Peer-to-Peer

What Is Peer-to-Peer (P2P)?

Peer-to-Peer (P2P): A decentralized network system where users interact directly with each other, without the need for a central intermediary like a bank or exchange. In crypto, this refers to buying, selling, or trading cryptocurrencies directly between individuals.

How It Works

• Direct Transactions: In a P2P network, buyers and sellers can trade directly, agreeing on terms such as price, payment method, and delivery. The transaction is done without an exchange or bank acting as the middleman.
• Smart Contracts: Some P2P platforms use smart contracts—self-executing programs that run when certain conditions are met—to automate parts of the transaction, such as releasing funds when both parties fulfill their agreement. This adds an extra layer of security and trust.
• Escrow Services: Many P2P platforms provide an escrow service, where funds are held securely by the platform or through a smart contract until both parties meet the agreed terms. This ensures the buyer receives the cryptocurrency and the seller gets their payment.
• Decentralized: Because P2P transactions happen directly between peers, they operate in a decentralized manner, meaning no third party controls or governs the transactions.

Real-World Example

• Buying Crypto: You want to buy Bitcoin from someone on a P2P platform. You agree on a price and payment method, like PayPal. The platform, using a smart contract or a built-in escrow service, holds the Bitcoin until you make the payment. Once confirmed, the Bitcoin is released to you.
• Selling Crypto: You decide to sell your Bitcoin for cash via a P2P platform. After setting the terms, you receive payment directly from the buyer and release the Bitcoin once the payment is confirmed.

Key Takeaways

• Privacy and Control: P2P allows users more control over their trades and often better privacy since no third-party exchange is involved.
• Risk: While it offers more freedom, there is some risk involved because it’s harder to verify the trustworthiness of peers compared to centralized platforms.
• Lower Fees: Many P2P platforms charge lower fees than centralized exchanges, which can make trading more affordable.

In short, P2P allows you to trade crypto directly with others, providing more control and privacy, with smart contracts often used to enhance security and automation.