The peer-to-peer ecosystem refers to sharing information, assets, and data between different parties without involving centralized authorities or third parties. The transactions and ventures are entirely decentralized and can support both individuals and groups. The approach has been used for both computers and networking, with the trading of virtual currencies being one of the most noteworthy areas in this regard.

You may have heard investors talking about trading P2P Bitcoin, and it is worth mentioning that the original goal behind the creation of BTC was to design a system that would operate in this manner. The transactions are believed to be more private and secure compared to standard online ventures, but there are some things you need to be aware of as well to guarantee your safety.

Understanding P2P

The thing that makes P2P different from its peers is the fact that every user is, at least theoretically, an equivalent owner and contributor to the network. The network can be used to share all kinds of information and data, making it ideal for those who want their processes to be fast and efficient. One of the first uses of this system was the American P2P file-sharing application Napster, which was associated with the distribution of digital audio files. The website operated between 1999 and 2002, when it filed for bankruptcy after losing several copyright infringement lawsuits.

Things are different when it comes to cryptocurrencies, though. In this sense, peer-to-peer refers to the buying, selling, and trading of crypto coins via the means of fully anonymous transactions that don’t require the additional assistance of third parties or institutions. Not needing a third party during the process is seen as a positive thing by the users, who believe this system is much less likely to result in their funds being lost or impacted by the poor decisions of institutions and individuals.

Being the only ones who interact with their money gives these traders the feeling that their funds are more secure overall, but it is also a profound responsibility that shouldn’t be taken lightly. Many scammers are looking for ways to extract crypto coins from the digital wallets of unsuspecting victims, with some being robbed of millions worth of assets. Once the coins are stolen, getting them back is very challenging, if not altogether impossible.

Transactions on a P2P platform are recorded on every single peer’s network, and it would be difficult to falsify crypto transactions on a very sizable network. This fact makes many investors more secure when it comes to their portfolios, which is why P2P is steadily becoming more popular.

Compared to Other Platforms

True peer-to-peer systems don’t require any intervention from third parties in order to complete transactions. Everyone’s privacy is protected as none of the parties involved need to provide additional identification and give away their credentials in order to complete their ventures. The process is relatively straightforward and consists of the sender entering the wallet address belonging to the recipient, as well as the amount they’re going to send to their wallet. The only thing left to do is sign the transaction and send the coins. Although there are only a handful of steps, the procedure in and of itself can seem quite complicated if you’re not used to what it entails and you’re a newcomer to the ecosystem.

It’s essential to know that centralized crypto exchanges exist as well, and that they are fundamentally not P2P, regardless of how they advertise themselves. Being aware of these differences is crucial to building a trading environment that fits your requirements and goals. Centralized exchanges exist in a different framework and deal with other regulations. Lawmakers sometimes need these platforms to collect information pertaining to the identity of their users and the transactions they’re making, a characteristic that many crypto investors consider to be entirely antithetical to what sets crypto apart from traditional finance.

There’s also decentralized exchanges that make investors feel more anonymous and outside of the control of third parties, but they’re not P2P either. These platforms have a platform that provides services and implements smart contract functionality to ensure that both parties have the transaction completed. All the exchanges act as intermediaries, which also seems contradictory to the fundamental crypto tenet that all intermediaries are removed in this ecosystem. If you want to benefit from a pure peer-to-peer experience, you must send the coins to the recipient directly.

In order to be able to do that, you must first be entirely comfortable with the entities you’re trading with and have the certainty that you can trust them. This is because the venture takes place outside all other safety controls, so this is the only way to guarantee things turn out fine. If the person you’re dealing with is trustworthy, you have no reason to worry. But if they aren’t, you will lose your money and have no legal means of recourse.

The Bottom Line

P2P is one of the original designs behind the crypto ecosystem and is most believed to be the only way to trade crypto the way it was meant to be traded. Unlike exchanges, the system removes all third parties altogether. These platforms started involving intermediaries as crypto was originally far too technical for the average investor to handle confidently and without issue. However, there are some drawbacks that come with being entirely P2P as well.

You need to be absolutely sure that the person you’re dealing with is who they claim to be and that they can be trusted. Mistaking a single letter or number from a wallet address can mean you’ve sent the money to someone else. There’s no way of getting them back, either, unless they agree to return them of their own volition, which is unlikely. So, while the system guarantees anonymity, it might not be the ideal solution for you if you want to benefit from other services as well.

When it comes to trading and investing in crypto, you have the opportunity to make your own choices and decide what’s right for you. All options have advantages and disadvantages, but the one you pick must be fully aligned with your goals and expectations.