What is peer-to-peer (P2P) trading?Peer-to-peer (P2P) trading is a type of cryptocurrency exchange method that allows traders to trade directly with o
What is peer-to-peer (P2P) trading?
Peer-to-peer (P2P) trading is a type of cryptocurrency exchange method that allows traders to trade directly with one another without the need for a centralized third party to facilitate the transactions.
Unlike traditional Bitcoin (BTC) exchanges, which typically have strict regulations and require users to go through a verification process before they can access and use the platform, P2P trading platforms tend to be much more relaxed in terms of their requirements.
In P2P trading, you can select your preferred offer and trade directly with a counterparty rather than using an automated engine to execute your transactions. This means you have more freedom to pick the best rate and payment method for your needs—and with lower costs. You can also better safeguard your privacy because you’re dealing directly with a counterparty.
Related: A beginner’s guide to cryptocurrency trading strategies
These factors make P2P trading appealing to users looking for a more simple and straightforward way to trade cryptocurrencies.
How does P2P crypto trading work?
P2P trading platforms work by matching buyers and sellers together to facilitate a trade. The platform will typically take a small fee for each trade conducted, and also require users to store their funds in a separate digital wallet controlled by the platform.
Because P2P exchanges link crypto purchasers and sellers, they’re sometimes compared to marketplaces like Craigslist or Facebook Marketplace. Typically, buyers and sellers can also browse crypto advertisements or create their own.
Most P2P exchanges use a feedback or rating system to protect all participants in the transaction, providing a layer of protection for everyone involved. For example, if you meet someone on social media interested in buying Bitcoin and you’d like to sell, you can’t do so on social media as it wouldn’t be secure.
It’s difficult to establish trust on platforms such as Facebook Marketplace or Twitter, for example, because they are not P2P platforms. You can’t be certain that the buyer will follow through with the payment for the Bitcoin after receiving it.
On a P2P platform, however, you’ll have the advantage of being able to check their reputation and ratings before engaging in any transactions.
Types of P2P networks
To better understand how P2P networks work, let’s take a quick look at the types of P2P networks. Outside of crypto trading P2P platforms, there are a variety of different P2P networks available, each with its own unique features and benefits:
File-sharing
File-sharing networks are some of the most popular P2P networks. These platforms allow users to share files such as videos, music and books. Common examples are torrent sites where users can connect to each other and share files directly between their computers. While these networks are often used to illegally download copyrighted material, file-sharing P2P networks also have several legitimate uses.
Telephony or VoIP
P2P telephony networks allow users to connect with each other and make phone calls without the need for a central server or telephone company. VoIP (Voice over Internet Protocol) is another type of P2P telephony network that allows users to make calls and it also has features such as video conferencing and instant messaging.
Media streaming
Many popular streaming services rely on P2P technology to make their services work. For example, YouTube uses P2P streaming to deliver its content to users. Several other media services use the same method.
Pros and cons of P2P crypto trading
Advantages
There are many advantages to using P2P crypto trading platforms, including:
Multiple payment methods
Because P2P crypto trading platforms simply connect buyers and sellers, they can provide a wide variety of different payment methods. This can include traditional payment methods, such as credit cards and PayPal, as well as digital currencies like Bitcoin, Ethereum (ETH), or Litecoin (LTC).
Secure transactions
P2P trading platforms often use security features such as encryption and two-factor authentication to protect trade. As a result, users can feel confident that their funds are safe when engaging in transactions on these networks.
Exposes you to a global marketplace where you can buy and sell to users globally
The global nature of P2P crypto trading allows users to work with anyone, regardless of location. This opens up a world of possibilities, as it allows you to trade in any currency or asset that you like.
Restrictions do not apply even in nations with strict laws on crypto trading
Because P2P crypto trading platforms don’t have a central authority, they can’t be shut down by governments with strict crypto laws. This includes regulations specific to certain countries that may restrict how much cryptocurrency you can buy or sell.
Related: Cryptocurrency bill: Countries where cryptocurrency is restricted or illegal
Community and customer support
Many P2P crypto trading platforms have a large…
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