade. The platform temporarily holds the seller’s crypto when a trade kicks off. Here is a simplified step on how this occurs:
Trade initiation:When a buyer and seller agree, the cryptocurrency is placed into escrow account.
Payment verification: The buyer then makes the agreed-upon payment using their chosen method (e.g., bank transfer, gift card, etc.). Once the buyer confirms the payment by clicking “Paid,” the seller must verify receipt within a set time.
Cryptocurrency release: Once the seller confirms receipt of payment, they release the cryptocurrency from escrow, transferring it to the buyer’s Paxful account.
In practice, it’s an efficient system that ensures nobody gets cheated. But as with most good things, people are always looking to game the system.
Here’s where it gets messy. Some buyers use the escrow system to stall, cancel, or simply waste the seller’s time.
Worst-case scenario?
They never pay, string the seller along, or even convince the seller that the payment was sent. It’s a bitter pill to swallow when the system meant to protect you is used against you.
Examples of coin locking
There are two types of coin locking:
Innocent coin locking: New users may forget to mark the trade as “Paid”. In these cases, a Paxful moderator resolves the dispute and returns the Bitcoin to the seller.
Malicious coin locking: Scammers use this uncertainty to pressure sellers, hoping to secure a Bitcoin release without making payment. The goal is to bait the seller to release crypto without receiving payment.
Here’s how a typical coin locking scam might go down
The setup: A scammer finds a seller on Paxful and initiates a trade, marking the transaction as “Paid,” even though no funds have been transferred.
The trick: The scammer uses psychological tactics—such as creating a sense of urgency and using pressure tactics—to pressure the seller into releasing the crypto. For example, they may try convincing the seller that payment is on the way or the transaction is delayed.
What can you do to prevent coin locking
Here are some practical tips to avoid coin locking.
1. Review the buyer’s profile before engaging in a transaction
Before diving, you can save yourself a ton of headaches. Here’s why why it’s important:
Check the buyer’s reputation: review the user feedback from earlier traders. For example, a buyer with positive reviews and a high rating signals a higher trust score. Conversely, if there is a trail of negative comments or many blocks, that’s your cue to proceed with extra caution or pause further interaction.
Check buyer’s verification levels: Verified accounts that confirm their contact number, ID, or address are generally more trustworthy. Unverified accounts? They’re often a red flag, so approach those with your guard up.
2. Keep communications in the Paxful trade chat
When it comes to communication, keep it where it belongs: in the Paxful trade chat.
Why? Let’s break it down:
Safety first: Scammers love pulling people off-platform to talk via email, text, or messaging apps. Why? Because it’s harder to track or prove what was said. If someone suggests moving the conversation elsewhere, that’s a big red flag.
Dispute resolution: If a trade goes sideways, moderators can step in—if you’ve kept everything in the trade chat. This is where all the evidence lives. Take things off-platform, making it impossible for our customer service or moderators to help.
Clear agreements: The trade chat acts as your official record. You can return to the chat for a dispute over payment terms, deadlines, or pricing. No, “he said, she said,”—just facts.
Privacy protection: Sharing personal details like your phone number or email outside the platform is bad. It could expose you to phishing, identity theft, or other scams.
4. If the buyer hasn’t paid yet, ask them to cancel or let the trade window expire
If you’re feeling uneasy about a trade on Paxful or if the buyer seems sketchy—it’s okay to pause. By asking the buyer to cancel or waiting for the trade window to close, you buy yourself time to think and avoid making any snap decisions.
3. Don’t rush or give in to the scammer’s pressure to release crypto from escrow
One of the most essential rules when trading cryptocurrency on p2p platforms? Don’t rush.
Scammers love to turn up the pressure. They’ll spin stories about “how they’ve already sent the payment” or accuse you of “delaying” the trade to create a false sense of urgency.
A threat to leave a bad review is also a common trick.
Don’t fall for it! This is a classic tactic to push you into releasing the crypto before you’ve done your due diligence. Here’s how to stay safe:
First, verify the payment: Always double-check that the buyer has sent the full payment.
Watch for fake proofs and other scam attempts: Some scammers send bogus payment confirmations to trick you into thinking they have made a payment. Take the extra time to verify the payment through reliable channels.
Understand the risks of chargebacks: Payment methods like PayPal allow chargebacks, meaning the buyer could reverse the transaction after you release the crypto.
