Demystifying The Decentralized Exchanges – The Bliss of P2P
What is a P2P crypto exchange?
Cryptocurrency, without question, is a massive revolution in the arena of technology. It presented quite a lot of advantages in terms of security, immutability, transparency, swiftness in transactions, and a lot of other factors.
However, it failed to place itself as a dependable mode of transactions because of its volatility. Going by the classic expression that one door opens when the other door shuts, the volatility opened a new avenue for making a profit. This came in as a big delight for people who were keeping a continuous track of crypto prices, and who are more interested in cryptocurrency as a ‘currency’ than as a demonstrator for technology.
Keeping this in mind, cryptocurrency exchanges were born. Cryptocurrency exchanges facilitated, as the name implies, a platform for cryptocurrency owners to exchange currencies at a defined price. The fluctuation of prices meant that people can buy currency at a certain price and sell it at a higher rate, resulting in a good profit for them.
However, since most cryptocurrencies were controlled by a single authority (a company), it defeated the principle of blockchain technology – decentralization. While this presented some advantages, purists felt that it falls flat up, keeping the core value of blockchain technology.
To encounter this challenge, peer-to-peer cryptocurrency exchanges were born. These exchanges do not belong to any central company but are almost like marketplaces that serve to connect people who would like to perform a barter.
P2P exchanges, as they are commonly abbreviated, function more like a Craigslist as compared to centralized exchanges that function like Amazon!
Table of Contents:
- How does a p2p cryptocurrency exchange work?
- Is blockchain a peer-to-peer system?
- How are trades performed on P2P exchanges?
- Best Peer to Peer (P2P) Crypto Exchange In 2020
- What are the advantages of P2P exchange?
To understand how P2P cryptocurrency exchanges, it is important to understand how centralized exchanges work as well! In a centralized exchange, a person who wants to sell their cryptocurrency can list them for sale and post them on the exchange… well almost. Similarly, a person who wants to buy some crypto can either go through these listings that have listed all the possible trades. Alternatively, they can also consider creating a new listing for buying. This ‘list’ is technically referred to as the order book.
When one of the selling listings matches the buying listing, the centralized exchange takes care to directly transfer the money from the buyer to the seller. The transfer is executed almost immediately because the buyer has already fed their exchange wallet with some money. This means that the exchange has control over the assets of the buyer. As soon as the purchase is executed, the money is transferred to the seller’s wallet. This again means that the seller has to depend on the centralized body to get their money back.
It might seem like a fair and quick process. However, in the unlikely scenario of the company being under legal threat (which is quite likely, considering the looseness in the acceptance of crypto), the wallet, and consequently, the funds of the users are likely to be frozen. We have seen this happen earlier with the People’s Bank of China as it failed to acknowledge the validity of crypto exchanges as a business. The entire system is built over the blockchain but with a major compromise on its principal offering.
A simple answer could be ‘yes’! This simple answer has accounted for millions and billions of dollars being built into businesses. Blockchain, without question, is a peer to peer system because the entire chain is distributed across multiple nodes, and every node is equal in terms of the powers they possess.
It also means that no hacker can get their hands on the entire blockchain. They can, at the max, get hold of one of the nodes. Since the consistency of data is required across all the nodes of the blockchain, even the access and the humongous effort put into breaking the cryptography is rendered useless!
Blockchain is, in every possible sense, a peer-to-peer system designed for finance, authentication, medical record keeping, and a host of other applications where transparency needs to meet security!
Now that we have seen how centralized exchanges work, decentralized exchanges are easier to understand. In the entire process, there is no involvement of any centralized authority or company. Just like a centralized exchange, the P2P exchange also features an order book where buyers and sellers list their buying and selling orders. However, instead of matching the ‘orders’, the decentralized exchange matches the people!
The transaction involved is executed by smart contracts – an innate property of the blockchain. The smart contract helps the buyer and the seller place and amount in the escrow. Once the transaction has been executed to the satisfaction of the seller, the escrow account is released to the seller’s account.
Since there is no ‘Company ‘ involved in the entire process, it is not possible to intervene in the services offered by a P2P exchange. The trades are relatively faster, and they cost considerably less than a centralized exchange.
The concept introduced by Napster has come a long way and has even crept into one of the most modern manifestations of technology – the bitcoin. We have given below, some of the best cryptocurrency exchanges that function without any centralized authority.
Binance P2P – Binance has already established for itself in the crypto space. The fact that they are venturing into the decentralized cryptocurrency exchange arena should be a strong factor for you to consider the growing acceptance of P2P exchanges.
LocalBitcoins – As the name implies, this decentralized exchange facilitates trade between bitcoins and local currencies. It is quite global in its presence. What makes LocalBitcoins spectacular is that it has marked its presence in more than 248 countries and more than 16000 cities. It also includes countries like India, where crypto laws aren’t that congenial for centralized exchanges.
Paxful – This decentralized exchange was founded in 2015, and one of the most distinctive features of this exchange is its intuitive UI – something quite uncommon among P2P exchanges. In addition to incredibly low rates, it also features an affiliate program, enticing people with a good crypto network. Paxful also accepts payments from more than 300 different payment methods.
Blockchain App Factory – The company that has spread its tentacles across every possible avenue in the crypto space has also ventured out into the world of decentralized cryptocurrency exchanges. Their P2P exchange is extremely intuitive, and their white label solutions offer a high degree of customizability.
Remitano – Headquartered in Seychelles, the exchange also marks its presence on the major mobile platforms – the iOS and Android through mobile apps. Needless to say, the exchange accepts multiple payment methods, sports a stunning UI, and offers 24X7 customer support.
Decentralized exchanges present a plethora of advantages that make it a preferred choice for a lot of seasoned crypto enthusiasts.
For the purists who believe that the attributes of decentralization should be cascaded across every possible application of the blockchain, decentralized exchanges present a perfect option. Centralized exchanges tend to compromise on this basic attribute
The absence of any centralized authority ensures that the costs are kept to the bare minimum. It is to be understood that every centralized exchange is, in essence, a company that needs to pay its staff, and the commissions make up a major chunk of what could be their salary in addition to their profit. In a P2P exchange, however, there is no need for any salary payment. There is surely a fee that is collected for blockchain gas and for arbitration, but it is considerably less compared to a centralized exchange.
The entire process of trade is executed using a smart contract, which is nothing more than a piece of software. The absence of human intervention ensures that security is kept to the maximum.
Since the entire entity is decentralized, the possibility of a decentralized exchange running out of business is almost 0! Since there is no government or authority that can take down the exchange, the exchange can be assured perpetual functioning.
Another important advantage presented by a P2P exchange is the assurance of anonymity. Centralized exchanges mandate that their customers should complete the KYC/AML processes, and they are required to follow the regulations meant for financial institutions. This means that the exchange being compromised would lead to the leaking of private data into malicious hands. Decentralized exchanges do not have any such formalities, ensuring privacy and anonymity at the highest possible level.
When the entire blockchain technology is about decentralization, it only makes sense that P2P exchanges keep game foot with every passing day. There might be a few disadvantages in terms of liquidity, but these issues, with the growing popularity, quite likely to get resolved. It will not be long before P2P exchanges become the order of the day in the near future.
Should you be one of those who would like to capitalize on this new wave of crypto business, all you need to do is get in touch with a company that specializes in P2P cryptocurrency exchange development. The company will either consider building you exchange from scratch or even customizing a white label exchange. For a user, all that matters is that they are able to execute an intended trade. At a time when crypto start-ups and businesses are springing all around the world left to right and center, time is of crucial importance. White label solutions save you a lot in terms of both time and money, and it is the most recommended mode of engaging this business.