To understand the definition of peer to peer exchanges (p2p), we should know that cryptocurrency exchanges are the online platforms that allow the traders to buy and sell the cryptocurrencies, or exchange the cryptos with the other digital assets as well as with the conventional fiat money. The exchange platform can be a traditional brick-and-mortar business or an online platform, where the traders can trade in cryptocurrencies at its current market value.
The process of exchanging a cryptocurrency includes an ‘order book’ (a general ledger), in which the seller will register for selling their assets. Here the buyer, will look for good offers for purchasing the cryptocurrency and if the buyers do not find any good offers in the order book, they can place their order along with the terms of buying in the order book.
The cryptocurrency exchanges can be direct, i.e. peer to peer, or with an intermediate channel.
Centralized Cryptocurrency Exchanges:
The typical crypto exchanges are centralized which carry out the trade for the cryptocurrency between two particular parties. This exchange seems to execute the trading directly, but it has multiple steps included. This type of exchange provides the facility for the users to buy, sell or exchange the cryptocurrency at a fixed market price. But the process is more time-consuming.
Peer to Peer Cryptocurrency Exchanges:
Peer to peer cryptocurrency exchanges involve two parties, the seller and the buyer. In this type of exchange there is no need for a third party or any central authority to carry out the exchange between the two. Unlike the regular crypto exchange platforms, the prices for the exchange for the cryptocurrency is defined by the seller and may vary according to that. There are no hidden charges included for the crypto exchange for either party, and the fee for transaction is between 0%-0.7%.
Along with matching the order value in the order book, the p2p exchange allow the buyer and the seller to connect directly. The two peers can exchange the information with each other even if no transaction is executing. Even after the order has been matched, the software does not complete the trade by itself. The seller and the buyer can choose their new conditions for the trade before the completion of the transaction.
Advantages of Peer to Peer Cryptocurrency Exchange:
1) Security: Since there is no central authority in the exchange on a peer-to-peer network, the information shared between the two parties is always secured. Also when the order value is accepted by both the buyer and the seller, the platform locks the assets, so those assets can’t be accessed by any other party, providing greater security for crypto being stolen.
2) Privacy: The p2p cryptocurrency exchange doesn’t include any third party for the trading, so it is really private. Even the communication between the parties, that are up for trading the crypto, is kept private and only the two parties can be involved in the negotiation.
3) Immunity to Government Regulations: The regular crypto exchange is liable to the government authorities even for the smaller transactions, as it is the central authority such as a bank which is involved in the process of conversion, deposits and withdrawal of the digital currency. But on the p2p exchange, the transactions are done mostly for the smaller amounts, and the assets can be deposited to the accounts of both the parties directly, without having to trust a third party to process their trades.
4) Minimal Charges: For the smaller transactions, the regular crypto exchange platforms are a bit pricier as both the parties are charged with a fee on deposit, withdrawal as well as for the trade. But as trading in P2P exchange is done without the help of a third party, the two parties are charged with a minimal fee for the trade.
Though the centralized or the regular crypto exchanges are the first exchange platforms and are still a popular choice among the people, with the time passing by people are becoming more aware of the concept of the cryptocurrencies as well as the exchange platforms and are opting for the p2p exchange platforms for the trading.