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What is Peer-to-Peer in Crypto (P2P)?

  • The benefits of Peer-to-Peer technology.
  • The technology behind Peer-to-Peer transactions.

A peer-to-peer (P2P) network is made up of a network of devices that together store and share files and data between them. Each peer is known as a node and they all have the same power to conduct the same tasks.

In terms of crypto trading, peer-to-peer often means the transfer or exchange of assets by way of a network of users. Using a platform of this kind, users can make trades or conduct transactions without needing a middleman such as a bank or a broker to pass the trades. Some exchanges offer peer-to-peer websites where buyers and sellers can be matched to fulfill both sides of a trade.

In the decentralized landscape peer to peer networks can also be used to connect lenders to borrowers, to pit gamblers directly against each other and for social trading, where traders follow other traders and copy their trades.

P2P’s history dates back well before the crypto revolution though. It first came into favor in the 90’s when file sharing programs were developed, names like BitTorrent and other file sharing platforms for all kinds of media were the rage. You had many hundreds of thousands of people sharing files among one another. Nowadays, as well as in the blockchain, P2P is commonly found in search engines for web browsing, for streaming media,  and in marketplaces for buying and selling items among peers.

How does P2P work?

A P2P network is made up of a web of users anywhere in the world, with no main server or administrator managing the flow of information. This is what separates P2P from classical client server structures. In this way files are shared between the nodes or users and the data is usually stored on the various nodes’ hard drives. Nodes can either be the sender or the receiver of information.

The Benefits of P2P

In terms of crypto this opens up the playing field across the entire distributed network and pits users against one another with no intermediary in the middle of the transaction. This means there is no middle man controlling the flow of data, or able to manipulate numbers or add on extra charges.

This is what keeps P2P transactions much lower in cost than traditional transaction types. Additionally, it is very hard to hack an entire system of distributed computers, whereas one single server can be much more easily hacked.

In terms of payments, you don’t have to trust the counterparty to the trade or transaction as the money is kept in escrow until the deal is done. This means that neither party can access the funds until both sides sign it off.

Real World Uses

You can trade P2P on many digital exchanges and even with options trading. Premia Finance is a standalone blockchain project that offers its users the ability to hedge risk in a variety of native tokens, including its own, by trading put and call options across the peer community. And you can earn yield by staking your holdings or by holding their own native token.

There is no reason why one day soon you won’t be able to trade NFTs through peer-to-peer networks. In fact, when it comes to the decentralized and peer-to-peer landscape the sky’s the limit.

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CoinQuora Staff

CoinQuora is an online publication that aims to educate about news, exchanges, and markets in the cryptocurrency and blockchain industry

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