Peer-to-peer technology is one of the best-known evolutions of web 2.0. Massively used in the early 2000s for illegal downloading, it is coming back into fashion with the blockchain and bitcoin.
What is P2P?
Peer-to-peer, peer-to-peer or P2P (the three terms refer to the same thing), defines a computer network model of peer to peer between computers, which distribute and receive data or files. In this type of network, comparable to the client-server network, each client becomes a server itself. P2P facilitates and accelerates exchanges between several computers within a network.
What are the uses of peer-to-peer?
One of the most common uses of P2P is file sharing. A client who owns a file (such as a film, for example, or any document) makes it available to other clients via a download platform (it then becomes a server). It can simultaneously also download other files shared by other clients ( servers ). Pieces of downloaded files are immediately shared with other computers, until the file is complete. This technique increases download speed and reduces the load on the central server.
The practice has particularly spread with applications such as Emule, BitTorrent or even MTorrent, often for the purpose of illegal sharing of multimedia files such as films or music albums. Two peer-to-peer techniques exist. The first, centralized, lets one or more servers direct each computer to those who have the file it is looking for. The second, decentralized, has no fixed server. Each computer acts as a mini server, which distributes the responsibility, especially in the case of illegal sharing of protected documents. One of the particularities of this type of network is to offer users relative anonymity.
P2P (peer-to-peer) trading explained
Peer-to-peer trading consists of buying and selling cryptocurrencies directly between users, without going through a third-party intermediary. Consumers can buy or sell any cryptocurrency they want, from high-priced bitcoin (BTC) to relatively low-priced tether (USDT).
With traditional exchanges, the market price determines the final price at the time of the transaction. P2P trading gives users more control over who they trade with, the price and timing of settlement.
That said, P2P trading comes with risks when there is no third party to broker the transaction. There are a wide variety of apps available, including Binance and Binance , Kraken , and OKEx , where trading can be done securely. Even sites like Skrill facilitate P2P cryptocurrency trading for their users with reduced fees.
Other uses of P2P
P2P trading is also expanding to other markets, and now includes bill and energy trading. Power companies around the world, including the UK and Malaysia, allow consumers to buy and sell their excess power (usually generated by solar panels) to the grid or to other households. As renewable energy grows in prominence, the market size in this area is growing rapidly and new blockchain solutions and regulatory frameworks are being developed and implemented to support them. Players can also experience P2P trading through video games like CSGO and it is even possible to trade forex this way.
How does P2P trading work?
P2P exchanges like Binance are similar to website marketplaces like eBay and Facebook Marketplace, as they connect buyers and sellers of cryptocurrencies. These buyers and sellers can browse or post cryptocurrency listings.
Exchanges provide a layer of protection to both sides of the transaction. For example, if you come across someone on Twitter from West Suffolk looking to buy bitcoins and you have some to sell, you’ll likely find another platform to make the exchange, as Twitter does not protect its users. Setting up the exchange on a P2P platform would be much safer and prevent the buyer from receiving the bitcoins without sending payment.
P2P exchanges often add a public rating system to help protect buyers and sellers by allowing them to see other users’ histories. Additionally, additional methods like Binance’s escrow implementation provide additional protection, as cryptocurrencies are secure until both parties confirm the transaction.
If you sell bitcoins for cash, Binance will put your bitcoins in escrow until you and the buyer confirm that the transaction has taken place.
P2P exchanges compared to regular exchanges
Regular exchanges use an order book to match buy and sell orders between clients, at prices set by the market. In these exchanges, neither the buyer nor the seller has any idea of the identity of the other party. If users are looking for anonymity and privacy, this is the way to go.
However, if you want to trade with a specific person or just want to know more about the other party before you close a deal, P2P trading is a good option.
P2P trading shares a number of data with both parties to the transaction. This information can range from their wallet address to their forum username. These exchanges can also facilitate face-to-face meetings if the parties prefer. P2P trading is also generally cheaper than regular exchanges, with much lower transaction fees.
Benefits of P2P Trading
- Protection of sellers
- Global marketplace
- Secure transactions
- Low or no transaction fees
- Various payment methods
- You know who you are trading with and what their history is.
Disadvantages of P2P trading
- Low liquidity
- Reduced confidentiality
- Slower trading speed
How to Compare P2P Accounts
When deciding to open a P2P trading account, there are a few things you need to pay attention to:
- Fees : While some P2P platforms offer free exchanges, others may charge cryptocurrency transaction fees. It is important to check the latest pricing strategies and fees to better decide which exchange to use. For example, Binance has released an update starting July 1, 2021, where users will have to pay a small transaction fee (0-0.35%) on all transactions from ads they post themselves.
- History : Check that the exchange you want to use allows you to see the transaction history of other parties so you know if you can trust them.
- Stops : Some websites suspend transactions on certain coins for several reasons. It’s natural and to be expected, but try to choose a site that doesn’t use trading stops too often and allows you to transport and transfer your coins almost at any time.
- Limits : Look at the limits that the P2P exchange sets for trading and make sure it works for you. Limits can relate to a minimum or maximum amount per transaction or the number of transactions you can make in a day.
Final word on P2P trading
P2P trading allows users to trade cryptocurrencies directly with each other, without involving a third party. Users have the freedom to set prices and settlement times, as well as who they are trading with. With a global marketplace, low transaction fees, and a variety of safe platforms, P2P trading is an effective way to start investing in cryptocurrencies.
Is P2P cryptocurrency trading legal?
Yes, P2P trading is legal in the UK, Europe and many other countries. It is currently regulated by top-tier bodies like the FCA, which ensures protection for both parties and reduces the risk of scams. P2P trading is also generally considered halal, in accordance with Sharia, which means that Islamic cryptocurrency traders can benefit from peer-to-peer trading services.
Is P2P trading profitable?
As with all transactions, there is risk and therefore there is no guarantee of profitability. However, high market volatility, liquidity and increased price control mean that, if executed effectively, P2P trading can be a potentially profitable business.
Is P2P trading taxable?
If you make enough profit from P2P trading, you may be liable to pay taxes. The level of taxation depends on the limits set by the local government and any other sources of income you may have. Consult a local tax advisor for professional advice.
Is P2P trading safe?
When done on exchanges such as Binance, P2P trading is less likely to result in a scam. If you trade outside of trusted P2P exchanges, there is a risk that your funds will not be released and you will be hacked.