What is peer-to-peer (P2P)?
A peer-to-peer (P2P) service is a decentralized platform whereby two individuals have a direct connection with each other, with no one in the middle, so no intermediaries are involved. The buyer and the seller make straight transactions with each other using the P2P service. The P2P platform provides services such as search, escrow, screening, rating, and payment processing.
What is P2P peer-to-peer used for?
The peer-to-peer concept isn't something fairly new, it was popularized by filesharing systems that appeared in 1999, such as Napster, the music-sharing application. The P2P allowed millions of people to connect, form groups directly, and cooperate with each other to work as user-created search engines, supercomputers, and file systems. This networking model differs from the traditional one, where communication is usually to and from a central server.
P2P services have gone further than just internet services, so they involve activities that vary from simple buying and selling to the sharing economy. Some peer-to-peer services don't even engage in a paid transaction, but they bring together people to work on projects, share information, or communicate without direct intermediation. Such P2P services may run as free nonprofit services or generate income by advertising something to users or by selling users' data.
When a third party is reduced from the transaction, there is a higher risk that the provider of the service may fail to make an operation, that the service will not be qualitative enough, that the buyer won't pay, or that one or both of the parties may take advantage of asymmetric information. That's the reason why transaction fees to a P2P transaction are added. In general, P2P services are created to facilitate these transactions and reduce the risk for both buyer and seller. The buyer, seller, or both may be asked to pay the cost of the service, or the service may be offered for free and get its earnings without you paying for that.
Examples of Peer-to-Peer (P2P) Services
Anyone can see and change the code for the software. Open-source software wants to remove software's central publisher or editor by crowdsourcing the coding, editing, and quality control of software among creators and users.
Filesharing is where a person uploads and downloads media and documents. Filesharing services can provide scanning and security for shared files. They may also offer users the ability to anonymously bypass intellectual property rights or alternatively may provide enforcement for intellectual property.
Such places are a network for private sellers of goods to find interested buyers. Online marketplaces offer promotion services for sellers, ratings of buyers and sellers based on history, payment processing, and escrow services.
Cryptocurrency and Blockchain
A blockchain is a network where users can make transactions, process, and verify payments without a middleman. Blockchain technology allows people to make transactions using various cryptocurrencies and make and apply smart contracts.
This one allows property owners to rent all or part of their property to short-term renters. Such services provide payment processing, quality assurance, or rating and qualification of owners and renters.
So, when a person rents an apartment or a room they own to other people, which is done using digital platforms such as Airbnb, it's a p2p type of communication.
That's a platform where you can rent a car for short periods of time, often by the hour. It's similar to the house-sharing we've mentioned above.
Advantages of P2Ps
- Global presence
P2P exchange is that it opens you a door to a global market of cryptocurrency buyers and sellers. You can buy, sell, swap crypto with people worldwide within seconds.
- Various payment methods
Trading on traditional exchanges can't give you as many payment options as trading on P2P exchanges.
- Helpful in countries where exchanges are banned
Many countries still have pretty stiff laws on cryptocurrency exchanges. On the contrary, peer-to-peer networks are known to provide a better solution to centralized platforms. The reason is that they aren't located in one place and cannot be banned in any case.
- Providing privacy
Many cryptocurrency exchanges ask for signing up with personal details and identity proof like Email ID, etc. Some of the exchanges demand more serious information like passports. But in decentralized exchange, there is no need to sign up. Many P2P platforms ask for sign-up, but they don't need this KYC (Know Your Customer) stuff.
The decentralized exchanges help in improving security. They provide that level of protection thanks to the absence of a third party. The users have total control over their funds.
- Lower Fees
Some P2P exchanges have fees, but they're often lower than usual exchange fees. This is because there isn't any intermediary on a P2P exchange. These platforms only charge an escrow fee.
No need to go to a bank account to buy crypto on a P2P exchange, it makes this a more accessible method to users in those regions that don't have banks. Actually, most of such platforms only require an internet connection and a smartphone to manage trades.
Disadvantages of P2Ps
- Slower Trading Speeds
Although P2P transactions can be completed within a minute, as we've described above, there is always a slight possibility of a delay. Imagine the situation, when after both parties validate the transaction, one party postpones the transaction for some reason. Classical trading does not make you wait for the buyer or seller to confirm the transaction. In a P2P case, the buyer or seller may suddenly change their minds and cancel the transaction.
- Low Liquidity
Professional traders who need quick transactions to make big deals aren't satisfied with the P2P option, and they use centralized exchanges instead. Now, these exchanges can be helpful to people interested in specific advantages like accessibility, security, and various payment options.
5 P2P crypto exchanges
It's the platform that was built in late 2018 to enable P2P Bitcoin exchange transactions using local currencies. The platform allows buying and selling for six cryptocurrencies – BTC, ETH, BNB, BUSD, DAI, and USDT – using 55 local currencies with 150+ payment channels worldwide.
- Zero fees
- Flexible payment methods
- High liquidity
- Integration with Binance Ecosystem
- Fast transactions
- Global presence and promotions
HodlHodl is a decentralized p2p bitcoin exchange. It doesn't require KYC information and doesn't hold your funds. The platform began its adventure in 2018 and still is in all the top p2p exchange lists.
- Various payment methods
- A Referral program
- A possibility to link your profile from another P2P
- A 20% discount on the exchange fee
The exchange was founded in 2015 with offices in multiple cities worldwide and aims to be the "Uber" of Bitcoin reality. Paxful enables people to buy and sell bitcoin (BTC) with ease.
- An escrow service
- Only bitcoin deals
- Sellers pay 1% to the company
- Accept over 300 payment methods
- Supports almost all countries except Burundi, Central African Republic Sanctions, Cuba, Crimea region, Iran, Iraq, Lebanon, Libya, North Korea…
KuCoin is one of the most popular cryptocurrency exchanges. The crypto exchange has over 11 million users worldwide.
- Extremely low trading fees
- P2P marketplace with no fees
- Over 600+ cryptocurrencies
- Advanced traders love
- Trading bots
- Margin trading
- Crypto lending
- Mobile app available for iOS and Android
It was started in Helsinki in 2012, LocalBitcoins was the first P2P exchange to launch and it is available in more than 200+ countries and supports up to 30+ payment methods. LocalBitcoins is an escrow service that matches bitcoin buyers and sellers.
- LocalBitcoins works only with bitcoin (BTC)
- Reputation system, so all the users are ranked
- Escrow service
- 2FA (optional)
- Flexible payment system
- Friendly for beginners UI interface design
- Fees could be a bit high compared to other platforms
Peer-to-Peer made it possible to remove a centralized authority t make transactions faster, cheaper, and more independent. People could generate a system where they don't need anyone in the middle, showing that they can communicate and have business wherever they are without any help from a third party. It's a kind of revolution, a way to escape and do everything on your own thanks to high technologies. We can rent a car, a house, lend some money, make transitions to manage our business, and all those things are possible because we have P2P platforms and a blockchain that connect people and their needs.
P2P exchanges help you handle your funds anonymously and make transfers whenever you need to be connected to the Net. Read different guides and reviews to compare all options, chose the best for you, and go ahead!